ENKAI: 1Q23 Review (Oyak Yatırım)

Dragged by lower construction margins
 
Enka Insaat (ENKAI) posted a net profit of TL3.82bn in 1Q23, below market consensus (TL4.55bn), but above our estimate (TL3.30bn). The bottom line came in worse-than-expected due to lower-than-expected operational profitability. EBITDA came to TL2.36bn, significantly below market consensus (TL3.75bn) and our estimate of (TL4.02bn) due to weaker margins from the construction segment. Sales came in at TL17.49bn, in line with the market consensus (TL17.74bn) and our estimates (TL18.22bn). The Company’s net cash position increased by 5% to TL86.86bn, which decreased the net debt/EBITDA multiple to -6.3X (2022: 5.9X).
 
Lower operational profitability in the construction segment dragged down margins… The backlog increased to USD4.8bn from USD4.1bn (9M22: USD3.61bn). Construction was EBITDA margin was 12% in 1Q23, significantly lower y/y and q/q (4Q22: 23%, 1Q22: 26%). Accordingly, the Group’s posted 1Q23 EBITDA figure corresponds to an EBITDA margin of 13.5% vs. the market consensus of 21.1% and our estimate of 22.1%. Quarterly EBITDA margin drop is observed in the real-estate segment as well; however, it was better than the same quarter last year (1Q23: 65%, 4Q22: 153%, 1Q22: 58%).
 
Income from investment activities was strong… The Company’s losses resulted due the outbreak of Russia and Ukraine war eased and remained strong in this quarter as well. The Group posted TL2.4bn net income from investment activities (4Q22: 3.7bn, 1Q22: -2.7bn)
 
Net cash position improved further… The Company’s net cash position increased by 5% to TL86.86bn, thanks to strong contributions from the investment activities. Accordingly, the net debt/EBITDA multiple decreased to -6.3X (2022: -5.9X). The net cash position constitutes 58% of ENKAI’s market cap.
 
Marketperform rating maintained… We keep our 2023 estimates unchanged for ENKAI as TL12.0bn net profit, TL12.7bn EBITDA, and TL65.3bn revenue. We maintain our rating for the stock as Marketperform with a TP of TL28.00/sh. The stock trades at 12.5x P/E and 8.4x EV/EBITDA multiple, based on our 2023 projections.
 
 


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