Kardemir Company Update (Oyak Yatırım)

Promising outlook ahead
The global steel market has been under pressure since the second half of 2022 mainly due to global economic slowdown, elevated energy inflation and tightening steps implemented by global central banks. Events such as Russia and Ukraine war and strict zero-COVID policy implemented in China brought supply chain issues and affected pricing negatively. These factors also reduced investments in global contracting business and also slowed industrial output, which directly impacted the demand for steel. The pace of recovery has been slow so far but we believe that the pace of recovery is likely to accelerate with China’s reopening, Europe’s proven resilience against the higher energy costs, easing supply chain bottlenecks due to the war, and expected recovery in the US (decline in interest rates would be an addition). Domestically, the on-going reconstruction theme after the devastating earthquakes, urban transformation, and implementation of the Canal Istanbul project in the future could boost the demand for steel, which would lead to higher CUR for Kardemir in upcoming years.
 
China’s re-opening and a possible new property-market support package involves upside risk for steel prices in 2024…
Chinese policy makers issued “16-point plan” to rescue the housing market by mainly solving the liquidity crises of developers in October 2022, which was further boosted by the re-opening in December. Following the decision, the sector has showed a slight improvement with higher new home sales y/y, but May data showed that both; home prices and sales dropped. According to Bloomberg, China is working on new measures to be added to “16-point plan, these measures include reduction in down payments and lowering agent commissions. Succeeding in strengthening the housing sector will eventually reflect positively to steel prices in our view, as the developer activity will increase with new housing projects.
 
Lower raw material costs may push EBITDA per ton upwards…
We expect average Kardemir steel price per ton to realize at USD777 in 2023, which was USD758 in 1Q23. As for the EBITDA per ton, we expect a gradual increase in 2Q and a surge in 4Q23, and reach USD130 from USD93 in 1Q23, thanks to lower raw material costs, especially in coal.
 
We revised our estimates…
We raise our TP to TL40.07 from TL25.00 per share based on our new estimates. We raise our 2023E net income and EBITDA projections to TL3.86bn (previous: 3.62bn) and TL6.32bn (previous: 6.01bn). The new TP corresponds to an upside potential of 98%. We keep our Outperform rating. The stock trades attractively at 1.5x EV/EBITDA, and 4.0x P/E multiples based on our 2023 forecasts.

Oyak Yatırım Menkul Değerler A.Ş.
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                               Yasal Uyarı
 
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