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Tekfen Holding AS: 3Q22 review – Lower than expected EBITDA margin

  • Tekfen reported TL736mn net income in 3Q22, compared to our estimate of TL661mn net inc. and cons. estimate of TL661mn

  • The company posted TL705mn EBITDA in 3Q22, lower than our estimate of TL816mn (Ras. Cons: TL758mn).

  • We believe that the initial reaction to the results will be negative due to weak contacting segment performance in 3Q22

Zeynep Erman
Zeynep Erman

Equity Research Analyst

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ATA Invest
31 October 2022
Published byATA Invest

Tekfen reported TL736mn net income in 3Q22, compared to our estimate of TL661mn net income and consensus estimate of TL661mn. Despite the lower than expected EBIT, lower than expected other operating expense and higher than expected tax led to higher than expected net income in 3Q22.

The company posted TL705mn EBITDA in 3Q22, lower than our estimate of TL816mn (Ras. Cons: TL758mn). The company reported 8.6% EBITDA margin in 3Q22, lower than our estimate of 10.4% and the consensus of 9.6%. We believe that the initial reaction to the results will be negative due to weak contacting segment performance in 3Q22.

Tekfen will hold conference call today at 16.30 Istanbul time

Tekfen’s revenues increased by 128% y/y to TL8.22bn in 3Q22, which was 4% higher than our estimate of TL7.87bn. Engineering & contracting revenues increased by 34% y/y to TL2.64bn in 3Q22, 4% lower than our estimate of TL2.74bn. Contracting revenues constituted 32% of the company’s total revenues in 3Q22 (2Q21: 55%). Its backlog declined by 1% q/q to US$1.4bn in 3Q22. The company added US$129mn new project into the its backlog in 3Q22. The largest project in backlog is North Field East Onshore Project EPC-1 Package in Qatar. The remaining backlog from that project was US$440mn (32% of total backlog). Chemical industry revenue increased by 257.9% y/y to 5,013mn, which was 7% higher than our estimate of TL4,689mn, thanks to higher fertilizer sales prices and volume in 3Q22. Agri cultural production revenue increased to TL67mn in 3Q22 from TL51mn in 3Q21 while services revenue increased by 235% y/y to TL475mn. Investment revenue increased to TL24mn in 3Q22 from TL36mn in 3Q21.

Lower than expected contracting EBITDA margin in 3Q22. Tekfen’s consolidated EBITDA was TL705mn in 3Q22, implying 8.6% margin, lower than our estimate of TL816mn. In more details, its contracting EBITDA margin declined to minus 6.9% in 3Q22 from 5.7% in 3Q21 and 10.1% in 2Q22due to additional cost increases from Haradh Project in Saudi Arabia (ATA Est.: 0.5%). Chemical industry business EBITDA margin declined to 15.7% in 3Q22 from 17.6% in 3Q21 (ATA Est.:15.7%).

Consolidated net cash increased to TL1,917mn in 3Q22 from TL1,069mn in 2Q22. Contracting segment net debt increased by 6% q/q to TL3.4bn in 3Q22. Chemical industry net cash increased to TL2.4bn in 3Q22 from TL1.4bn in 2Q22. Services net cash increased to TL235mn in 3Q22 from TL138mn in 2Q22. Tekfen’s stand-alone net cash was TL1.9bn in 3Q22 versus TL1.1bn in 2Q22.