TTKOM:1Q23 Review (Oyak Yatırım)

Backed by tax deferrals
Turk Telekom posted a net profit of TL645mn (+15% y/y, -36% q/q) in 1Q23, above both market consensus (TL594mn) (OYAKe:TL445mn). Despite higher net financial expenses and slightly weak operational profitability, deferred tax income of TL381mn led to positive impact in net income.
Revenue growth came in line with estimates
Revenues increased by 61% y/y to TL15.3bn (inc. IFRIC) in line with the market expectations on the back of y/y ARPU growth and subscriber additions in broadband and mobile segments. Without IFRIC, sales grew by 59% y/y. EBITDA was announced as TL4.4bn (+17% y/y), while EBITDA margin declined by 11.3pp y/y to 29.7% due to increase operational costs (Cons: TL4.8bn, OYAKe: TL4.8bn).
Rising costs put pressure on profitability
In 1Q23, broadband subscribers grew by 2% y/y (-0.2% q/q); and mobile subscribers showed 5% y/y (+0.4% q/q) growth as well. While fixed voice subscribers contracted by 12% y/y (-4% q/q), fiber subscribers continued to grow by 15% y/y (+2% q/q). Broadband ARPU outlook rose by 41% y/y (+6% q/q), however mobile segment’s ARPU growth began to improve, which grew by 56% y/y (+8% q/q). Fixed voice ARPU increased by 50% y/y (+14% q/q) and TV ARPU rose by 36% y/y (+10% q/q). Opex/sales ratio remained high at 22.4% on the back of continued OpEx growth, pressure from EYT and one-off earthquake costs. As a result, higher growth in OpEx compared to top-line growth put some pressure on profitability.
Net Debt/ EBITDA ratio increased
Turk Telekom's net debt was up by TL4.3bn q/q to TL36.2bn. Net Debt/EBITDA ratio was increased to 1.9x from 1.8x.
2023e guidance was kept
The Company's 2023e guidance is; c.52-55% y/y revenue growth (2022: 40%), c.TL23-25bn EBITDA (2022: TL17.9bn) and c.TL17-19bn CapEx (2022: TL13.9bn). On February 6, 2023, expectations were created taking into account the effects of the earthquake that occurred. Our estimates in line with Company’s guidance. We continue to believe that inflation and pricing challenges arising from long-term contracts are putting pressure on profitability margins and real revenue growth.
Upgraded to OP
We keep our 2023e and 12-month TP of TL21.29. We revise our recommendation to “Outperform” from “Marketperform” on prevailing high upside potential.

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