·
Turk Traktor beat our
expectations in 3Q12 with a strong gross margin despite weak volumes and better
financial income. We have upped our 2012E net profit forecast by 15% to TL259mn
(-7% y/y).
·
We have made a 4%
downward revision to 2013E tractor demand forecasts to 51k units. We still
expect 4% demand growth in 2013E and are more optimistic than the company on
outlook. We expect 5.5% GDP growth in 2013E (vs. 2.8% in 2012E). Also, the 19%
increase in resources allocated to agriculture in the government’s 2013E draft
budget bodes well for farmers’ sentiment, although it may not necessarily imply
direct subsidies for tractor purchases. Our 2013E net profit forecast is 4%
higher than before and now implies a 2% contraction y/y.
·
Turk Traktor announced
that the company obtained a TL90mn investment incentive for the new plant it
intends to build in Adapazari. No further details such as the exact investment
cost or capacity are known yet but an announcement is likely to come soon. We
pencil in an investment budget of TL279mn between 2012-14E in our model.
·
We do not expect the
much anticipated scrap incentive to be introduced before 2014E. If introduced
sooner, it would have a positive impact on Turk Traktor.
·
Due to the decline in
10-year Turkish bond yield, we lower the risk-free rate to 8.5% from 9% in our
DCF. Our new 12-mth share price target for Turk Traktor is TL54.8, 11% higher
than before. With 25% total return potential including a 6% projected dividend
yield, we maintain BUY rating. We assume a 70% dividend payout ratio on 2012
net earnings in 2013E.
·
Key risks to our
recommendation include lower GDP growth, weaker TL, higher interest rates,
lower credit availability, disruption in government subsidies for agriculture
and poor crop lowering farmers’ income. A higher than predicted investment
budget for the new plant would also lower cash flow and valuation. Weaker
demand outside Turkey would hurt Turk Traktor’s exports.
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