FORD OTOSAN - 4Q12 slightly better: HOLD

EBITDA beats our and consensus estimates
Ford Otosan reported net income of TRY199m in 4Q12 (+28% y-y, our estimate: TRY192m, CNBC-e consensus: TRY166m). EBITDA was TRY220m (+18% y-y, our estimate: TRY204m, consensus: TRY203m). The overshoot was driven by slightly better domestic pricing (as was hinted at by Tofas’ (TOASO TI) 4Q12 results) and mostly one-off items at the opex level.

Employee expense capitalization positive, R&D increase negative
SG&A employee expenses were just TRY2.5m (4Q11: TRY16m) as the company capitalized personnel expenses related to new investments. R&D/revenue ratio increased from 0.7ppt in 4Q11 to 1.3ppt in 4Q12 (a TRY14m increase). At the net level opex was TRY10m below our estimate. Ford Otosan reported TRY10m tax income (our estimate: TRY18m).

Maintain HOLD, TRY21.30 target price
We fine tune our target price to TRY21.30. Downside risks are: 1) limited market share gains with new LCV, and 2) sharper than expected declines in the LCV market in Europe in 2013. The key upside challenges are: 1) more significant market-share gains with the new Transit and LCV than we estimate, and 2) further expansion in new markets.

Ford Otosan Report

3Q12 operational results lag conservative estimates
Ford Otosan reported net income of TRY144m in 3Q12 (-17% y-y, our estimate: TRY99m, CNBC-e consensus: TRY121m). EBITDA was TRY141m (-36% y-y, our estimate: TRY155m, consensus: TRY162m). Beat at the non-operating level was due to lower D&A than our forecast, TRY25m deferred tax income, and slightly lower financing expenses than our estimates.

We revise down our 2012-13E recurring EPS, revise-up 2014 EPS
We revise down our ‘12-13E recurring EPS by 13%/19% on the weakening outlook on operating margins and exports, while raising ‘14E EPS by 20% due to incremental Transit volumes from the UK, and lowered financing expense estimates. The expected improvement in operating performance in 2014 might limit the impact of a weak ST outlook on the share price.

We maintain our HOLD rating
Our revised 12-mth TP to TRY17.90/share reflects new volume allocation for Transit (+), lower CoE (+), higher peer multiples (+), worsening outlook in export markets (-), lower margin estimates due more severe impact of intense competition/ageing product portfolio in the short-term (-), and earlier phase-out of Transit Connect than our previous estimate (-).