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.
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