We maintain our BUY recommendation for Turkey’s largest long steel producer Kardemir (KRDMD). We have increased our 12-month target price from TL1.91 to TL2.00 per share, as a result of upward revision in our estimates, it now denotes an upside of 32%, hence our BUY recommendation. Furthermore, we have adjusted our valuation method; we now use EBITDA Multiple Growth Method besides DCF and International Peers Comparison approaches. We utilized 40%, 30% and 30% respective weights for each method. KRDMD trades at 50% discount and %41 discount to its international emerging peers with respect to our P/E’13e and EV/EBITDA’13e figures. Our peer comparison valuation denotes 44.3% upside for the Company.
The stock outperformed ISE-100 by 16.1% in 2012 and outperformed 17.5% so far in 2013. The reason behind the over-performance was improvement in margins (12 month trailing EBITDA margin came up to c.20% in 9m12 from %7.5 in 2010 and -2.3% in 2009) along with competitive cost advantage and increasing sales volumes of value added products that led to increasing operational profit. Having said that, the sales volumes from rails and profiles (constitute c.16% of KRDMD’s total sales volume) increased at a CAGR of 74% and %30 respectively over 2007-2011. Consequently, we believe contribution of value added products to the product mix will keep the increasing trend in 4q12 and 2013. We expect stronger margins 4q12 compared to 4q11; bringing our full year EBITDA margin to 18.9%. By extension, in 2013 we keep our estimates flat compared to 2012YE to be on the safe side, despite the lucrative expectations on the market along with increasing economic activity in Turkey.