VESTEL BEYAZ ESYA Report

Initiating coverage with a BUY rating

After major weakness in 2012, Vestel Beyaz’s EBITDA margin started to recover in 9M13 on the back of a strategy change. We expect the positive operating profitability trend to lead to a gradual rerating of the shares.

Move to a profit oriented strategy from a volume focus
EBITDA margin slumped in 2012 to 1.7% amid increasing competition on entry level products in export markets. In 2013, Vestel Beyaz moved from volume based to a volume/profit based strategy by 1) discontinuing unprofitable export products, 2) increasing its domestic market focus by being more aggressive on higher value add products, and increasing its retail penetration. The new strategy paid-off; EBITDA margin leapt to 8.1% in 9M13 from 1.9% in 9M12.

Our DCF based TP is TRY3.76
Key downside risks are lower normalized margins if Asian competition extends to product groups other than table top refrigerators and A/Cs, and sharp depreciation in the EUR.

Share purchases by its parent limit downside risk
31.5% of Vestel Beyaz went public in 2006. Following many transactions, Vestel Elektronik now has an 85.8% stake in the company. The rationale behind the share purchases was the belief the stock was undervalued, and purchases might continue in the future. Although low liquidity is a negative, share purchases by its parent should limit downside risks.