KLKIM company update (Oyak Yatırım)

High growth potential with attractive valuation
We have an Outperform rating for Kalekim Kimya (KLKIM) and set our target share price at TL62.89 (prev. Under Review) which corresponds to a 53% upside potential. We like the Company’s price setter position, wide distribution network, increasing export figures, inorganic growth as well as high ROE and ROIC ratios. We expect the company’s cash generation to increase in 4Q22 and onwards as it already finished its major investment cycle with Lyksor acquisition and Mardin capacity increase.

We expect robust revenue growth to continue in 2023 and 2024
KLKIM has a strong market share in the tile adhesives sector (approximately 53%), which allows it to reflect the cost hikes to its prices to a large extent. Despite the contraction in home sales and construction permits in the domestic market due to recession fears, difficulty in finding financing, and increasing costs, we expect price increases both in the domestic and export markets. We expect revenues to grow by 66% and 61% in 2023E and 2024E, respectively. We also foresee 77% and 61% EBITDA growth for 2023 and 2024, respectively.

Upside risk potential on domestic volumes & opportunities in international markets
Although we stayed conservative and did not incorporate the potential upside risks to our model, it is important to mention that a possible recovery in the construction sector in Turkey ahead of elections might support the company’s domestic sales. As for the international market, opening of Duhok branch in Iraq and establishment of Kalekim Romania could contribute to sales. To a lesser extent, pick-up in project developments in Syria could boost sales as well, as the company has production plants close to the border and a wide sales network in the MENA region. To note, Kalekim’s capacity utilization rate is currently at c.30%, which could meet the demand in-case of a pickup in construction projects.

Attractive valuation with 53% upside potential
We continue to value KLKIM with DCF analysis. Based on the aforementioned points and revised estimates, we foresee an increase in cash-generation and project FCF margin to rise to 6% in 2023 and 7% 2024 from -4% in 2022. The company shares trade at 8.5x P/E and 7.3x EV/EBITDA multiples on our 2023 forecasts. We also foresee the company to distribute 0.68 TL per share dividend from its 2022 earnings, which corresponds to a 24% payout ratio and 1.7% dividend yield.



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