Tofas: Reflecting FX spike in revenues; adding conviction to new model opportunity

We raise our TP for Tofas to TRY108.70 (from TRY50.10) and reiterate our Outperform rating. We reflect the recent sharp EURTRY appreciation in our revenue estimates and the subsequent rerating of Turkish exporters in our target multiples. We see scope for further collaboration with its new foreign parent, Stellantis, and increase the probability of a favourable capacity expansion scenario in our blended valuation to 50%, from 25% previously.

Recent share gains appear well justified by fundamentals: Tofas shares’ 163% increase since Aug’21 implies a ~60 ppt contribution from the appreciation in its operating currency mix (55/45% TRY/EUR). In the meantime;

i) consensus 2022E earnings have gone up by 34%, and we believe they will probably move higher after last week’s EUR:TRY spike, and

ii) the major Turkish industrial exporters have rerated by 16%. A separation of production and marketing could unlock value: Although there has been no articulation by either Tofas or Stellantis in this direction, we think they might consider several options regarding their currently overlapping marketing/distribution assets in Turkey. Based on our assessment of previous industry examples, we do not rule out a scenario where Tofas’ production and marketing arms are separated and the latter is bundled within Stellantis’ own distribution system.

Apparent “cost-plus” export model looks more valuable at times of commodity inflation. Tofas’ PBT per unit of production (EUR) historically correlated positively with the price of commodities, suggesting a “percentage” component in its undisclosed cost-plus formula.

Catalysts: Potential new model production. Upcoming Egea-model variants in 1H22 to
reinforce market share and mix. Sustaining high PBT margins for longer. Enhancing
dividends given the parent Koc’s upcoming cash outflow for its YKBNK stake purchase
plan. Risks include macro visibility in Turkey, EURTRY, supply-side availability.

Valuation: With our revised lira assumptions, we are 19% ahead of 2022 consensus
earnings and looking at a reasonable 11x reported P/E, and 4.3% dividend.


Credit Suisse