Strong demand outlook continues in main markets
After the significant rebound in 2H20, white goods demand continued to stay strong in 2021. In Turkey, white goods market registered an 11% increase in Jan – Aug period, which we expect to remain at 10% by year-end. Arcelik’s competitive pricing further accelerates volume growth propelled by the demand recovery in Europe; and contribution from recent acquisitions would help volumes in 2H. We expect international unit sales to grow 11% in 2021.
Outperformed maintained, New TP TL42.40
We revise our estimates on the back of better 1H performance and higher FX rate assumptions for 2H. Our new estimates point to 50% top-line growth to TL61.1bn, and TL6.7bn EBITDA with 11.0% EBITDA margin for 2021 (vs. 12.4% in 2020). We use a blend of DCF analysis (80% weight) with 16.0% risk free rate and 5% terminal growth, plus international peer comparison (20% weight). Accordingly, our new TP of TL42.40 implies 30% upside potential. ARCLK trades at 7.2x P/E and 5.4x EV/EBITDA based on our 2021 estimates, which correspond to 33% and 46% discount to international peer averages, respectively.
Strategic acquisitions to expand global footprint
Arcelik took two important strategic steps with the acquisitions of Whirlpool plant in Turkey (end of June) and Hitachi operations in Asia (beginning of July). From last year’s low base, we estimate limited increase in leverage as a result of the above, and see net debt/EBITDA reaching 1.9x at year-end (1.0x in 2020-end). After the Hitachi deal, Arcelik would have a bigger footprint in ASEAN region and we estimate share of international operations to reach 84% by the end of 2023 (68% in 2020).
Attractive dividend yield adds to valuation appeal
As a result of strong operational performance, we revise up our net income to TL3.1bn in 2021 (from TL2.1bn) and TL3.5bn in 2022. Based on our assumption of 50% dividend payout, we estimate dividend yield of 7.0% and 8.1% over the next 2 years. On the other hand, the company announced a buyback plan of 67.5m shares (10% of capital) and already bought 27.5m shares from market (corresponding to 4.07% of capital) with weighted average price of TL32.16.
Defensive qualities stand out among BIST-30
Key risk factors for Arcelik are i) production & market reach hurdles due to pandemic, ii) sharp deterioration in global white goods demand, and iii) further sharp increases in raw material prices (steel, plastic). Arcelik’s positive demand outlook, high share of international sales in total revenues, attractive valuation, low leverage, FX hedging, dividend yield and commitment towards share buyback program render the Company a defensive pick in the Turkey context.
Y.F. Securities Research