the ever evolving · recommendation and a tp of tl7.80 for vestel. our 12-month target price is...
TRANSCRIPT
Zorlu Enerji TRSZORN81616
EQUITY
RESEARCH, TURKEY
Initiation of Coverage
Share Price
TL6.37
TL2,137mn
Bloomberg/Reuters:
Rel. Performance: 1 mth 3 mth 12mth
1% 20% 54%
12M Range (TL):
54.8
YTD TL Return: 25%
Beta (2year, w eekly) 1.3
Weight in BIST-100 0.00
335.5
Current 12M ago
13% 13%
Zorlu Holding 77.54%
Free Float 22.46%
Financials and Ratios 2014 2015 2016E 2017E
Net Sales (TLmn) 7,767 9,250 10,375 11,624
YoY 25% 19% 12% 12%
EBITDA (TLmn) 724 880 847 894
YoY 84% 21% -4% 6%
Net Income (TLmn) 97 60 72 97
YoY n.m. -39% 21% 35%
EBITDA margin 9.3% 9.5% 8.2% 7.7%
Net margin 1.3% 0.6% 0.7% 0.8%
P/E (x) 21.9 35.8 29.7 22.0
EV/EBITDA (x) 6.0 4.9 5.1 4.9
EV/Sales (x) 0.6 0.5 0.4 0.4
EPS 0.29 0.18 0.21 0.29
DPS 0.89 1.04 0.78 1.38
Div. Yield - - - -
ROE 7% 4% 4% 6%
Analyst: Irem Okutgen Sales Contact:
+90 (212) 384 1135 +90 (212) 384 1155-58
[email protected] [email protected]
Stock Market Data
EV
Shareholders Structure
Potential Return12M Target Price
TL7.80 22%
The Company in Brief
Mcap
3.51 / 7.24
Shares Outstanding (mn):
Foreign Ow n. in Free Float :
Average Daily Vol (TLmn) 3 mth:
USD738mn TL4,350mn
Vestel, established in 1984, operates in w hite goods, TV and
digital products, being the leader ODM provider for the European
market. Vestel is the second largest TV producer in Europe w ith
10mn units/year of production capacity; one of the largest WGs
manufacturers in Europe w ith 9.4mn units/year of production
capacity. Vestel is among top 3 players in w hite goods and
market leader in TV market in Turkey w ith a domestic netw ork of
1,250 exclusive sales points. Vestel operates in an industrial
complex in Manisa, Turkey.
VESTL.TI / VESTL.IS
The Ever-Evolving
Buoyant stance both in the European TV and white goods markets
as an ODM (Original Design Manufacturer) player; market share
gains underline the resilience at home. We project 20% organic
growth and an 8.2% EBITDA margin by YE16.
We are initiating our coverage for Vestel with an Outperform
recommendation. Our TP of 7.80 indicates a 22% upside. Vestel
currently trades at a 23% discount to its peers’ average 2017E EV/
EBITDA multiple.
Resilient WGs turnover through further market invasion
We project 16.5% revenue growth for Vestel’s WGs in 2016. WGs
market demand was solid with 10% export and 6% domestic volume
growth in 5M16, while Vestel beat the sector figures. The upgrade of
its product mix, targeting the mid to high-end segment, will contribute
to sales both at home and abroad. Moreover, multichannel strategies
and the process of Regal’s, Vestel’s sub-brand, transformation will
allow it to capture a further market share in the domestic market.
European TV demand soared with the low base; set to normalize
Vestel, being the market leader in the domestic TV market, has
strengthened its position through market share gains from global
brands. After a stagnant 2015 due to weak demand, European TV
demand has started to pick up with the Eurocup. Next to the double-
digit export growth in 1H16, we project a slowdown in 2H16 and have
plugged in 7.5% revenue growth in the TV segment in 2016.
2016 and mid-term prospects seem rather positive
While solid WGs turnover is contributing to consolidated revenues in
2016, the high base of the top line due to Vestel’s Fatih Project will
lead to 12.2% yoy growth in 2016. We project 20% organic growth,
excluding the impact of the Fatih project. We expect the EBITDA
margin to normalize at 8.2% in 2016 vs. 9.5% in 2015 backed by the
positive currency impact at the gross level. We expect a 12% and 9%
CAGR in revenues and EBITDA in 2016E-2019E.
Cost dynamics may become relatively tougher, but are still lean
Commodity prices were suppressed throughout 2015, supporting
profitability margins. Raw material prices were at historic lows in both
segments last year. For WGs, we expect a slight pressure on the
margins towards YE16 with a lagged impact. Likewise, the trend
change in cell prices may spur some deterioration in TV margins.
Catalysts: i) The government’s LED street lighting project, estimated
total spending of USD1.5bn, ii) further penetration into the premium
segment in the European WGs market with the Sharp brand and iii)
its smartphone business has the potential to be unleashed in the mid-
term, yet could face challenging market dynamics.
Valuation: We are initiating our coverage with an Outperform
recommendation and a TP of TL7.80 for Vestel. Our 12-month target
price is derived from DCF analysis and a peer comparison.
Risks: Sensitivity to cyclical fluctuations in the domestic market and
Europe and a surge in input costs are the risk factors for Vestel. The
volatility in FX rates poses a risk for the financial outlook due to the
c.70% share of exports in total turnover and FX based cost items.
June 22, 2016
Vestel Elektronik Outperform
Please see the last page of this report for important disclosures.
2
Vestel
June 22, 2016
RESEARCH
SUMMARY FINANCIALS (TLmn)
Income Statement 2014 2015 2016E 2017E 2018E
Net Sales 7,767 9,250 10,375 11,624 13,000
Gross Profit 1,570 1,958 2,052 2,273 2,520
Operating Profit 454 585 515 529 570
EBITDA 724 880 847 894 972
Net Other Income/ Expense -309 -272 -181 -187 -193
Net Financial Income/ Expense -18 -238 -240 -221 -210
Profit (Loss) Before Tax 126 74 95 122 166
Tax -22 -6 -15 -15 -17
Minority Interests 7 9 8 9 9
Net Income 97 60 72 97 140
Ratios
EBIT Margin 5.8% 6.3% 5.0% 4.6% 4.4%
EBITDA Margin 9.3% 9.5% 8.2% 7.7% 7.5%
Net Income Margin 1.3% 0.6% 0.7% 0.8% 1.1%
Sales Growth 25% 19% 12% 12% 12%
EBITDA Growth 84% 21% -4% 6% 9%
Net Income Growth n.m. -39% 21% 35% 44%
Balance Sheet
Current Assets 4,867 6,248 6,575 7,331 8,160
Cash and Cash Equivalents 619 728 755 804 854
Short-Term Trade Receivables 1,932 2,767 2,843 3,185 3,562
Inventories 1,723 2,203 2,394 2,690 3,015
Other Current Assets 593 549 583 653 730
Long Term Assets 2,455 3,088 3,305 3,512 3,747
Total Assets 7,321 9,336 9,880 10,843 11,907
Short Term Liabilities 4,576 5,857 6,142 6,888 7,711
Short-Term Financial Loans 451 741 822 915 1,019
Short-Term Trade Payables 3,720 4,537 4,675 5,252 5,886
Other Short-Term Liabilities 404 580 645 722 806
Long Term Liabilities 1,375 1,905 2,093 2,309 2,550
Long-Term Financial Loans 1,198 1,720 1,908 2,124 2,366
Other Long-Term Liabilities 177 185 185 185 185
Shareholders Equity 1,371 1,574 1,646 1,646 1,646
T. Liabilities & S.holders Equity 7,321 9,336 9,880 10,843 11,907
Cash Flow Summary
EBITDA 724 880 847 894 972
WC Change -146 499 128 61 68
Operating Cash flow 870 381 718 833 904
Capex 396 350 384 442 494
Investing cash flow -396 -350 -384 -442 -494
Dividends paid - - - - -
Change in net debt 382 702 242 261 296 CF from financing activities -206 79 -307 -344 -360
,
Key metrics
Net Debt/EBITDA (x) 1.42 1.97 2.33 2.50 2.61
Net Debt/Equity (x) 0.75 1.10 1.20 1.36 1.54
Capex/Sales (%) 5.1% 3.8% 3.7% 3.8% 3.8%
WC Change/Sales (%) -1.9% 5.4% 1.2% 0.5% 0.5%
ROCE (%) 17% 17% 14% 13% 14%
ROIC (%) 36% 38% 33% 33% 35%
FCF yield (%) 16% -4% 10% 12% 13%
Please see the last page of this report for important disclosures.
3
Vestel
June 22, 2016
RESEARCH
INVESTMENT THEME
European TV demand to normalize; WGs demand to be robust Exports, mainly to Europe, comprise more than half of Vestel’s sales,
while Vestel mainly operates as an ODM provider. TV & electronics sales
constituted 66% of Vestel’s consolidated revenues as of YE15. After a
stagnant 2015 due to a weak market outlook, European TV demand has
started to pick up. Sales of TV sets have sped up with the low base of
2015, supported by the European Championships and the Olympics.
Accordingly, in 1Q16, ODM sales to the vendors in Europe surged and
Vestel posted double-digit export volume growth in TV sales. However,
Vestel’s clients realized their orders at the end of 2015 and most of the
sales were completed by mid-May. Thus, we expect the strong sales to
continue in 2Q16, yet at a slightly weaker pace and to subsequently
normalize in 2H16.
In the white goods segment, we project 16.5% revenue growth in 2016 on
top of the 9% total WGs sales growth in 2015 for Vestel. The Company
has a competitive edge over Chinese ODM producers in Europe through
flexible production capabilities and a proximity advantage. Vestel’s growth
exceeded the market’s both in domestic and export sales in 4M16. The
demand outlook for the WGs sector was solid in its export markets with
9% volume growth in 4M16. However, we saw a drop in April in the
domestic WGs market, bringing the cumulative 4M growth to 7%, which is
still pretty strong. Furthermore, Vestel posted double-digit growth both at
home and abroad.
Regal’s transformation process set to pay off Vestel initiated the reorganization of its Regal brand last year. In the
reorganization of the Regal brand (the group’s second brand after Vestel,
which also has other brands like Finlux, SEG etc. in the domestic market),
there has been a switch to direct dealer sales from distributor sales.
Moreover, Vestel’s small dealers may be converted to Regal dealers in
the coming period.
During the transformation of Regal in 1H15, the Company lost some
market share on the WGs side. However, towards the end of 2015 it
returned to its 2014 market share levels and gained market share in
brands other than Regal. Accordingly, the Company expects to move on
from the volume loss impact of the restructuring and Regal sales are
expected to exhibit a yoy improvement in 2016 with the low base,
contributing to top line growth. Vestel recorded market share gains in the
first four months of 2016 yoy and also compared to YE15.
Please see the last page of this report for important disclosures.
4
Vestel
June 22, 2016
RESEARCH
High base of Fatih project; 2016E: 20% organic revenue growth, 8.2% EBITDA margin
The Fatih smartboard project has a total contract value of TL1bn. While
the contribution of the Fatih project is positive for Vestel’s turnover, it has
a dilutive impact on profitability margins. Deliveries in the project started in
4Q14 and the bulk was completed as of YE15. Thus, we expect a minor
impact on the margin front in 1H16. However, the high base of the top line
is set to lead to 12.2% yoy growth in consolidated revenues in 2016. We
project 20% organic growth in consolidated revenues when we exclude
the impact of the Fatih project.
As for the margins, TL1bn of the project is fixed in TL terms. The
devaluation of the local currency since the project agreement date, delays
in obtaining the required approvals from the authorities and late
collections have led to an increase in the WC requirement through an
increase in the inventory and A/Rs. In addition, the appreciation in the
USD pressured the costs on a TL basis, in turn causing an erosion in
gross profitability and diluting margins in the consumer electronics
segment in 2015. However, the favorable cost outlook and positive
currency impact led to a five-year-high EBITDA margin of 9.5% on a
consolidated basis by YE15. We project the EBITDA margin to normalize
to 8.2% in 2016 through the rising share of low margin consumer
electronics in total revenues and higher average cost assumptions.
Cost dynamics may get relatively tougher, yet are still lean Commodity prices were suppressed throughout 2015, supporting Vestel’s
profitability margins. The sharp decline in raw material prices was behind
the 1pp yoy surge in the gross margin level in 2015 and a further 0.3pp
yoy improvement in 1Q16. The main cost items for white goods are steel
and plastics (plastic prices tend to move in line with oil prices), which were
also in a downward price trend as global demand shrank. Steel prices
were at their lowest levels in February this year, yet started to pick up
slightly in March. Moreover, commodity and oil prices have been in an
upward trend since the beginning of the year. However, Vestel fixed its
steel prices until end-September and its plastic needs until end-June from
the lowest levels in February. As the prices are fixed, with the lagged
impact of cost hikes, we expect slight pressure on the margin outlook,
especially in the last quarter of the year.
On the other hand, the main raw material cost item for the manufacture of
TV sets is open cell prices, which have been falling (decreasing from
around USD90 towards below the USD60 levels for a 32-inch panel)
starting from May 2015. By end-2015, TV open cell prices fell to historic
lows due to the unfavorable market conditions. The reason behind the fall
in open cell prices is demand tightening, the high base from 2014 and
oversupply with the additional capacities.
Please see the last page of this report for important disclosures.
5
Vestel
June 22, 2016
RESEARCH
Excess supply has pressured panel makers to push out panels at lower
prices. In 1Q16, cell prices remained almost flat, while hovering at around
USD50-55 for a 32-inch panel. We have recently seen a slight pick-up in
cell prices. Accordingly, the trend change may add some pressure to the
TV segment’s profitability in 2H16 compared to the previous year.
Sharp license agreement to trigger mid-to-high-end product sales
Vestel had signed a brand licensing agreement with the Asian Sharp
Corporation, which became effective in January 2015, for the
manufacture, sales and marketing of Sharp branded household
appliances to Europe. The aim of the agreement was to make Vestel the
exclusive distributor of Sharp branded products for the European market,
which will increase the Company’s branded WGs sales.
The agreement is set to enhance additional volume growth through the
expansion of the product mix range. Sharp used to only sell refrigerators
and microwaves in Europe, but Vestel added washing machines,
dishwashers and ovens to Sharp’s product categories. Vestel started to
produce Sharp branded white goods products in 2Q15, but the product
range was finalized towards the end of 2015. Thus, the impact on its
financials will become more apparent in 2016. Vestel projects a EUR 100-
150mn contribution to export revenues in the medium term. Since
products manufactured under the Sharp brand will target mid/high-end
consumers, the premium brand will offer a better contribution to margins
than the existing products of its WGs arm.
Vulnerable to fluctuations in FX rates Vestel’s cost base is mostly FX denominated with the Company being
operationally long in EUR and short in USD. However, it hedges its EUR/
USD exposure via forward contracts. At the top line, the strong EUR is
positive for its export revenues. However, on the cost side, in the
manufacture of televisions, the cost is mostly USD based, while for WGs
the cost base is almost equally distributed between USD, EUR and TL.
Vestel hedges the risk in its EUR-based TV sales and hedges the USD
portion of its costs in the WGs segment. Vestel executes active hedging in
the EUR/USD, while 2016 was hedged around the current parity rates.
The Company has thus been hedging the exchange rate risk in its
domestic inventory since 2013, bearing in mind the movement in hard
currencies against the local currency. However, Vestel does not engage in
hedging for export related inventory as sales are recorded in EUR and
USD terms. Therefore, Vestel has a short position in line with its export
related inventory levels. Moreover, Vestel is vulnerable to fluctuations
especially in the EUR and USD below the operating line. The TL’s
appreciation against the USD and EUR is positive for the financial
expense/income line, leading to FX gains/losses mainly attributable to the
foreign currency denominated trade payables.
Please see the last page of this report for important disclosures.
6
Vestel
June 22, 2016
RESEARCH
Smart phones to contribute to turnover in the mid-term Vestel started to produce Venus smart phones in 2013 and introduced
them to the market in September 2014. Moreover, smart phones were
upgraded in 2015 and third series Venus V3 phones were introduced in
November 2015. Vestel targets the mid-class consumer segment in the
smart phone business. The Company produces a specialized Vestel
branded smart phone model for Turkcell.
In the smart phone segment, the Company aims to capture a market
share of around 10% (11mn-12mn phones in the total market) in the
medium term. Turnover from smart phones was negligible on a
consolidated basis in 2015.
Nevertheless, we remain conservative and project TL150mn in
revenues in 2016 via the sale of around 300,000 units. We expect the
market share to remain low in the coming years, but in the mid-long term,
cell-phone operations may capture a further market share and make a
higher contribution to Vestel’s consolidated sales especially via the
government’s incentives for local producers. Accordingly, we expect
Vestel to reach 1mn units by 2020, recording a TL500mn turnover from
the smart phone business.
Enhancement of brand equity to further reinforce its market position Vestel went through a revolution in the last couple of years to improve its
brand perception and to enhance brand value in the domestic market.
Vestel restructured its sales and after sales services in the domestic
market. It took initiatives to apply a multi-channel strategy, introduce new
brands and extend its product offerings through new technologies, while
shifting to mid-high end products.
Vestel established Centralized Services, entered new sales channels,
standardized its dealer outlets, upgraded its stores, eliminated its
underperforming dealers and added new ones to extend its dealer
network. Furthermore, Vestel expanded its sales channels by entering
technology retailers and mass merchandisers (retailers, local department
stores), in addition to exclusive dealers. Currently, 81% of its sales in the
WG segment are conducted through its dealer network (99% in 1Q13),
while this was 53% in the TV segment (91% in 1Q13) as of 1Q16.
Moreover, Vestel implemented a new branding strategy and applied new
campaigns to capture more customers. Vestel also initiated cost reduction
and operational efficiency projects while improving its product designs,
enhancing efficiency in the usage of storage spaces, increased
automation and optimization initiatives.
Please see the last page of this report for important disclosures.
7
Vestel
June 22, 2016
RESEARCH
Accordingly, Vestel became the market leader in the domestic TV market
and captured a further market share in the white goods market. On the
TV front, international players have been at a disadvantage due to the
currency impact. They recorded losses due to the depreciation of the local
currency. As a result they became less aggressive in the market and
ended up losing market share.
We expect Vestel to strengthen its market position in WGs and to ramp-up
profitability in the TV segment in the coming period. The TV segment has
relatively more complex competitive dynamics with fast evolving
technologies. However, the WGs market is more stable compared to
consumer electronics and has higher profitability margins. Thus, the
Company intends to increase its market share especially in the white
goods segment in the near future.
The switch to larger screen TVs and mid-to high-end white goods
products in the last three years has enhanced the product mix. We
expect the improvement in the product mix to positively contribute to
profitability margins offsetting cost pressures. Therefore, we expect a
slight deterioration in Vestel’s EBITDA margin going forward, estimating
an average 7.3% in our forecast horizon despite the competitive
landscape.
Please see the last page of this report for important disclosures.
8
Vestel
June 22, 2016
RESEARCH
Government Tenders: LED lighting project in the offing after the FATIH project Fatih Project - Recognition of more than TL1bn The Fatih project (Movement of Enhancing Opportunities and Improving
Technology) is being carried out by the Ministry of National Education and
Ministry of Transportation, Maritime Affairs and Communications in order
to introduce state-of-the-art computer technology to Turkey’s public
education system. The Fatih project covers 42,000 schools and aims to
provide interactive boards, multifunctional printers and internet
infrastructure to all classes and moreover the delivery of tablet PCs to all
pupils and instructors in pre-school, elementary and secondary education.
Vestel has won three tenders within the scope of the Fatih project. The
first tender was for the procurement of approximately 85,000 interactive
boards with a contract value of TL340mn in 2011. The boards were
delivered at the end of 2012. The second pilot tender was for the
procurement of 49,000 tablet PCs with a contract value of TL18.7mn in
2012 which were delivered in 2013. The third tender was for 347,367
interactive boards with a contract value of approximatelyTL1bn. Deliveries
started in late 2014 and will be completed in 2016.
Moreover, Vestel is among the pre-qualified bidders for the Ministry of
National Education’s pending tablet PC tender (composed of 10.6mn
tablets). The pre-qualification bids for the PC tender were received in
June 2013.
LED lighting project - Estimated to be worth USD1.5bn Another potential catalyst for Vestel is the government’s LED lighting
project. The project is to change the street lights (covering 17K units) from
conventional street lights to LED lights, which is estimated to involve total
spending of USD1.5bn.
Vestel entered the LED lighting business in 2011 with a strategic partner,
U.S. Cree. Vestel became the market leader in the highly fragmented
domestic LED lighting market in 2013, while capturing a 20% market
share. The total domestic LED lighting market is estimated to be
USD150mn. Moreover, Vestel started exporting LED products to Europe
in 2014. Currently, the LED segment constitutes a small portion of
Vestel’s consolidated numbers, yet has a huge growth potential since it is
an underpenetrated business line. The government’s project offers a huge
potential when we consider the 6-7mn units of street lights. For now,
however, there is no clear information regarding the tender specifications
and the timeline for the project.
Please see the last page of this report for important disclosures.
9
Vestel
June 22, 2016
RESEARCH
Risks
Fluctuations in commodity prices, geographical and political instability in
the Company’s operating markets, negative consumer sentiment and
exchange rate exposure pose risks for the Company. Vestel is sensitive to
cyclical fluctuations in the domestic market and Eurozone. Financial
turmoil, leading to some sort of uncertainty in the operating markets, may
trigger a downturn in WGs and consumer electronics demand.
The volatility in FX rates plays a crucial role in the financial outlook due to
the c.70% share of exports in total turnover and FX based cost items.
Vestel’s profitability margins are sensitive to the volatility in raw material
prices (cell prices, steel, plastics). Vestel is mainly exposed to the volatility
in the EUR/USD and also the USD/TL exchange rate on the cost front as
a substantial of portion of raw materials are imported in USD terms. The
Company had a TL287mn short FX position as of 1Q16 after taking into
account off-balance sheet derivative instruments (1Q16: USD760mn long
position, EUR741mn short position). Net Debt/EBITDA was at 2.0x as of
YE15.
Vestel holds related party long-term receivables of TL843mn as of 1Q16;
TL798mn (YE15:TL736mn) of those receivables are from parent
company, Zorlu Holding. The rest is from Z.F.S. Financial Services
Ireland. The annual interest rate of the related party receivable of
approximately USD300mn is at the 5-6% level in USD terms. The parent
company may consider an asset sale in the medium term to repay its debt
to Vestel, yet we do not expect that balance sheet account to change in
the short term. We perceive the ongoing internal transactions as a risk for
Vestel. Therefore, we believe the intra-group transactions could continue
to create overhang on the stock’s performance unless they are
terminated.
Please see the last page of this report for important disclosures.
10
Vestel
June 22, 2016
RESEARCH
VALUATION Our target Mcap for Vestel is based on both DCF valuation and a
comparison of peer group multiples, giving an equal weight to both
methods. Accordingly, our 12-month target Mcap of TL2.62bn indicates a
22% upside potential.
We calculated a target value of TL2,643mn for Vestel based on DCF
analysis, assuming a 5.0% terminal growth rate in our DCF model. We
applied 10% as the risk free rate, while assuming a market risk premium
of 5.5% in calculating the cost of equity. Accordingly, we assume a 14%
WACC for Vestel’s cash flows.
Source: Garanti Securities
Valuation Summary
TLmn Calculated Value Weight in Valuation
Total Value
DCF Analysis 2,643 50% 1,322
Peer Comp. 2,593 50% 1,297
Target Value 2,618
Current Mcap 2,348
12M Target Share Price (TL) 7.80
Current Share Price (TL) 6.37
Upside Potential (TL) 22%
Assumptions and Results (TLmn)
Weight of equity 40% PV of FCF 2,310
Cost of Equity 17% PV of Terminal Value 2,546
Beta 1.3 Implied Firm Value 4,856
Risk free rate 10% Net Cash -2,213
Market Risk Premium 5.5% Target Mcap 2,643
Cost of Debt 12%
Tax rate 20%
WACC 14%
Terminal Value Growth 5%
Please see the last page of this report for important disclosures.
11
Vestel
June 22, 2016
RESEARCH
DCF Analysis
Vestel- Free Cash Flow Projections (TLmn)
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Revenues 10,375 11,624 13,000 14,568 16,296 17,984 19,783 21,681 23,672 25,748
EBIT 515 529 570 640 714 775 867 918 955 1,040
Taxes 103 106 114 128 143 155 173 184 191 208
NOPLAT 412 423 456 512 571 620 693 735 764 832
Depreciation 331 365 402 443 488 529 572 627 685 745
Gross cash flow 743 788 858 955 1,059 1,149 1,265 1,362 1,449 1,576
Change in WCR 128 61 68 84 91 86 99 92 92 109
Capex 384 442 494 535 577 613 649 683 715 744
Free Cash Flow 231 286 296 337 390 450 517 587 642 724
EBITDA 847 894 972 1,083 1,201 1,304 1,439 1,545 1,640 1,784
EBITDA Margin 8.2% 7.7% 7.5% 7.4% 7.4% 7.3% 7.3% 7.1% 6.9% 6.9%
Source: Garanti Securities
Please see the last page of this report for important disclosures.
12
Vestel
June 22, 2016
RESEARCH
Source: Garanti Securities
Peer Group Comparison
Our peer group comparison implies a fair equity value of TL2.6bn for Vestel with an equal weighting
given to valuations derived from the average 2016E-2017E EV/EBITDA and P/E multiples
of international peers.
Company Country MCAP
(US$mn)
EV/EBITDA P/E EV/Sales
2016E 2017E 2016E 2017E 2016E 2017E
Hisense Electric Co CHINA 3,396 11.20 9.98 13.62 12.32 0.68 0.64
Electrolux AB SWEDEN 8,131 6.92 6.44 14.30 12.62 0.58 0.56
SEB SA FRANCE 6,212 10.14 8.00 20.94 16.14 1.17 0.98
De' Longhi SpA ITALY 3,958 11.28 10.17 22.14 19.61 1.70 1.60
LG Electronics Inc SOUTH KOREA 7,814 4.33 4.20 11.48 10.00 0.29 0.28
Toshiba Corp JAPAN 11,070 7.57 6.12 18.97 13.80 0.42 0.41
Skyworth Digital Holdings HONG KONG 1,890 6.69 6.00 7.37 6.70 0.47 0.43
Pioneer Corp JAPAN 696 1.69 1.63 71.22 12.32 0.15 0.14
Gorenje dd SLOVENIA 164 5.58 5.13 40.00 13.33 0.39 0.38
Arcelik AS TURKEY 4,653 9.58 8.67 14.30 13.44 1.04 0.94
Vestel Beyaz Esya TURKEY 633 7.68 6.62 14.37 12.53 0.74 0.66
Average Multiples 7.51 6.63 22.61 12.98 0.69 0.64
Vestel Multiple Valuation (USDmn) 1,330 1,080 540 396 1,605 1,549
Average (USDmn) 836
Please see the last page of this report for important disclosures.
13
Vestel
June 22, 2016
RESEARCH
MAIN ASSUMPTIONS & FORECASTS Volumes & Revenues In 2015, domestic revenues recorded 41.7% yoy growth reaching
TL3.4bn, including a substantial portion of the turnover from the Fatih
project. Meanwhile, organic growth in the domestic market was around
11% in 2015. In the same period, export revenues, constituting 65% of
consolidated revenues in 2015, grew by 10.1% yoy.
Breakdown of export/domestic revenues (%)
Source: Garanti Securities Estimates
Vestel won the tender for the Fatih smart boards project with a total value
of TL1bn in 2014. Deliveries for the of Fatih project started in 4Q14 and
the bulk of the deliveries was completed as of YE15.
The organic growth of the TV & electronics segment was around 10% in
2015 despite the high base of 2014 from the FIFA World Cup. When the
revenue recognition from the Fatih project is included the segment’s
revenues grew by 25.3% in 2015.
In the TV & electronics segment, the Eurocup and Summer Olympics in
2016, are set to boost ODM sales to the vendors in Europe. After a robust
1Q16 with double-digit volume growth in TV sales, a normalization is
projected in second quarter volumes. Vestel’s clients in Europe realized
their orders at the end of 2015 and most of the sales were completed by
mid-May. Thus, with a moderate volume growth projection especially in
2H, we expect single-digit volume growth for the full year.
25%
27%
29%
35%
35%
33%
75%
73%
71%
65%
65%
67%
2012
2013
2014
2015
2016E
2017E
Share of domestic revenues (%) Share of export revenues (%)
Please see the last page of this report for important disclosures.
14
Vestel
June 22, 2016
RESEARCH
The Company saw a drop in its average TV prices in 1Q16 given the
approximately 50% qoq drop in 32-inch open cell prices, the main raw
material. However, the price cuts in the TV segment were much less than
the drop in open cell prices. Although the enhancement in the product mix
(trend towards larger screen, Ultra HD and 4K TVs) leads to an increase
in average prices, the cut in TV prices in 2016 will offset the marginal
contribution of the product mix.
However, in the domestic market due to the appreciation of the USD
against the local currency and mix improvements, average unit prices will
be higher on a yoy basis. Accordingly, we project 3.5% volume and 7.5%
revenue growth in 2016 in the TV and electronics segment.
White goods sales were also robust in 1Q16 thanks to the recovery in
export sales coupled with solid domestic volumes. In the white goods
segment we project 16.5% revenue growth in 2016, subsequent to the
9% growth in 2015.
For the smart phone business we project a TL150mn revenue contribution
in 2016 and remain on the conservative side with 300K units sales. We
expect Vestel to achieve its 1mn units target by 2020E.
Accordingly, consolidated revenues are expected to be up by 12% in
2016, following the 19% growth in 2015. We project an average 11%
revenue CAGR in our projection horizon of 2016E-2025E.
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
TV & Electronics 3,712 4,895 6,135 6,595 7,235 7,936 8,706 9,507
Growth (%) -17.6% 31.9% 25.3% 7.5% 9.7% 9.7% 9.7% 9.2%
White Goods 2,488 2,864 3,115 3,630 4,189 4,813 5,511 6,289
Growth (%) 2.3% 15.1% 8.8% 16.5% 15.4% 14.9% 14.5% 14.1%
Smart Phones 100 150 200 250 350 500
Total 6,218 7,767 9,250 10,375 11,624 13,000 14,568 16,296
Growth (%) -12% 25% 19% 12% 12% 12% 12% 12%
Breakdown of Revenues (TLmn)
Source: Garanti Securities Estimates
Please see the last page of this report for important disclosures.
15
Vestel
June 22, 2016
RESEARCH
Cost Structure On the white goods front, raw materials constitute 86% of COGS and the
main raw material items are steel and plastics. The Company hedges its
raw materials in order to manage the volatility in its price outlook
throughout the year.
In 2016, steel prices are hedged until the end of the third quarter. Thus,
the upward trend will be reflected in the last quarter. However, plastic
prices are hedged for a short-term horizon (fixed for a quarter) and
accordingly hedged until the end of June.
Depending on the market expectations, the Company also hedges other
raw materials (compressors, motors, copper and aluminum purchases) in
the white goods segment, which leads to a relatively more stable
profitability outlook.
In the white goods segment, 55% of the procurement is made from the
domestic market, 23% is imported from Europe and the rest 23% is
imported from other countries. In domestic purchases, there are some FX
linked procurements, which cause the costs to be almost equally divided
between TRY, EUR and USD.
Plastic Parts, 15%
Electronics Parts, 4%
Raw Material Metal Sheet,
10%
Raw Material Plastic, 11%
Motors, 8%Compressors, 7%
Metal Parts, 7%
Polyurethane, 4%
Glass/Concrete/Paper, 4%
Cable, 3%
Casted Iron, 2%
Styrofoam parts, 2%
Rubber parts, 2%
Other, 21%
Material , 86%
Labour, 7%
Overheads, 5%
Dep.& Amortisation,
3%
Source: The Company
White Goods — Breakdown of COGS (YE15)
Please see the last page of this report for important disclosures.
16
Vestel
June 22, 2016
RESEARCH
On the electronics front, raw materials constitutes 92% of COGS, while
open cell is the main raw material item, with a 53% share in total.
A mere 7% of the procurement is acquired from the domestic market and
the rest is almost equally imported from European and non-Europe
countries. However, more than 90% of the cost is USD-denominated,
while 8% is TRY-based and 2% is EUR-based. This increases the
Company’s sensitivity to fluctuations in the EUR/USD and USD/TL rates.
On the TV & electronics side, both end-product and raw material prices
(open cell prices) are highly volatile. Vestel does not apply a hedging
strategy in the TV segment as suppliers of Vestel do not enter into long-
term contracts due to the sector dynamics. However, since Vestel is an
important client for panel producers, the Company receives rebates from
the suppliers when the panel prices go down.
Although open cell prices have been flat since the beginning of the year,
cell prices are expected to rise in the coming period due to tightening
supply. The expected hike is set to create pressure on margins especially
in the second half of the year.
Cells, 53%
IC/Integrated, 7%
TFT Display Panel, 4%
Raw Material-Plast/Straf,
3%
Led Bar, 2%
Metal Parts, 3%
Coated Film Sheets, 2%
T-Con Board, 2%
Others, 24%
Material , 92%
Labour, 4%
Overheads, 3%
Dep.& Amortisation,
1%
Electronics — Breakdown of COGS (YE15)
Source: The Company
Please see the last page of this report for important disclosures.
17
Vestel
June 22, 2016
RESEARCH
Profit Margins
Vestel’s gross margin surged by 2.8pp in 2014 and 1pp in 2015 on the
back of the favorable raw material outlook, product mix enhancement,
continued cost cutting measures, positive currency impact and hedging
gains. TV & electronics and white goods segments’ gross margins surged
last year by 1pp and 1.1pp, respectively. However, we project the gross
profitability of both segments to normalize in 2016, but to remain above
the last four years averages.
We estimate an 18.7% gross margin for the TV & electronics segment in
2016 and a 22.5% gross margin for the white goods segment. The
consolidated gross margin will be 19.8%, according to our projections. We
project an average 19% consolidated gross margin in our projection
horizon, marking an increase of 0.5pp in the long run.
Gross Margin (%) - TV& Electronics / White Goods
Source: Garanti Securities Estimates
12.3%
17.7%
19.3% 20.3%18.7% 18.8%
11.6%
17.2%
21.9%22.9% 22.5% 21.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2012 2013 2014 2015 2016E 2017E
TV & Electronics Devices White Goods
2013 2014 2015 2016E 2017E 2018E 2019E 2020E
COGS
TV & Electronics 3,055 3,950 4,892 5,362 5,875 6,441 7,060 7,703
White Goods 2,058 2,236 2,400 2,812 3,276 3,788 4,332 4,949
Total 5,133 6,197 7,292 8,324 9,351 10,479 11,742 13,136
Gross Profit
TV & Electronics 657 944 1,243 1,233 1,360 1,495 1,646 1,804
White Goods 429 628 715 818 913 1,025 1,179 1,340
Total 1,084 1,570 1,958 2,052 2,273 2,520 2,826 3,159
Gross Margin
TV & Electronics 17.7% 19.3% 20.3% 18.7% 18.8% 18.8% 18.9% 19.0%
White Goods 17.2% 21.9% 22.9% 22.5% 21.8% 21.3% 21.4% 21.3%
Total 17.4% 20.2% 21.2% 19.8% 19.6% 19.4% 19.4% 19.4%
Source: Garanti Securities Estimates
Please see the last page of this report for important disclosures.
18
Vestel
June 22, 2016
RESEARCH
The Company recorded a 21% CAGR in its EBITDA in the last five years,
propelling its EBITDA margin up to 9.5% by YE15 backed with cost cutting
initiatives, active hedging strategies, improvement in the product/price
mix, reduction in raw material cost and enhanced market dynamics.
However, we project the EBITDA margin to normalize at 8.2% in 2016
(11.0% in 1Q16, flat yoy) given the expected increase in raw material
costs.
EBITDA (TLmn) & EBITDA margin(%)
Source: Garanti Securities Estimates
The majority of the Company’s costs are in hard currency. Thus, the
combination of a weak TL and EUR with a strong USD is negative for the
Company’s operating performance. We project an average EBITDA
margin of 7.4% over our forecast horizon, considering the dilutive impact
of the prospective government tenders and low-margin mobile phone
operations.
Capital Expenditures The Company realized TL350mn in capex in 2015, leading to a 3.8%
capex/sales ratio. R&D costs constituted 32% of the capex, machinery
and equipment was 24%, mold was 22% and stores and dealership
network constituted 11% of the capex last year. We forecast capex
spending of TL391mn in 2016 and TL449mn in 2017, corresponding to a
capex/sales ratio of 3.7% in 2016 and 3.8% in 2017. We project an
average capex/sales ratio of 3.5% throughout our forecast horizon,
decreasing from 3.9% to 2.9% in the long run.
1.6%
6.3%
9.3% 9.5%8.2%
7.7% 7.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016E 2017E 2018E
EBITDA EBITDA margin
Please see the last page of this report for important disclosures.
19
Vestel
June 22, 2016
RESEARCH
Working Capital
Vestel recorded a negative cash conversion cycle of eight days and WCR
to sales ratio of 4.7% in 2015 and we project the WCR/sales ratio to stand
at around 5.3% over our forecast horizon. Receivable days increased by
around 18 days last year due to the delay in receivables from the
government regarding the Fatih project. We expect the receivables
turnover to improve by nine days this year on the back of the negligible
impact of the Fatih project.
Working Capital (WC) - Cash Conversion Cycle (days)
Source: Garanti Securities Estimates
Accordingly, we project an average payables turnover of 205 days, while
our model assumes that the Company has a receivable turnover of 100
days and an inventory turnover of 105 days over our forecast horizon.
0
50
100
150
200
250
2012 2013 2014 2015 2016E 2017E
Inventory Days Receivable Days Payable Days
Please see the last page of this report for important disclosures.
20
Vestel
June 22, 2016
RESEARCH
THE COMPANY
Vestel, established in 1984 and acquired by Zorlu Holding in 1994,
operates in the white goods, consumer electronics and digital products
segments. The Vestel Group of companies comprises 23 firms (17 based
abroad). Vestel operates with nearly 16,000 employees, 1,250 dealers at
home and 2,750 outlets & sales points abroad, while exporting to 152
countries and operating foreign trade companies in ten countries in
Europe. In line with its multiple channel strategy, Vestel also reaches
consumers through technology retailers, hypermarkets, household stores
and e-commerce web sites. Zorlu Holding, its parent company, owns 78%
of Vestel and the remaining 22% of the shares are free float. Vestel
Elektronik has been trading in the BIST since 1990.
Shareholder Structure
Source: The Company
Vestel is a competitive manufacturer in the domestic consumer electronics
and WGs market and also has a critical role in the export markets. The
Company is one of Europe’s top three manufacturers in the European
LCD TV market and one of the top 10 manufacturers in white goods. In
the domestic market, Vestel is the leader in the TV market and one of the
top three players in the white goods market.
Vestel operates in an industrial complex (Vestel City) under a single roof
with 1.1mn sqm in total space and 600K in enclosed space in Manisa,
Turkey. Vestel City, opened in 2003, is one of Europe’s largest industrial
complexes in a single location.
Its TV plant is 246K sqm, its white goods plant is 313K sqm and digital
products plant is 39K sqm. In its TV and digital products plant, Vestel
produces TVs, set top boxes, professional displays, smart phones, smart
boards and LED lighting products. In its white goods plants, it produces
refrigerators, washing machines, cooking appliances, dishwashers, A/Cs
and water heaters.
Zorlu Holding, 77.54%
Free Float, 22.46%
Please see the last page of this report for important disclosures.
21
Vestel
June 22, 2016
RESEARCH
In Turkey the total production capacity is 23.4mn units/year, while TV
capacity is 10mn units. WGs are at 9.4mn units and digital products are at
4mn units. Vestel’s capacity utilization rate was 80% for the TV segment
and 68% for the white goods segment in 2015.
Vestel mainly operates as an ODM in the European market, but sells
products with its own brands in the domestic market. The Company
realizes both ODM and branded product sales in Russia, the CIS
countries, the Middle East and North Africa.
Vestel applies a multi-brand and multi-channel strategy both at home and
in its global operation network. It also applies a strategy to enhance
collaboration with global trademarks in its export markets. Vestel realizes
sales to A-brand business partners, distributors, wholesalers and retail
chains within the scope of ODM services. Moreover, the Company also
makes branded sales through the regional brands it has acquired and
global brands licensed.
Vestel acquired the trademarks of a variety of European brands (Finlux,
Luxor, Vestfost, Graetz, Telefunken, Electra, Servis, New Pol, Atlantic,
Dikom, @Dikom). The Company owns the aforementioned brands while it
holds licenses for the Telefunken, Hitachi, JVC and Sharp brands.
Vestel acquired the rights to the Finlux and Luxor brands in Scandinavia
and Northern Europe and started manufacturing and exporting those
brands in 2006. In 2008, it added Vestfost, a white goods brand in Europe
and Russia, to its trademark portfolio. It also acquired the German Graetz
brand and added it to its portfolio. Moreover, it acquired Electra, Servis,
New Pol and Atlantic white goods brands in 2011 and Dikom and
@Dikomin in 2013.
R&D and Design Facilities
Vestel is one of the pioneer companies in Turkey creating new
technologies and innovative products. R&D facilities are located in
Manisa, Istanbul, the UK and China. R&D facilities develop hardware and
software solutions with an R&D team consisting of around 1,200
employees, most of whom are engineers.
Please see the last page of this report for important disclosures.
22
Vestel
June 22, 2016
RESEARCH
Vestel, which won 48 awards in 2015, was listed among the top three
Turkish companies and among 1,000 global companies in R&D spending.
Vestel’s main focus areas are higher resolution, larger screen and new
generation TVs and STBs in TV electronics. In the WGs segment, the
concentration areas of R&D department are energy efficiency, smart
home systems and user and environmentally friendly products.
Vestel allocates around 2% of its revenues to Research & Development
investments per annum. Vestel Elektronik had more than 82 registered
patented inventions, while Vestel Beyaz had more than 128 registered
patents as of YE15.
Vestel: Strategies to strengthen brand value
Vestel has taken initiatives in the last couple of years to improve its brand
perception and to strengthen its position in the domestic market.
Accordingly, Vestel undertook the restructuring of its sales and after sales
services.
The Company increased its sales towards mid-high end products, in line
with its profitable growth strategy, while reducing its exposure to lower
margin product lines. Along with this shift, Vestel improved its product/
price mix both at home and abroad.
Vestel extended its dealer network, adding 300 new dealers since 2012
while eliminating underperforming dealers. Vestel initiated a store upgrade
program by converting its stores to uniform visual and service standards.
The majority of the conversion was completed in 2014-2015. The
Company expects to enhance its store image, brand recognition and
customer shopping experience.
The Company established Central Services in Turkey’s 13 large cities.
Central Services address problems which cannot be solved by authorized
service centers, provide training to authorized service centers, carry store
spare parts inventory and audit the service quality of authorized service
centers.
Vestel expanded its sales channels by entering technology retailers and
mass merchandisers, retailers and local department stores), in addition to
exclusive dealers starting from 2H13. The Company entered the Media
Markt electronics retail chain in 2H13.
Vestel launched the first locally designed and manufactured tablet PCs
and induction ovens in 2013 followed by the Vestel Venus smartphones in
2014. Vestel lauched the Finlux brand in the domestic market in 2013 to
tap different market segments and expand its customer base.
Please see the last page of this report for important disclosures.
23
Vestel
June 22, 2016
RESEARCH
Vestel implemented a new branding strategy and applied new marketing
campaigns to improve its brand image in line with the changing sector
dynamics. “Turkey is Vestelized” is the new slogan, emphasizing
homegrown production, technologies and competitive product features.
Vestel also initiated cost reduction and operational efficiency projects,
while improving its product designs, enhancing efficiency in the usage
of storage spaces and has introduced increased automation and
optimization initiatives.
Sharp Brand Licensing Agreement
In line with its strategy of enhancing collaboration with global trademarks, Vestel signed a brand licensing agreement with Sharp in order to take over the rights to develop, manufacture, sell and market white goods products under the Sharp brand in Europe in September 2014. Vestel also became the exclusive distributor of Sharp branded products in Europe, which are manufactured for the European market at Sharp’s facilities in Asia. Vestel aims to expand its product range and to enhance the brand awareness of Sharp in Europe since Sharp had limited offerings (refrigerators, microwaves) in the region. Vestel will move into the premium segment with the well-known Sharp brand and expand its branded mid-to-high end product sales in Europe. The agreement became effective in January 2015 and will be valid for five years. The production of Sharp branded washing machines, dishwashers, refrigerator and ovens started in 2015.
Venus Smart Phones
Vestel began designing and producing smart phones in 2013, targeting the domestic market initially and exports in the medium term. The highly competitive mobile phone market is approximately at 1.4bn units globally, with 11-12mn units in the domestic market. Vestel’s entrance into the smart phone business supports the integration of the Company’s product range to transform to the smart home concept. The Company targets smart phones to become a main business line in the long term. Vestel smart phones (Venus X, Venus V) were first launched in September 2014, using the Android 5.1 Kitkat operating systems. The phones were upgraded in April 2015 and the third series was introduced as Venus V3 (Venus V3 5570, Venus V3 5070, Venus V3 5040) in November 2015. The Company targets to reinforce its position in the smart phone market through the new Venus models, which were introduced last year and also with the new models planned to be launched in 2016.
Please see the last page of this report for important disclosures.
24
Vestel
June 22, 2016
RESEARCH
Vestel LED Lighting
Vestel entered the LED lighthing business in 2011 with the strategic
parternship of U.S. Cree. Accordingly, Vestel became the market leader in
two years and captured a 20% market share in the highly fragmented LED
lighting market. The Company started to export its products to the
European market in 2014. Vestel’s LED business has a wide scope and
potential to grow since the market is highly underpenetrated. Declining
prices and increasing consumer awareness regarding energy
consumption will pave the way for further market penetration.
Vestel’s LED lighting product group and LED panel product group, street
lighting, industrial lighting and architectural lighting fixtures are in line with
Vestel’s product range strategy. Vestel became a member of the Lighting
Industry Association (LIA) and also participated in the DIALux program,
having the opportunity to reach lighting planners and designers worldwide.
Please see the last page of this report for important disclosures.
25
Vestel
June 22, 2016
RESEARCH
Vestel Group Structure
In the Vestel Group structure, Zorlu Holding owns 77.54% of Vestel
Elektronik, while 22.46% is free float. Vestel Elektronik owns 94.62% of
Vestel Beyaz Esya and 5.38% is free float. Vestel CIS and Vestel Ticaret
are 100% subsidiaries of Vestel Elektronik. Vestel Ticaret owns foreign
trade subsidiaries in international markets.
Source: The Company
Vestel Beyaz Esya, a subsidiary of Vestel Elektronik, has been trading on
the Borsa Istanbul since 2006 under the VESBE ticker and with a market
capitalization of USD680mn as of today.
Vestel Beyaz Esya, established in 1997, is a pioneer WGs manufacturer in
Turkey and Europe with a stable growth momentum. The Company is
among the top ten WGs manufacturers in Europe and also an ODM
business partner for A-brand producers and distributors, wholesalers and
retailers. In the domestic market, Vestel Beyaz Esya is among the top
three players.
Vestel Beyaz Esya manufactures refrigerators, washing machines,
cookers, dishwashers, air-conditioners and water heaters with a
production capacity of 9.4mn units in Vestel City. 55% of its sales are to
European countries, 23% are to Turkey and the remaining 22% is directed
to other export countries as of YE15. Around 30% of Turkey’s total white
goods exports are realized by Vestel Beyaz Esya. Other than its European
focus, Vestel sells its products to Russia, the CIS countries and the MENA
region. Vestel Group’s international growth strategy is to penetrate Sub
Saharan Africa, Asia and South America.
Zorlu Holding
Vestel Elektronik(77.54%)
Vestel Beyaz Esya (94.62%)
Free Float(22.46%)
Free Float(5.38%)
Other Subsidiaries
Vestel Ticaret
(100%)
Vestel CIS Ltd.(100%)
Please see the last page of this report for important disclosures.
26
Vestel
June 22, 2016
RESEARCH
ZORLU HOLDING
Zorlu Holding, established in 1953 by Haci Mehmet Zorlu in Babadag,
Denizli, is one of Turkey’s leading industrial conglomerates. The Holding
is engaged in diversified industries with more than 60 companies and
above 26,000 employees. Zorlu Group operates in the home textile,
consumer durables, consumer electronics, energy, real estate, factoring
and mining businesses.
Home Textile - Korteks & Zorluteks
The Zorlu textile group is the largest fully-integrated polyster yarn
producer in Europe and the Middle East. Being a leading name in home
textiles with TAC, Linens and Valeron brands, the Company is Europe’s
largest home textiles manufacturer. The Company’s total assets are
USD1bn with a USD790mn turnover as of YE14.
Consumer Durables and Electronics - Vestel
Vestel is the leading ODM provider of TVs, white goods and digital
products for the European market. The Company is the second largest
player and has around a 20% market share in the European TV market.
The Company’s total assets amount to USD3.4bn with a USD3.2bn
turnover as of YE15.
Energy - Zorlu Enerji
Zorlu Enerji is one of the leading IPPs in Turkey with a 619 MW installed
capacity. The Company constitutes approximately 2% of the total
electricity generation by private producers in Turkey. It has a 56.4MW
wind farm in Pakistan, a 25% stake in a 840 MW CCGT power plant and a
42% stake in the 65 MW and 126 MW NGPPs in Israel.
Real Estate - Zorlu Property Development and Investment
The Company was established in 2006 to develop, sell, lease and operate
high quality residential and office projects, business centers, shopping
malls, hospitals, hotels and complex real estate projects in Turkey and
abroad. Zorlu Center is the first mixed-use real estate project in the
domestic market with five different functions since YE13. Also, the Zorlu
Levent 199, office building, was completed in 2014. The total investment
for the completed projects was USD2.8bn.
Mining - Meta Nickel Cobalt Mining
The Company specializes in developing lateritic nickel-cobalt resources,
targeting to be a major regional supplier of nickel. It has three nickel-
cobalt laterite projects in Western Turkey, in Gordes, Eskisehir (300K tons
of proven reserves) and the HPAL plant with a 10,000t/year capacity with
a USD400mn investment) in Usak.
Please see the last page of this report for important disclosures.
27
Vestel
June 22, 2016
RESEARCH
APPENDIX Vestel Elektronik: 1Q16 Financial Results
Vestel Elektronik posted TL108mn in net income in 1Q16, recording
24% yoy growth in revenues thanks to solid growth both in its
domestic and international sales and the positive currency impact on
its export revenues.
The TV & electronics segment was up by 23% yoy in the quarter
driven by its increasing market share in the domestic market before
the Eurocup surge in export orders and the positive FX impact.
The white goods segment was up 27% yoy on the back of strong
volumes both at home and in its international markets coupled with the
EUR appreciation.
Vestel Elektronik’s gross margin was up by 0.3pp yoy to 22.1% thanks
to weak raw material prices and higher volumes despite the minimum
wage increase. Accordingly, its EBITDA margin was flat yoy at 11% in
the quarter.
Below the operating line, Vestel recorded TL58mn in net FX gains in
the first quarter. wWth the adjustments for hedging transactions the
net FX gain was TL5mn.
Vestel Summary Financials Change
(TLmn) 1Q15 2Q15 3Q15 4Q15 1Q16 1Q16/1Q15 1Q16/4Q15
Net Sales 1,808 1,930 2,509 3,004 2,248 24% -25%
Gross Profit 395 470 538 555 498 26% -10%
Operating Profit 126 131 189 138 169 34% 22%
EBITDA 198 208 266 208 246 24% 18%
Net Other Income/Expense -159 11 -160 35 82 n.m. 132%
Financial Inc./ Exp. (net) -43 -106 -93 3 -133 211% n.m.
Tax 2 9 16 -32 -6 n.m. -80%
Net Income -74 42 -49 141 108 n.m. -24%
Net Cash/ (Debt) -1,693 -1,888 -1,788 -1,733 -2,213 Working Capital -30 -355 -421 -434 -990 Shareholders Equity 1,328 1,315 1,275 1,574 1,662 Ratios Gross Margin 21.9% 24.3% 21.4% 18.5% 22.1% 0.3 pp 3.7 pp
Operating Margin 7.0% 6.8% 7.5% 4.6% 7.5% 0.6 pp 2.9 pp
EBITDA Margin 11.0% 10.8% 10.6% 6.9% 11.0% 0 pp 4 pp
Net Profit Margin n.m. 2.2% n.m. 4.7% 4.8% n.m. 0.1 pp
Please see the last page of this report for important disclosures.
28
Vestel
June 22, 2016
RESEARCH
Vestel Beyaz Esya: 1Q16 Financial Results
Vestel Beyaz Esya posted TL65mn in net income in 1Q16 given its
strong operational performance outlook. Inventory build-up ahead of
the strong season with a resilient consumer demand expectation
supported the first quarter performance. Vestel Beyaz Esya beat the
market growth thanks to the new campaigns launched in February.
Vestel Beyaz Esya recorded 29% revenue growth on the back of
robust growth both in its domestic operations and also abroad with the
positive impact of the appreciation of the EUR against the local
currency. The recovery in the European market and the contribution
from the new ODM projects supported the top line growth in
international markets.
Vestel Beyaz Esya’s gross margin was up by 1pp in the quarter to the
13.7% level thanks to the favorable raw material prices and higher
volumes despite lower gains from parity hedges.
Accordingly, the EBITDA margin was up by 0.4pp yoy to 12.8% thanks
to the surge in the gross profitability level despite the rising labor costs
with the minimum wage impact.
Change Vestel Beyaz Esya Summary Financials
(mn TL) 1Q15 2Q15 3Q15 4Q15 1Q16 1Q16/1Q15 1Q16/4Q15
Net Sales 477 621 700 726 617 29% -15%
Gross Profit 61 106 99 107 85 40% -20%
Operating Profit 37 77 72 74 57 53% -23%
EBITDA 59 99 94 93 79 33% -16%
Net Other Income/Expense -23 21 21 -14 13 n.m. n.m.
Financial Inc./ Exp. (net) -15 -35 -58 19 -4 -71% n.m.
Tax 2 -8 -2 -5 -1 n.m. -119%
Net Income 1 55 34 74 65 n.m. -12%
Net Cash /(Debt) -112 -76 -77 28 -162 Working Capital -340 -420 -382 -355 -411 Shareholders Equity 674 591 628 714 773 Ratios Gross Margin 12.7% 17.1% 14.1% 14.7% 13.7% 1 pp -0.9 pp
Operating Margin 7.8% 12.3% 10.4% 10.2% 9.2% 1.4 pp -1 pp
EBITDA Margin 12.4% 15.9% 13.4% 12.9% 12.8% 0.4 pp -0.1 pp
Net Profit Margin 0.1% 8.8% 4.9% 10.2% 10.6% 10.5 pp 0.3 pp
Please see the last page of this report for important disclosures.
29
Vestel
June 22, 2016
RESEARCH
White Goods Monthly Data - May 2016
Domestic demand for white goods were up by 3.0% yoy to 641,000 units
in May with exports up 15.3% yoy to 1,572,000 units. In 5M16, domestic
sales grew by 5.8%, while exports were up by 10.0%.
Source: BESD (White Goods Manufacturers Association), Garanti Securities
Following the robust 11% growth in white goods demand in 1Q16, sales
growth slowed to 6% in the first five months with the high base from last
year (April, May 2015: 28%, 7% respective yoy growth). We project WGs
sales volume growth of 4% in 2016.
Export growth was pretty strong at 15% in May, beating estimates,
following the 9% growth in April thanks to strong demand in the European
market. We expect the growth to revert back to the high single digits in the
coming period. Accordingly, we project 5% growth in FY16.
In May, production growth was in the double digits due to the inventory
build up. Arcelik, holding approximately a 50% market share in the
domestic market, will halt production for three weeks in July. Thus, the
WGs production in the factories has been pulled forward to May and
June.
Production was up by 5.7% mom and 13.6% yoy in May to 2.3mn units.
Domestic demand increased by 6.8% mom and 3.0% yoy in May on the
back of the 69% yoy surge in demand for freezers.
Exports were down by 3.7% mom, but up by 15.3% yoy in May at 1.57mn
units. The yoy increase was mostly driven by the 23% increase in the
export of ovens, 18% increase in exports of dishwashers and 14%
increase in exports of refrigerators.
(000 units) Production Domestic Sales Exports
5M15 9,549 2,625 6,743
5M16 10,382 2,778 7,419
Change 8.7% 5.8% 10.0%
May'15 2,020 622 1,364
Apr'16 2,170 600 1,517
May'16 2,294 641 1,572
YoY Change 13.6% 3.0% 15.3%
MoM Change 5.7% 6.8% 3.7%
Please see the last page of this report for important disclosures.
30
Vestel
June 22, 2016
RESEARCH
500
1,000
1,500
2,000
2,500
3,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
White Goods Production ('000 units)
2011 2012 2013 2014 2015 2016
500
800
1,100
1,400
1,700
2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
White Goods Export Sales Volumes ('000 units)
2011 2012 2013 2014 2015 2016
100
300
500
700
900
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
White Goods Domestic Sales Volumes ('000 units)
2011 2012 2013 2014 2015 2016
10
40
70
100
130
160
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
White Goods Import Sales Volume ('000 units)
2011 2012 2013 2014 2015 2016
Source: BESD (White Goods Manufacturers Association), Garanti Securities
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Breakdown of White Goods Products ('000 units)
Freezer
Dryer
Oven
Dish Machine
Washing Machine
Refrigerator
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Breakdown of White Goods Products (%)
Freezer
Dryer
Oven
Dish Machine
Washing Machine
Refrigerator
Source: BESD (White Goods Manufacturers Association), Garanti Securities
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RESEARCH