Sabanci Holding | Buy: Focus on energy continues

Energy takes the lead in NAV contribution. We have revisited our fair value for the unlisted generation unit (EnerjiSA Generation - EG) in the light of its solid ongoing profitability, declining leverage, and new capacity additions on the renewables side. Our revised SOTP calculations and NAV model suggest that the highest value contributor is now the energy segment (c36% of current NAV), followed by banking (c28%). We expect continuation of the energy segment’s heavy weight in the NAV in the coming years. EG has a renewable capacity of c1.7TW currently, the nation’s largest, which represents c46% of its total installed capacity. But it has 1TW wind capacity under development, as a result of which its total generation portfolio will rise to 57% by 2026, driven by renewables. Playing in multi-dimensions in energy. New investments and operations in Turkey also comprise expansion of the EV charging network under Esarj (a unit of EnerjiSA; ENJSA TI, CP TRY32.98, Hold) as well as large-scale solar energy solution applications. Outside Turkey, Sabanci directly injected cTRY3bn (cUSD160m) into STC – Sabanci Climate Technologies – a newly established platform in the US to manage Sabanci’s investments into renewable energy and new energy technologies. As an initial step, investments have been made in several start-ups as well as signing of an EPC project for a solar power investment of 272MW in the US. Sabanci expects to complete this project by mid-2024. Share of non-bank profits should rise in 2023. Although we estimate that Sabanci’s non-bank profits more than doubled in 2022, an even stronger surge in bank profits led to a noteworthy change in the consolidated profit mix last year; c70% bank / 30% non-bank, based on our forecasts, from 54/46 in 2021. We expect the mix to improve on the non-bank side in 2023e to 55/45 (bank/non-bank), as banking sector profits face a high 2022 comparison, while we project non-bank profits of 30% in a year continued high inflation in Turkey. Raise target price to TRY55.00 (from TRY30.90); retain Buy. We increase our target price primarily based on increases in the valuations for the listed subsidiaries. Valuing its non-bank portfolio at c6x 2023e earnings (vs 5x 2022e previously) results in no change in our fair value NAV discount of 20%. Our TP implies a current NAV discount of 20% and upside of 41%. We retain our Buy rating. Sabanci trades at 2023e PE of 2.6x, P/B of 0.5x and current NAV discount of 38%.   HSBC Global Research