Turkish automobiles: Seeing the half glass full

Better to have a supply problem than a demand problem: As is the case for the global industry, Turkish vehicle makers face supply scarcity for parts and logistics challenges. The industry has seen temporary production stoppages so far in 2021, citing low visibility until the constraints on global semiconductor capacity end. But, the companies see demand as staying at healthy levels with unmet customer orders mostly turning into pent-up demand with some being captured by the used car market.

We raise our 2021e Turkish demand forecast (all segments) to 890k units from 774k, implying y-o-y growth of 12%, and project further growth of 8% in 2022e. The lack of vehicle availability will likely support pricing and margins on available vehicles for sale and should serve as a cushion for weaker volumes than the underlying demand would suggest.

Upgrade Ford Otosan and Turk Traktor to Buy from Hold: Both have underperformed
the Turkish index recently, enhancing their value propositions as we expect their sales
volumes to rise in the remainder of 2021. Ford Otosan’s production and export data for
August are encouraging, and its long-term story remains its e-commerce exposure and clear roadmap to 50% capacity expansion by 2025 with the inclusion of electric vehicles (EVs).

We raise our TP to TRY211.70 from TRY184.20. We see TT as a proxy for healthy demand trends for tractors and expect it to reach its 2021 guidance, suggesting sales will rise in the rest of 2021. We trim our target price to TRY223.30 from TRY234.00.

Retain Buy on Tofas and Hold on Doas: We like Tofas’s improved competitive position
and, hence, profitability in the Turkish market, especially with its Tipo/Egea car family and its longer term outlook for new vehicle projects and better capacity utilisation under the Stellantis umbrella given the low cost production centre with strong R&D capabilities.

We raise our target price to TYR55.40 from TRY44.70. Doas’s 2021 guidance suggests a
notable weakening in its sales volume in the rest of 2021 due to vehicle scarcity. We continue to highlight the strength of its product portfolio, being reinforced by new  launches this year, but it appears relatively more exposed to the ongoing vehicle availability problem. We raise our target price to TRY33.00 from TRY32.65.


Source: HSBC Global Research