price / relative price - rapor.isyatirim.com.trrapor.isyatirim.com.tr/2_20170113132250255_1.pdf ·...

1 Please refer to important disclaimer at the end of this report.

Positive outlook across all segments

We have OUTPERFORM recommendation for SISE shares considering

positive outlook at all operating segments, increasing share of exports, and

favourable valuation compared to global peers. Our SOTP 12M target share

price of 4,75TL/share offers 21% upside potential. At its current Mcap of

US$ 2.0bn, Sisecam shares trade at 9% discount to its current NAV and

20% discount to its target NAV, versus one year historical discount of 0% to

the current and 3% discounts to target NAV.

Strong growth prospects in Turkish glass. Serving at every sub-

segment of the glass industry, the glass conglomerate enjoyed relatively a

better year in 2016 thanks mainly to the improvement in flat glass and

chemicals divisions. Besides, the recovery at glass packaging business was

eye-cathing as well. High growth rates, pent-up demand in domestic

construction industry and improvement in European automotive industry are

the main drivers of the strong performance at flat glass. Apart from that,

robust demand in soda ash market along with higher prices supported the

performance in chemicals division.

Strong performance reflected on financials in 9M16. Sise Cam

recorded 11% YoY top-line growth along with 14% YoY EBITDA growth in

9M16. 30% of the net revenues were generated from flat glass division,

17% from glassware business, 21% from glass packaging unit, 25% from

chemicals segment and the remaining 7% from other operations. EBITDA

stood at at TL1.2bn in 9M16, up 14% YoY. EBITDA margin improved by

0.4pp thanks to operational improvement at all segments. The

enhancement at glass packaging and chemicals business were noteworthy.

Positive expectations for 2017. We estimate consolidated revenues to

grow 10% YoY in 2017 thanks to volume growth, price increases and

change in product mix. Meanwhile, EBITDA is expected to grow 18% YoY in

2017 thanks to improvement at glass packaging &chemicals divisions and

cost reduction measures.

Lower energy prices will support the improvement. The company

benefited from 23% cut in natural gas prices in Bulgaria which is made at

the beginning of 2016. In Turkey natural gas prices lowered by 10% in

October 2016 since BOTAS, having recouped its previous year losses,

reflected the oil driven drop in its purchase price on customers. We estimate

c.5% hike in natural gas prices due to sharp TL depreciation despite the

recent statement by the Energy Ministry that no hike is foreseen in 2017.

Hard currency sales account for 51% of total sales. Exports and

international sales account 51% of total sales, implying the competitive

power on global scale and supporting operational performance during TL

depreciation against hard currencies. Europe is the largest export market,

constituting 49% of total exports, while Asia is the second biggest export

region. Italy, Egypt, France, Bulgaria and UK are major export countries.

Upside risks for the company are i) Acquisitions & capacity additions

ii) Better than anticipated margin delivery and iii) prospective Pasabahce

IPO. Downside risks are i) the downturn in macro environment leading to a

contraction in construction sector, ii) higher than expected natural gas price

hike.

Company Update

Upside Potential 21%

OUTPERFORM

Sise Cam Equity / Large Cap. / Glass

13/01/2017

+90 212 350 25 52

Ilyas Safa Urganci

[email protected]

Ticker SISE

Stock Data TL US$

Price at 12 01 2017 3.94 1.02

Target Price 4.75 1.37

Prev.Target Price 4.75 1.37

Mcap (mn) 8,077 2,098

Float Mcap (mn) 2,732 710

Avg.Daily Volume (3M, mn) 17.0 5.0

No. of Shares Outstanding (mn) 2,050

Free Float (%) 33.83

Multiples 2016E 2017E 2018E

P/E 11.9 9.5 7.7

P/BV 1.0 0.9 0.8

EV/EBITDA 6.3 5.3 4.5

Price Perf. (%) 1 Mn 3 Mn 12 Mn

TL 10 22 49

US$ 1 -1 17

Relative to BIST-100 4 17 34

Price / Relative Price

70

90

110

130

150

170

190

210

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

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06/1

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11/1

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04/1

4

09/1

4

02/1

5

07/1

5

12/1

5

05/1

6

10/1

6

SISE Close(LHS) Relative to BIST100

52 Week Range (Close TL) 3.00 3.94

Foreign Share (%)

45

46

47

18/1

0

01/1

1

15/1

1

29/1

1

13/1

2

27/1

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10/0

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Foreign Share (%)3M Average

2

Sise Cam

Summary of Key Financials (TL mn) 2 3 4 5 6

Income Statement (TL mn) 2013A* 2014A* 2015A* 2016E 2017E 2018E

Revenues 6,876 7,415 8,157 8,972 9,870

EBITDA 1,242 1,405 1,627 1,919 2,256

Depreciation & Amortisation 688 738 812 893 983

EBIT 555 667 768 974 1,216

Other income (expense), net 34 149 (11) (12) (13)

Financial expenses, net (182) (127) 25 27 30

Minority Interests 7 82 77 96 118

Income before tax 494 900 846 1,054 1,298

Taxation on Income (75) (95) (89) (111) (137)

Net income 413 723 679 846 1,043

Cash Flow Statement (TL mn)

Net Income 413 723 679 846 1,043


Indemnity Provisions 43 60 47 52 57

Change in Working Capital (107) (405) (232) (239) (262)

Cash Flow from Operations 1,036 1,116 1,307 1,552 1,820

Capital Expenditure 1,136 1,106 1,066 1,100 1,100

Free Cash Flow (100) 10 241 452 720

Rights Issue 0 0 0 0 0

Dividends Paid 71 90 250 204 254

Other Cash Inflow (Outflow ) 734 (320) (723) (13) 2

Change in net cash 564 (400) (732) 235 469

Net Cash (1,067) (1,467) (2,199) (1,964) (1,496)

Balance Sheet (TL mn)

Tangible Fixed Assets 5,633 7,882 8,136 8,343 8,460

Other Long Term Assets 381 438 1,033 1,076 1,118

Intangibles 77 98 98 98 98

Goodw ill 29 32 32 32 32

Long-term financial assets 573 642 681 722 765

Inventories 1,422 1,669 1,836 1,991 2,159

Trade receivables 1,149 1,405 1,545 1,700 1,870

Cash & equivalents 2,776 3,147 2,659 2,575 2,832

Other current assets 309 349 386 425 467

Total assets 12,350 15,663 16,406 16,961 17,801

Long-term debt 2,889 3,373 3,076 2,876 2,776

Other long-term liabilities 319 476 395 414 434

Short-term debt 954 1,241 1,782 1,663 1,551

Trade payables 658 756 831 902 978

Total Debt 3,843 4,614 4,858 4,539 4,328

Other short-term liabilities 290 314 340 372 407

Total liabilities 5,111 6,160 6,424 6,227 6,147

Minority Interest 1,547 2,036 2,019 2,086 2,164

Total equity 5,692 7,466 7,963 8,648 9,490

Paid-in capital 1,700 1,900 1,900 1,900 1,900

Total liabilities & equity 12,350 15,663 16,406 16,961 17,801

Ratios

ROE (%) 7.4 11.0 8.8 10.2 11.5

ROIC (%) 5.6 5.7 5.4 6.5 7.8

Invested Capital 8,005 10,737 11,817 12,306 12,728

Net debt/EBITDA (x) 0.9 1.0 1.4 1.0 0.7

Net debt/Equity (%) 18.7 19.7 27.6 22.7 15.8

Capex/Sales (%) 16.5 14.9 13.1 12.3 11.1

Capex/Depreciation (x) 1.7 1.5 1.3 1.2 1.1

EBITDA Margin 18.1 18.9 19.9 21.4 22.9

EBIT Margin 8.1 9.0 9.4 10.9 12.3

Net Margin 6.0 9.7 8.3 9.4 10.6

Valuation Metrics

EV/Sales (x) 0.9x 1.0x 1.2x 1.1x 1.0x

EV/EBITDA (x) 4.8x 5.2x 6.3x 5.3x 4.5x

EV/IC (x) 0.7x 0.7x 0.9x 0.8x 0.8x

P/E (x) 10.9x 6.5x 11.9x 9.5x 7.7x

FCF yield (%) -2% 0% 3% 6% 9%

Dividend yield (%) 2% 1% 4% 3% 3%

*based on average Mcap during the year

3

Sise Cam

Source: Company, IS Investment

FIGURE 1: Summary of 3Q16 Consolidated Financials

FIGURE 2: SISE NAV

Sise Cam (TL mn) 3Q16 3Q15 YoY 2Q16 QoQ 9M16 9M15 YoY

Revenues 2.005 1.860 8% 2.128 -6% 6.007 5.389 11%

Gross Margin 30,4% 28,7% 1,7pp 29,0% 1,4pp 30,3% 29,3% 1,0pp

EBIT (*) 210 167 26% 196 7% 600 506 19%

EBIT Margin 10,5% 9,0% 1,5pp 9,2% 1,3pp 10,0% 9,4% 0,6pp

Adjusted EBITDA (**) 409 352 16% 391 5% 1.188 1.046 14%

Adjusted EBITDA Margin 20,4% 18,9% 1,5pp 18,4% 2,0pp 19,8% 19,4% 0,4pp

Net Financial Expenses (-) -34 32 n.m. 28 n.m. -42 -13 n.m.

Net Profit 162 186 -13% 170 -4% 460 566 -19%

Net Margin 8,1% 10,0% -1,9pp 8,0% 0,1pp 7,7% 10,5% -2,8pp

(*) Excludes Prof it (Loss) f rom Subsidiaries and other income/(expense)

(**) Adjusted EBITDA= EBIT (*)+Depreciation+Amortization

(***) Net Financial Expenses includes FX losses/gains booked under other expenses/ income

Ticker

Current

Value

Target Valuation

Method

Flat Glass 785 546 24% 931 647 25%

Trakya Cam TRKCM 69,4 Current Mcap 725 503 22% Target Mcap 871 604 23%

Cayirova Cam 71,9 Book Value 60 43 2% Book Value 60 43 2%

Glass Packaging 361 286 12% 421 333 13%

Anadolu Cam ANACM 79,1 Current Mcap 361 286 12% Target Mcap 421 333 13%

Glassware 635 532 23% 635 532 20%

Pasabahce 84,0 554 465 20% Mult&Tran. Val. 554 465 18%

Camis Ambalaj 100,0 62 62 3% Transaction Value 62 62 2%

Denizli Cam DENCM 26,1 19 5 0% Current Mcap 19 5 0%

Chemicals 1.145 727 32% 1.429 900 34%

Soda Sanayi SODA 61,0 Current Mcap 1.073 655 28% Target Mcap 1.357 828 32%

Camis Madencilik 100,0 Book Value 72 72 3% Transaction Value 72 72 3%

Others 114 102 4% 114 102 4%

Camis Elektrik 39,3 20 8 0% Book Value 20 8 0%

Available for sale assets 40 40 2% Book Value 40 40 2%

Participations 54 54 2% Book Value 54 54 2%

Total Value from Participations 2.192 100% Total Value from Participations 2.515 100%

Listed 1.448 66% Listed 1.771 70%

Unlisted Total 744 34% Unlisted 744 30%

Holding Only Net Cash (Debt) 110 5% Holding Only Net Cash (Debt) 110 4%

Current NAV 2.302 Target NAV 2.625

Premium / (Disc) to Current NAV -9% Premium / (Disc) to Target NAV -20%

Historical Average Discount 0% Historical Average Discount -3%

Current Mcap 2.098 Target Mcap 2.625

all f igures are in US$ mn terms Target Share Price (US$) 1,28

net cash (debt) is as of 9M16 Target Share Price (TL) 4,75


Business

Segment/Company

Sise Cam NAV Breakdown (US$ mn)

Weight

in NAV

SISE's

StakeTarget Value

Weight

in NAVSISE's Stake

Current Valuation

Method

SISE's

Stake

4

Sise Cam

FIGURE 3: SISE Current NAV Chart

Source: IS Investment

FIGURE 4: SISE Current NAV Chart

Source: IS Investment

Company Close TL Target Mcap mn$

2016 2017 2018 2016 2017 2018

SISE 3,94 4,75 2.136 11,9 9,5 7,7 6,3 5,3 4,5

Turkey Avg. 11,9 9,5 7,7 6,3 5,3 4,5

Disc./Prem. -31% -35% -39% -18% -29% -37%

Peer Comp.avg. 17,3 14,6 12,7 7,7 7,4 7,1

Peer.Comp. Company Country Mcap mn$ 2016 2017 2018 2016 2017 2018

SGO FP Equity SAINT GOBAIN FRANCE 23.582 18,5 16,1 14,5 8,0 7,5 6,9

5201 JP Equity ASAHI GLASS CO JAPAN 8.586 26,0 19,5 17,4 6,3 5,9 5,7

5202 JP Equity NIPPON SHEET GLA JAPAN 687 14,7 10,7 6,6 6,8 6,7

OI US Equity OWENS-ILLINOIS UNITED STATES 3.066 8,2 7,7 7,0 6,6 6,4 6,2

PPG US Equity PPG INDS INC UNITED STATES 25.510 16,4 15,2 14,0 10,7 10,5 10,2

P/E EV/EBITDA

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%Ja

n-1

6

Ja

n-1

6

Fe

b-1

6

Fe

b-1

6

Fe

b-1

6

Mar-

16

Mar-

16

Ap

r-1

6

Ap

r-1

6

May-1

6

May-1

6

Ju

n-1

6

Ju

n-1

6

Ju

l-16

Ju

l-16

Au

g-1

6

Au

g-1

6

Au

g-1

6

Se

p-1

6

Se

p-1

6

Oct-

16

Oct-

16

No

v-1

6

No

v-1

6

De

c-1

6

De

c-1

6

Ja

n-1

7

Premium (Discount) Current NAV

Historical Average


Eye-catching performance in 2016

TRKCM shares outperformed the market by 69% over the last 12 months as

a result of strong operational performance and muted energy expenses. We

expect 2017 to be a another strong period for the company considering the

positive momentum in the flat glass industry. Besides, anti-dumping

measures on flat glass imports from Iran and China continues to support

competitive position. Apart from that, we anticipate solid operational

performance to continue at encapsulated auto glass business. Therefore,

we maintain our OUTPERFORM performance.

Based on its 5.8x 17E EV/EBITDA and 8.2x P/E multiples, the stock trades

at 21% and 44% discounts compared to its international peers.

Top-line growth was remarkable at 38% y-o-y growth driven by full

consolidation of Bulgarian operations, increase in Russian revenues

and material contribution from encapsulation business in 9M16. Excluding

Bulgarian operations, y-o-y revenue growth would be at 10% - out of which

6% coming from the volume increase. In 9M16, revenue contribution of

Russia to consolidated revenue increased to 8% as a consequence of

recovery in Russian flat glass prices. Prices edged up about 30% q-o-q in

the third quarter after the price hike announcements from local producers,

Ruble devaluation also led sales to advance in export regions.

Better prospects to continue in 2017. We estimate top-line to grow by

20% in 2017 driven by price increases, volume growth, increasing

contribution of encapsulated business and contribution of newly acquired

Sangalli. Moreover, EBITDA is expected to increase faster at 27% YoY in

2017 thanks to the favourable energy expenses and reduced risk of cheap

flat glass imports to domestic market.

We estimate c.65% of the revenues are generated from basic glass

sales to the construction sector and c.54% from Turkey. Accordingly,

the operations predominantly depend on the level of growth at the

construction industry in Turkey. Domestic flat glass sales were strong in

2016 thanks to the pent up demand from construction sector following the

elimination of the political uncertainty in 2015. Demographics, urban

transformation and infrastructure projects will continue to be the main

growth drivers in medium to long term. Therefore, we estimate c.4-5%

growth in Turkey construction industry in the medium term.

Trakya Cam finalized the acquisition of Italian flat glass producer

Sangalli Vetro Porto Nogaro at EUR85mn. We find the acquisition price

favourable compared to 220K tons capacity addition usually requires

c.EUR160mn in flat glass industry. Sangalli Vetro Porto Nogaro has c.220K

tons flat glass production capacity vs 2.5 mn tons of Trakya Cam. We deem

that the acquisition will strengthen the company’s position in European

market.

Risks: Additional restrictions on cheap glass imports from Russia and

EU and better than expected margin delivery and the completion of targeted

are the major catalysts. Main risks are lower than expected growth at

construction activity and possible downturn in the domestic market due to

prolonged period of political/geopolitical uncertainty.

Company Update

Upside Potential 8%

OUTPERFORM

Trakya Cam Equity / Mid Cap. / Glass

13/01/2017

+90 212 350 25 52

Ilyas Safa Urganci

[email protected]

Ticker TRKCM

Stock Data TL US$

Price at 12 01 2017 3.00 0.78



Mcap (mn) 2,790 725

Float Mcap (mn) 863 224


No. of Shares Outstanding (mn) 930



P/E 5.7 8.2 7.2

P/BV 0.8 0.7 0.7

EV/EBITDA 7.4 5.8 5.3


TL 5 20 89

US$ -4 -4 48

Relative to BIST-100 -1 14 69


020406080100120140160180200

1.201.401.601.802.002.202.402.602.803.003.20

01/1

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09/1

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02/1

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07/1

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10/1

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TRKCM Close(LHS) Relative to BIST100


Foreign Share (%)

46

48

50

52

54

56

58

18/1

0

01/1

1

15/1

1

29/1

1

13/1

2

27/1

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1


6

Trakya Cam



Revenues 2,019 2,118 2,878 3,448 3,716

EBITDA 323 274 498 629 690


EBIT 172 98 316 419 469

Other income (expense), net 56 67 378 79 85

Financial expenses, net (50) (18) (100) (90) (90)


Income before tax 316 197 594 408 464


Net income 283 159 491 338 383


Net Income 283 159 491 338 383



Change in Working Capital (16) (121) (155) (147) (69)

Cash Flow from Operations 425 226 519 400 536

Capital Expenditure 418 286 591 298 311

Free Cash Flow 7 (60) (72) 102 225



Other Cash Inflow (Outflow ) 201 (505) 127 47 60

Change in net cash 180 (601) (38) 47 116

Net Cash (115) (716) (754) (708) (591)



Other Long Term Assets 122 123 550 514 555


Goodw ill 20 23 0 0 0


Inventories 320 440 608 715 764

Trade receivables 317 402 879 1,054 1,135

Cash & equivalents 1,127 1,170 1,089 1,305 1,406


Total assets 4,384 5,627 6,612 7,200 7,593

Long-term debt 976 1,503 1,406 1,349 1,300


Short-term debt 266 383 438 663 698

Trade payables 178 261 752 886 948

Total Debt 1,242 1,886 1,844 2,013 1,998



Minority Interest 205 249 268 280 295

Total equity 2,332 2,889 3,524 3,738 4,054

Paid-in capital 739 895 930 997 1,067


Ratios

ROE (%) 12.6 6.1 15.3 9.3 9.8

ROIC (%) 6.7 2.8 6.5 7.5 8.0


Net debt/EBITDA (x) 0.4 2.6 1.513 1.1 0.9

Net debt/Equity (%) 4.9 24.8 21.4 18.9 14.6

Capex/Sales (%) 20.71 13.50 20.55 8.64 8.36


EBITDA Margin 16.0 13.0 17.3 18.2 18.6

EBIT Margin 8.5 4.6 11.0 12.2 12.6

Net Margin 14.0 7.5 17.1 9.8 10.3

Valuation Metrics

EV/Sales (x) 1.1x 1.3x 1.3x 1.1x 1.0x

EV/EBITDA (x) 6.6x 9.7x 7.4x 5.9x 5.3x

EV/IC (x) 1.0x 0.8x 0.8x 0.8x 0.8x

P/E (x) 6.5x 11.7x 5.7x 8.3x 7.3x

FCF yield (%) 0% -3% -3% 4% 8%

Dividend yield (%) 2% 2% 5% 4% 6%


7

Trakya Cam


FIGURE 5: DCF Summary

FIGURE 7: Peer Comparison




Trakya Cam (TL mn) 3Q16 3Q15 YoY 2Q16 QoQ 9M16 9M15 YoY

Revenues 704 507 39% 723 -3% 2.054 1.493 38%

Gross Margin 28,5% 24,9% 3,7pp 29,3% -0,8pp 29,2% 25,8% 3,3pp

EBIT (*) 62 17 264% 59 4% 164 68 141%


Adjusted EBITDA (**) 124 60 106% 119 4% 348 200 74%


Net Financial Expenses (-) -14 5 n.m. -15 n.m. -33 1 n.m.

Net Profit 66 32 106% 321 -80% 452 103 341%

Net Margin 9,3% 6,3% 3,0pp 44,4% -35,1pp 22,0% 6,9% 15,1pp




Trakya Cam (TL mn) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Revenues 2,878 3,448 3,716 3,913 4,098 4,279 4,475 4,692 4,938 5,218 5,514

Revenue growth 36% 20% 8% 5% 5% 4% 5% 5% 5% 6% 6%

EBIT 319 421 466 491 512 541 569 596 620 636 621

EBITDA 501 630 687 757 804 857 914 973 1,036 1,099 1,137

EBITDA Margin 17.4% 18.3% 18.5% 19.3% 19.6% 20.0% 20.4% 20.7% 21.0% 21.1% 20.6%

Change in Working Capital (92) (130) (60) (55) (47) (46) (50) (56) (65) (74) (79)

Capital Expenditures (271) (299) (294) (346) (359) (371) (385) (402) (425) (455) (487)

Tax (64) (84) (93) (98) (102) (108) (114) (119) (124) (127) (124)

Free Cash Flow 75 117 239 257 295 332 365 396 422 443 447

Discounted FCF 75 104 188 180 185 185 184 178 169 162 146

PV of Discounted FCF 1,699

Terminal Growth 4%

PV of TV 1,807

Net Cash (Debt) 9M16 (896)

Participations @ 20%discount 326

Minority Interest (246)

12-Month Target Equity Value 3,017

Price Target (TL) 3.24

Upside 8%


2016 2017 2018 2016 2017 2018

TRKCM 3,00 3,24 736 5,7 8,3 7,3 7,4 5,9 5,3

Turkey Avg. 5,7 8,3 7,3 7,4 5,9 5,3

Disc./Prem. -67% -44% -43% -4% -21% -25%

Peer Comp.avg. 17,27 14,64 12,72 7,68 7,44 7,13


SGO FP Equity SAINT GOBAIN FRANCE 23.582 18,5 16,1 14,5 8,0 7,5 6,9

5201 JP Equity ASAHI GLASS CO JAPAN 8.586 26,0 19,5 17,4 6,3 5,9 5,7

5202 JP Equity NIPPON SHEET GLA JAPAN 687 14,7 10,7 6,6 6,8 6,7


PPG US Equity PPG INDS INC UNITED STATES 25.510 16,4 15,2 14,0 10,7 10,5 10,2

P/E EV/EBITDA


Genie in the bottle

Despite the doldrums in Turkey with increased competition and macro

headwinds in Russia over the past two years, Anadolu Cam managed

to improve its operational profitability through a series of strategic

steps taken by the management. Accordingly, Anadolu Cam had

shown a remarkable improvement in operational performance,

recording 15% YoY top-line growth in TL terms along with 20%

increase in EBITDA in 9M16, driven by volume growth (+7%), sales

price increases, higher contribution from exports and change in

product mix towards higher value added products. We expect the

strong momentum to continue, forecasting 13% top-line and 14%

EBITDA growth in 2017 as improved prospects for the glass packaging

business both in domestic and export markets are expected to be

sustained. Therefore, we calculate a 12 month target Mcap of TL1.6bn

for Anadolu Cam, corresponding to TL3.62/share target price, implying

16% upside potential. Accordingly, we re-initiate our OUTPERFORM

recommendation.

Based on its 5.7x 17E and 5.1x 18E EV/EBITDA multiples, the stock

trades 18% and 22% discounts compared to its international peers’

average of 6.9x and 6.6x, respectively.

Consensus estimates likely to move higher. Our 2017 revenues and

EBITDA estimates are 6% and 7% higher than Bloomberg consensus

numbers. Moreover, our net income estimate is 9% higher than Bloomberg

consensus estimate. It seems that, market estimates are not revised yet

following the strong operational performance in 9M16. Therefore, imminent

upward revisions in estimates could be a catalyst for the stock.

Competitive pressure eased in domestic market. We believe that the

competitive pressure has diminished as the additional supply created by the

investments of Park Cam has been absorbed by growing domestic demand

(+11%). The initial market share losses at mineral water segment are not

likely be replicated in other segments due to rival’s insufficient production

flexibility. Besides, the competitive power of Anadolu Cam is significantly

higher, considering its diverse product range and ability to produce all type

of colourful/colourless glass bottles.

Exports to escalate both from Turkey and Russia. Export volumes

picked up sharply during 2014-2016 as a result of marked decline in local

currencies (both TL and Rubble) and favourable transportation costs. The

share of exports has reached to 10% of gross revenues in Turkey and 15%

in Russia in 9M16. The company strategically targets to increase the share

of exports to 20% over the coming years in both regions.

Risks: Aggressive capacity increase investments by local competitor

Park Cam in Turkey, leading to price competition, sharper than expected

natural gas price hike due to increase in oil prices, higher transportation

costs and sharper appreciation of TL and Rubble against hard currencies

hurting the profitability of exports and further pressure by the government

on alcohol consumption in Russia might be listed as the possible risks to

our recommendation.

Company Update


OUTPERFORM

Anadolu Cam Equity / Mid Cap. / Glass

13/01/2017

+90 212 350 25 52

Ilyas Safa Urganci

[email protected]

Ticker ANACM

Stock Data TL US$

Price at 12 01 2017 3.13 0.81



Mcap (mn) 1,390 361

Float Mcap (mn) 297 77





P/E 3.1 13.3 11.3

P/BV 0.8 0.7 0.7

EV/EBITDA 6.6 5.7 5.1


TL 18 48 84

US$ 8 19 44



0

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140

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1.70

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ANACM Close(LHS) Relative to BIST100


Foreign Share (%)

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30

40

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9

Anadolu Cam



Revenues 1,555 1,552 1,727 1,958 2,143

EBITDA 248 287 332 382 425


EBIT 25 72 98 113 131

Other income (expense), net (0) 20 381 30 32

Financial expenses, net (152) (171) 18 (18) (18)

Minority Interests (88) (20) 10 10 10


Taxation on Income 2 24 (40) (10) (12)

Net income 102 52 447 105 123


Net Income 102 52 447 105 123



Change in Working Capital 46 (118) 144 (33) (33)



Free Cash Flow 154 (162) 601 115 (8)



Other Cash Inflow (Outflow ) (59) (1) (332) (10) (12)

Change in net cash 67 (163) 269 78 (46)

Net Cash (695) (858) (589) (511) (557)





Goodw ill 2 2 0 0 0


Inventories 297 315 496 546 595

Trade receivables 195 285 332 367 401

Cash & equivalents 558 677 779 859 940


Total assets 3,040 3,750 3,980 4,101 4,374

Long-term debt 996 910 848 832 982


Short-term debt 257 624 520 539 515

Trade payables 147 137 510 561 611

Total Debt 1,253 1,535 1,368 1,370 1,497




Total equity 1,435 1,641 1,824 1,894 1,989

Paid-in capital 444 444 453 444 444


Ratios

ROE (%) 7.6 3.4 25.8 5.6 6.3

ROIC (%) 1.1 2.8 3.2 3.7 4.2


Net debt/EBITDA (x) 2.8 3.0 1.773 1.3 1.3

Net debt/Equity (%) 48.4 52.3 32.3 27.0 28.0

Capex/Sales (%) 14.21 20.81 13.03 11.49 18.25


EBITDA Margin 15.9 18.5 19.2 19.5 19.8

EBIT Margin 1.6 4.6 5.7 5.8 6.1

Net Margin 6.5 3.3 25.9 5.3 5.7

Valuation Metrics

EV/Sales (x) 1.0x 1.0x 1.3x 1.1x 1.0x

EV/EBITDA (x) 6.3x 5.5x 6.6x 5.7x 5.1x

EV/IC (x) 0.9x 0.7x 0.9x 0.9x 0.8x

P/E (x) 10.5x 14.9x 3.1x 13.3x 11.3x

FCF yield (%) 15% -21% 43% 8% -1%

Dividend yield (%) 4% 0% 0% 2% 2%


10

Anadolu Cam


Source: Bloomberg, IS Investment



Anadolu Cam (TL mn) 3Q16 3Q15 YoY 2Q16 QoQ 9M16 9M15 YoY

Revenues 491 421 17% 489 0% 1.326 1.155 15%

Gross Margin 23,5% 21,6% 1,9pp 23,8% -0,3pp 22,7% 22,0% 0,7pp

EBIT (*) 52 27 89% 35 47% 90 68 32%


Adjusted EBITDA (**) 113 82 39% 96 18% 269 224 20%


Net Financial Expenses (-) -14 -34 n.m. 26 n.m. -2 -92 n.m.

Net Profit 37 8 355% 129 -72% 419 125 237%

Net Margin 7,4% 1,9% 5,5pp 26,4% -19,0pp 31,6% 10,8% 20,8pp





2016 2017 2018 2016 2017 2018

ANACM 3,13 3,62 367 3,1 13,3 11,3 6,6 5,7 5,1

Turkey Avg. 3,1 13,3 11,3 6,6 5,7 5,1

Disc./Prem. -79% 15% -6% -11% -18% -22%

Peer Comp.avg. 14,87 11,51 12,09 7,35 6,94 6,62


GXI GR Equity GERRESHEIMER AG GERMANY 2.092 16,9 16,1 14,9 10,0 9,7 9,3

FRIGO GA Equity FRIGOGLASS SA GREECE 7 0,5 5,7 6,7

ZV IM Equity ZIGNAGO VETRO SP ITALY 471 17,4 15,8 14,7 7,7 7,0 6,7

VITROA MM Equity VITRO SAB-SER A MEXICO 1.415 11,4 8,5 6,8 5,4 3,4 2,8

VID SM Equity VIDRALA SPAIN 1.191 18,4 16,4 15,0 9,6 9,3 8,9

VET SW Equity VETROPACK HOL-BRSWITZERLAND 699 16,9 15,5 14,2 6,5 6,1 5,8


P/E EV/EBITDA


A synthetic hedge against TL weakening

We reiterate our OUTPERFORM recommendation with 6.27TL/share

target price for SODA.

Soda is the main beneficiary of TL weakness as 78% of the consolidated

sales (USD:47%, EUR:32%) are hard-currency denominated while the ratio

is 46% in cost of goods sold. In addition to that, the company carries

USD191mn and EUR41mn long f-x position on its balance sheet. Note that,

10% depreciation of TL against USD leads c.10% increase in TL

denominated target share price of Soda, ceteris paribus. Moreover, 10%

depreciation of TL increases the bottom-line by TL71mn, corresponding

16% of our 2016 net income estimate.

The stock trades at 24% and 35% discount at 5.4x 2017E EV/EBITDA

and 7.5x P/E multiples vs its peers average of 7.4x And 11.9x.

Soda ash demand grows c.3% at a steady pace. Glass markets, which

account half of the demand, are expected to remain dominant end use for

soda ash, while chemicals and detergents will also remain important

downstream consumers. We estimate c.2 mn tons capacity additions is

required in the market considering 56mn tons total market size and 3%

annual growth rate.

Soda ash prices are supported by favourable supply/demand.

European soda ash prices have risen c.5% average since 2010 as a result

of growing demand to the product and the capacity closures in Europe (1.5

mn tons capacity were shut down only in Europe). In 2016, the prices were

flat on USD basis while c.3% decline is expected in 2017 on USD basis.

What will be the impact of large capacity expansion projects of Ciner?

The large capacity expansion projects of Ciner Group (3.0 mn tons),

expected to come online between 2017-2019, might lead to a decline in

soda ash prices. We have already incorporated c.13% decline in the

assumptions of soda ash prices over the next 3 years in order to reflect the

prospective risk. However, we believe that Soda Sanayii is positioned well

in competitors thanks to i) access to key inputs such as brine and limestone,

ii) port access in Mersin, iii) product composition (ability to produce heavy

and light soda) and iv) past and ongoing investments to modernize

production process and drive down costs.

New boiler investment is expected to be completed until 2016YE. In

order to lower energy expenses, an energy efficiency investment including a

new boiler configuration with US$50mn amount is projected to be

completed by the end 2016. After the completion of the investment, c.5-10%

cost savings is expected to be achieved.

Sustainable dividend payer with strong B/S. We estimate Soda to

distribute 50% of its net income in 2017, implying 7% dividend yield.

Company Update


OUTPERFORM

Soda SanayiiEquity / Mid Cap. / Chemicals

13/01/2017

+90 212 350 25 52

Ilyas Safa Urganci

[email protected]

Ticker SODA

Stock Data TL US$

Price at 12 01 2017 5.51 1.43



Mcap (mn) 4,133 1,073

Float Mcap (mn) 1,624 422





P/E 7.6 7.5 7.9

P/BV 1.6 1.4 1.2

EV/EBITDA 6.7 5.4 5.7


TL 12 27 61

US$ 2 2 26



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SODA Close(LHS) Relative to BIST100


Foreign Share (%)

42

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48

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12

Soda Sanayii

Summary of Key Financials (TL mn)



Revenues 1,607 1,772 2,117 2,334 2,430

EBITDA 352 411 553 654 632


EBIT 259 320 449 540 513

Other income (expense), net 12 38 78 67 75

Financial expenses, net 21 102 116 22 12




Net income 384 434 548 536 511


Net Income 384 434 548 536 511



Change in Working Capital 140 (20) (71) (37) (14)



Free Cash Flow 518 284 347 251 276



Other Cash Inflow (Outflow ) (15) (36) 146 80 77

Change in net cash 457 188 253 58 86

Net Cash 364 551 804 862 947


Tangible Fixed Assets 728 1,086 1,240 1,516 1,765



Goodw ill 7 7 8 8 7


Inventories 174 179 207 221 237

Trade receivables 255 314 391 432 449

Cash & equivalents 649 859 881 978 1,073


Total assets 2,121 2,812 3,089 3,551 3,963

Long-term debt 227 235 176 176 176


Short-term debt 58 72 (100) (60) (50)

Trade payables 178 223 257 275 294

Total Debt 286 307 77 117 126


Total liabilities 554 627 456 520 557


Total equity 1,548 2,156 2,633 3,031 3,407

Paid-in capital 503 660 750 860 967


Ratios

ROE (%) 27.8 23.5 22.9 18.9 15.9

ROIC (%) 19.2 21.1 21.8 20.9 17.2


Net debt/EBITDA (x) -1.0 -1.3 -1.454 -1.3 -1.5

Net debt/Equity (%) -23.5 -25.6 -30.5 -28.4 -27.8

Capex/Sales (%) 6.47 12.81 12.21 16.68 15.18


EBITDA Margin 21.9 23.2 26.1 28.0 26.0

EBIT Margin 16.1 18.1 21.2 23.1 21.1

Net Margin 23.9 24.5 25.9 23.0 21.0

Valuation Metrics

EV/Sales (x) 0.8x 1.0x 1.7x 1.6x 1.5x

EV/EBITDA (x) 3.7x 4.3x 6.6x 5.6x 5.8x

EV/IC (x) 1.3x 1.3x 1.9x 1.6x 1.4x

P/E (x) 2.9x 3.9x 7.5x 7.7x 8.1x

FCF yield (%) 47% 17% 8% 6% 7%

Dividend yield (%) 3% 2% 7% 7% 6%


13

Soda Sanayii

Source: IS Investment and Bloomberg

FIGURE 10: Summary of 9M16 Financials


Source: Company Financials

Soda Sanayii (TL mn) 3Q16 3Q15 YoY 2Q16 QoQ 9M16 9M15 YoY

Revenues 492 462 6% 488 1% 1.456 1.295 12%

Gross Margin 31,1% 27,8% 3,2pp 29,4% 1,7pp 29,4% 26,7% 2,7pp

EBIT (*) 113 90 26% 96 17% 301 232 30%


Adjusted EBITDA (**) 136 113 21% 119 14% 372 300 24%


Net Financial Expenses (-) 18 73 -76% 17 7% 23 126 -82%

Net Profit 133 162 -18% 111 19% 330 366 -10%

Net Margin 27,0% 35,0% -8,1pp 22,8% 4,2pp 22,7% 28,2% -5,5pp


2016 2017 2018 2016 2017 2018

SODA 5,51 6,27 1.082 7,5 7,7 8,1 6,6 5,6 5,8

Turkey Avg. 7,5 7,7 8,1 6,6 5,6 5,8

Disc./Prem. -43% -35% -29% -24% -24% -22%

Peer Comp.avg. 13,23 11,92 11,42 8,72 7,43 7,43


SOLB BB Equity SOLVAY SA-A BELGIUM 10.930 13,7 12,6 11,9 6,6 6,3 6,1

TTCH IN Equity TATA Chemicals INDIA 1.929 18,5 14,4 11,9 10,4 9,5 9,0

CIE PW Equity CIECH POLAND 809 7,1 8,5 9,6 5,5 6,1 6,7

TROX US Equity TRONOX UNITED STATES 1.444 14,8 9,2 9,6

CINR US Equity CINER RESOURCES UNITED STATES 607 13,6 12,2 12,2 6,2 6,0 5,7

P/E EV/EBITDA

14

Soda Sanayii

Source: IS Investment and Bloomberg

FIGURE 12: DCF Summary

SODA SANAYİİ DCF (US$ mn) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E TV

Revenues ($mn) 595 556 538 516 516 516 516 516 516 516 516

EBITDA (Soda ash+chromium) 182 181 162 142 141 140 139 138 138 136 134

EBITDA Margin (Soda ash+chromium) 30.6% 32.5% 30.2% 27.4% 27.3% 27.1% 26.9% 26.8% 26.7% 26.4% 26.0%

EBITDA (Consolidated with electricity sales) 182 180 162 149 149 148 147 146 145 143 142

EBITDA Margin (Consolidated) 26.1% 28.0% 26.0% 25.0% 24.8% 24.6% 24.5% 24.4% 24.3% 24.0% 23.6%

Change in Working Capital 7 9 3 2 2 2 2 2 2 2 2

Capital Expenditures (85) (85) (74) (57) (32) (32) (32) (32) (32) (32) (32)

Tax 29 29 26 22 22 22 21 21 21 21 20

Free Cash Flow 61 58 60 60 84 83 83 82 82 80 79 79

Discounted FCF 61 53 51 46 59 53 49 44 40 36 32 962

PV of Discounted FCF 478

Terminal Growth 1%

PV of TV 362

Net Cash (Debt) 3Q16 168

Participations 70

Financial Investments 19

Soda-only EV 1,096

Power Plant 136

12-Month Target Equity Value 1,292

Price Target (TL) 6.27

Current Mcap 1,009


15

This report has been prepared by “İş Yatırım Menkul Değerler A.Ş.” (İş Investment) solely for the information of clients of İş Investment.

Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services

are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies,

investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who

supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be

suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and

with the assistance of independent advisors, as they believe necessary.

The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital

Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of

Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is

its accuracy or completeness guaranteed.

All information in these pages remains the property of İş Investment and as such may not be disseminated, copied, altered or changed in

any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written

permission of İş Investment. (www.isinvestment.com)

This research report can also be accessed by subscribers of Capital IQ, a division of Standard & Poor's.

Soda Sanayii

FIGURE 13: Revision in our estimates

2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E

GDP grow th, % 6,1 2,5 3,0 3,5 3,5 3,5 3,5 3,5

Consumption Grow th, % 5,5 4,1 4,2 3,0 3,0 3,0 3,0 3,0

Export Grow th, % 6,6 1,3 2,0 3,5 3,5 3,5 3,5 3,5

CPI Inflation (e.o.p.), % 8,8 8,5 9,0 8,0 7,5 7,0 7,0 7,0

CPI Inflation (average), % 7,7 7,8 8,8 8,5 7,8 7,3 7,0 7,0

CAD, % of GDP 3,7 4,3 5,0 5,0 5,0 5,0 5,0 5,0

Policy Rate, % 7,5 8,0 8,8 9,3 8,3 8,0 8,0 8,0

Money market rates % 10,3 8,3 9,5 10,0 9,0 8,5 8,5 8,0

TL Risk Free Rate (10YRS), % 10,7 11,4 11,5 11,0 10,5 10,0 10,0 10,0

US$ Risk Free Rate (30YRS), % 5,7 6,7 7,0 6,5 6,0 6,0 6,0 6,0

TL/$ (average) 2,72 3,02 3,71 3,98 4,16 4,31 4,45 4,62

TL/$ (eop) 2,91 3,53 3,88 4,07 4,24 4,38 4,52 4,72

TL/€ (average) 3,02 3,34 3,83 4,08 4,32 4,57 4,83 5,08

TL/€ (eop) 3,18 3,69 3,96 4,20 4,45 4,69 4,97 5,19

Euro/dollar parity (average) 1,11 1,11 1,03 1,03 1,04 1,06 1,09 1,10

Euro/Dollar parity (eop) 1,09 1,05 1,02 1,03 1,05 1,07 1,10 1,10

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