Turkish automobiles: Mostly a domestic story in 2023

2023 more about domestic than exports, and more about pricing than volumes.
A strong December led FY22 to end on a positive note; the Turkish vehicle market
grew by 7% y-o-y reaching 827k units. We pencil in further 6% growth for 2023 (878k
units) given further pent-up demand from last year and some improvement in vehicle
availability. It continues to be a “seller’s market” and coupled with strong pricing, we
expect domestic operations to remain highly profitable in 2023, at least in the first
half, until general elections in Turkey (possibly in May or June). Post-election trends
will depend on the course of interest and FX rates, and consumer sentiment.

Prefer domestic exposure vs exports. Exports face, in our view, a weaker demand
outlook in Europe in 2023 and pressure from a stable TRY in recent months (if
prolonged). TRY stability rather raises uncertainty regarding price-competitiveness of
Turkey products sold in Europe and optionality for European consumers (more
alternatives for car buyers than commercial vehicle customers in our view). All in all,
at the outset of 2023, we prefer players with strong domestic exposure

Revise up TPs; downgrade FROTO and TTRAK to Hold, retain Buy on DOAS
and TOASO. We see importer Doas and leading LV player in Turkey, Tofas, as
better positioned than others in terms of profiting from strong domestic market trends
at present. Doas should additionally see stronger profit contribution from its vehicle
inspection unit. Tofas faces weaker export volumes due to discontinuation of its
Doblo model exports but could profit from allocating more volumes to domestic sales.
2023 is a transition year for Ford Otosan for new products both at Romania and
Turkey, with likely margin dilution and negative FCF due to substantial investments.
The tractor market is still supported by attractive financing by key lender Ziraat Bank
and Turk Traktor may recover part of its lost market share in 2022 due to revisions to
emissions regulations. Still, our downgrade stands on the back of relative valuation
despite strong dividends. We see Doas as the most attractive on 2022e dividends as
well as valuation multiples.



HSBC Global Research