ARCELIK - Another 4Q miss: HOLD

In 4Q12, Arcelik’s net profit grew 8% y-y to TRY100m (our estimate: TRY133m, CNBC-e consensus: TRY141m). Unadjusted EBITDA, at TRY242m, (+24% y-y) lagged our TRY268m estimate (consensus: TRY277m). Low tax expense (effective tax rate 2.2%) partially compensated for one-offs reported under “net other expense.”

One-offs contributed to the weakness in 4Q12
Adjusted 2012 EBITDA margin was 9.6% (guidance: 10.5%, our estimate: 10.2%). Arcelik attributes 4Q12 weakness to mix impact in white goods and continuing pressure in electronics from high trade inventory. Arcelik made a TRY15m provision due to the product recall issue, and doubtful A/R provision was high at TRY17m, partly due to Comet’s bankruptcy.

TP cut to TRY11.7, maintain HOLD
We reduce our 12-month TP to TRY11.7 (from TRY12.2) to reflect our lower normalized EBITDA margin assumption of 10.5% (previous: 11.0%) and lower working capital assumption. A key upside risk is inorganic growth, which could create shareholder value. A key downside risk is lower-than-expected normalized EBITDA margin.

Net debt declines q-q, 2013 volume and margin guidance released
The working capital/sales ratio declined 3.3ppt q-q to 34.0%. Net debt fell from TRY2,473m in Sept 2012 to TRY2,263 in Dec 2012. For 2013, Arcelik guides to white goods volume growth of 4-5% y-y for Turkey and 10% y-y for the international markets. The TRY-based revenue growth guidance is a minimum 10% and EBITDA margin guidance is 10.5%. Arcelik launched its Grundig white goods line-up in February. Our 2013E EBITDA margin is lower, at 10% (previously 10.6%), to account for start-up costs. Arcelik reduced its sustainable EBITDA margin guidance to a more realistic 11% (from 11.0-11.5%), but we prefer to be conservative in our estimates (10.5%) until there is some upward momentum in margins.

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