Turkey Food Retail: Strong top-line growth helps deliver stable profitability

Strong growth momentum with trade down environment: Turkish food retailers report strong sales growth momentum in 1Q22, supported by high inflation (although basket size growth was below food inflation levels) and positive dynamics on traffic (more pronounced for BIM on trade down environment). EBITDA margin was largely stable, which we expect to continue for the rest of the year, with high cost pressure effect to be mitigated by strong top-line growth and some efficiency gains.

BIM (Buy) – time-tested cost management skills: BIM has shown once again that its skill in managing opex is among the best in the industry, thanks to its time-tested
business model, which is fine-tuned for efficiency. BIM was able to arrest opex costs to sales and deliver a c30bps decline as well, unlike competitors. BIM also has ample headroom in employee costs to absorb any further increase in wages. We like BIM’s cost resilience under the current inflationary environment. Its strong discounter image also places it favourably in terms of from trading down behaviour of consumers.

Migros (Buy) – growing with e-grocery: Migros delivered 73% growth in online sales for 1Q22, despite a high base effect, which highlights the strong structural growth
potential of this channel. Migros is significantly ahead of competitors with e-grocery share at c15% of 1Q22 sales and accounts for incremental sales growth of c10% at the
group level (of the 60% reported for 1Q22). Although this comes with some margin pressure due to rising delivery costs, we think Migros has a strong and well-planned
approach to capitalise on growing e-grocery operations and can be a sustainable addition to space expansion to keep growth comparable vs discounters.

Sok (Buy) – rising bottom-line profitability: Sok maintains its approach of pursing early payments to suppliers (now that the company is in net cash and can afford this), which benefits Sok with better gross margins. This along with strong top-line growth (slightly impacted by a higher base) helped Sok to defend its EBITDA margin at 5.9% on ex-IFRS 16 basis (just 10bps below 1Q21). In our view, Sok offers decent growth and stable profitability outlook for 2022e, which should drive up its net income strongly this year and support a re-rating of PE multiples.



HSBC Global Research