Equity Analysis /
Turkey

Erdemir: After a peak of US$419 in 3Q21, we expect US$392 EBITDA/ton in 4Q21E

  • We revised up our 12-mnth TP to TL43 from TL28 now implies 49% upside potential including 12.5% cash dividend potential

  • We expect EREGL to distribute TL3.96/shr cash dividend in 2022E from 2021E earnings

  • We are keeping EREGL in our top picks list

Cemal Demirtas
Cemal Demirtas

Head of Research

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ATA Invest
14 January 2022
Published byATA Invest

12M-TP is revised up to TL43 from TL28, implying 49% upside.  EREGL remains one of our top picks.

  • Based on our revised estimates, we revised up our 12-mnth TP to TL43 from TL28 now implies 49% upside potential including 12.5% cash dividend potential.

  • We expect EREGL to distribute TL3.96/shr cash dividend in 2022E from 2021E earnings.

  • Considering the indications and run rates for 1Q22E, we still see an upside risk to our 2022E estimates and valuation.

  • Overall, we expect EREGL’s net income to decline to US$1.54bn in 2022E from record-high US$1.74bn in 2021E.  In TL terms, we expect EREGL to record TL21.8bn in 2022E, implying a 42% y/y increase.

  • Based on our 2022E, EREGL is currently trading at 3.4x EV/EBITDA and 5.2x  P/E, implying 30% and 17% discount to its historic averages.

  • Our 2021E estimate of TL15.5bn net income is in line with consensus estimates TL15.5bn.  However, our net income estimate of TL21.8bn for 2022E stands 32% above Bloomberg consensus of TL16.5bn.  

We expect  EREGL to realise  2.16mn tons of sales volume and EBITDA/ton of US$392, implying  an EBITDA of US$844 mn in 4Q21.

Thanks to strong operating results, EREGL will record US$795mn PBT in 4Q21E but higher effective taxes will mitigate the positive impact of strong operating results on the bottomline and net income will be US$396mn.

In full-year 2021E, we expect EREGL to record 8.3mn tons of sales volume and EBITDA/ton of US$357, implying EBITDA of US$.96bn, which is historic high level.   Thanks to record-high operational profitability, we expect EREGL to increase its net income by 267.5% to US$1.74bn in 2021E.

We believe that EBITDA/ton of US$419 in 3Q21 was the peak and gradual decline is EBITDA/ton is likely in the following quarters. However, we still expect limited decline in EBITDA/ton for 1H22 due to balanced supply-demand conditions and much less pressure from China and other global steel players.

After a peak of US$419 in 3Q21, we expect EBITDA/ton decline to US$392 in  4Q21E and US$314 in 1Q21E due to lagging impact of higher coking coke prices.  In full-year 2022E, we expect sales volume of 8.5mn tons and EBITDA/ton US$280, implying EBITDA of US$2.4bn, which is likely to be down by 19% y/y but still 76% above the 10-yr historic average of US$1.3bn.

Overall, we expect EREGL’s net income to decline to US$1.54bn in 2022E from record-high US$1.74bn in 2021E.  In TL terms, we expect EREGL to record TL21.8bn in 2022E, implying  42% increase.

Based on our 2022E, EREGL is currently trading at 3.4x  EV/EBITDA and 5.3x  P/E, implying 30% and 17% discount to its historic averages.

Based on our revised estimates, we revised up our 12-mnth TP to TL43 from TL28, now implies 49% upside potential including 12.5% cash dividend potential. We expect EREGL to distribute TL3.96/shr cash dividend in 2022E from 2021E earnings.

Considering the indications and run rates for 1Q22E, we still see an upside risk to our 2022E estimates and valuation.