PARSAN MAKINA Report

Initiation of Coverage

Recommendation: BUY

Deep in value

·    Providing exposure to the automotive sector… Parsan is a forging and machining company with sizeable exports (60%), providing products for various sectors mainly automotive (70%). Parsan has modern flexible manufacturing equipment and significant know-how and hence superior quality, which are the main reasons behind good and long lasting relations with the clients and its higher margins.

·    Initiating with a BUY rating and an upside potential of 79%... Our conservative valuation for Parsan offers a huge upside for the stock. There is room for margin improvement for the company and the DCF analysis yields much higher values for the stock. Adjusting for the Asil Celik (using our valuation at 6.0x 2011 EV/EBITDA), Parsan trades at an adj. EV/EBITDA of 2.5x. Considering the expectation of Asil Celik doubling its capacity, forward looking multiples should be much lower.


·     22.25% stake in Turkey’s biggest quality steel producer Asil Celik <ASCEL TI>… Asil Celik is the largest quality steel producer in Turkey with 410kt steel capacity, which is planned to rise to 1mt in the coming 3 years (with EUR200mn investment). Using Asil Celik’s 2011 EBITDA of TL120mn at 6.0x EV/EBITDA, we reach TL643mn for the whole company and TL140mn value for Parsan’s stake (taking capacity increase project of Asil Celik into account, its DCF hits TL916mn offering a much higher upside for Parsan, details on page 17).

·    Valuable portfolio of real estate: Parsan is located on a land of 91,123 sqm in Istanbul-Pendik, while Omtas’s facilities are located on an area of 30,000 sqm in Gebze. Parsan has no further place left to expand on this land and is thus willing to move into another location and sell this land as the prices in the region have increased significantly. Assuming US$1,000/m2 for the land, the land is worth TL160mn vs. Parsan’s current Mcap of TL215mn.

·     Risks… Any deepening of the EU debt crisis would affect Parsan negatively as exports are mainly directed to the EU. Limited transparency and lower liquidity may be named as other risks for Parsan.