DESA-2Q23-Earnings Review (TFG Istanbul Menkul Değerler )

Outstanding gross margin and net profit performance
DESA’s 2Q23 net income has beaten expectations by 21%, predominantly on higher-than-expected net financial income thanks to the company’s FX denominated deposits. The improvement in the gross margin to 45.9% from 38.8% a year earlier was mainly driven by the company’s ability to transfer the increase in COGS to consumers more. Top-line and EBITDA, however, are 18% and 38% below our forecasts of TRY508mn and TRY135mn.

EBITDA margin went up y-y
For 2Q23 DESA posted revenues amounting to TRY430mn, which stood unchanged q-q while being 59% better y-y. The company posted TRY98mn EBITDA for the period, up by 71% y-y. EBITDA margin for 2Q23 has been realised at 22.8%, which is 150bp higher than that of 2Q22. Cost of sales increased by a relatively limited 41% y-y and contributed to EBITDA margin improvement while opex growth of 104% y-y capped the operational earnings momentum.

Net Income 21% higher than our forecast
The main reason for the net income beat was TRY131mn net financial income for 2Q23 vs negative TRY5mn in 2Q22. The 2Q23 financial income performance of the company is unlikely to be repeated in 2H23, as the decline in the value of the TRY losses steam. In addition, minimum wage hike may pressure margins negatively in the following quarter.

Downgrading from Buy to Hold
While we still like the company for its profitable and growing business model as well as visionary international expansion plans, we are cutting down our rating from Buy to Hold due to limited 8% upside to our TRY21.44 target price per share. The stock is up by 51% and outperformed the BIST100 index by 24% since our initiation dated July 7th, 2023.

 TFG Istanbul Menkul Değerler A.Ş.
  www.tfgistanbul.com/arastirma-raporlar
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