Turkish Automobiles: Still appealing in a world of uncertainties

Seeking supply/demand equilibrium. Our 2022 outlook for the Turkish auto industry is for slight to moderate contraction in domestic demand (-5% for light vehicles, -10% for tractors) but growing export volumes. A worsening of the chip supply and vehicle availability problem in H2 2021 has created some pent-up
demand that should benefit the first part of 2022, in our view.

As we see supply disruption normalising in 2022 and supply-demand equilibrium being reached, we expect margins to soften, also led by cost inflation, weakening affordability and sales mix change (in favour of exports). Price actions and FX rates suggest strong top-line growth for the full year which may help partially cushion the impact of weaker margins on profitability. While achieving real earnings growth this year might be
difficult, but we not expect a pull-back in absolute profits.

Upgrade Doas to Buy, retain Buy on the rest. We like the sector’s near-term earnings momentum, the dividend profiles (from the record high profits of 2021) and think that valuations are not stretched despite the good stock returns throughout 2021. We believe each of the four stocks offers a differentiated story, while we cite common themes as: more attractive valuation and dividend yields for Doas and Turk Traktor (TT) and better volume outlook (market share gains in Turkey and export
recovery) at Ford and Tofas, as well as new model projects and EV exposure as per their new investment cycles.

Our upgrade of the importer Doas is based mainly on its
attractive valuation (the cheapest stock on 22e multiples: 6.1x PE, 3.6x EV/EBITDA) and dividends (the highest 21e dividend yield of 10.3% based on 63% pay-out, DPS of TRY4.55). Despite the major FX volatility during the year and depreciated TRY, Doas managed to keep its retail LV sales flat y-o-y, demonstrating once again the
strong consumer appeal of its vehicle portfolio of VW Group brands. We expect the company to benefit in 2022 from last year’s heavy new model launches, assuming
improved vehicle availability. We believe Doas would have OEM price support (i.e. VW adjusting its producer mark-up according to market needs).


HSBC Global Research