We are revising up our 2022 and 2023 net income estimates by 45.1 % and 23.3%, respectively, to TL31.8bn and TL30.1bn. Our off-consensus net income estimates for 2022 and 2023 now stand at 66% and 67% above the Bloomberg consensus.
Supported by increase in steel prices and improvement in pricecash cost spreads amid ongoing recovery in global steel sector, we revised up our 2022 EBITDA/ton estimates by 44.8% to US$407, 12% above record high of US$365 realized in 2021.
Lagging positive impact of rising steel prices on 2Q22 and 3Q22 results could be the short-term positive catalyst ahead.
Revising up our 12-mnth TP by 26% to TL54.00, implying 77% upside potential including a hefty cash dividend yield of 19.8%.
Despite the lagging negative impact of high coking coal prices in 1Q22, we expect Erdemir to realise EBITDA/ton of US$346 in 1Q22 followed by record high quarterly EBITDA/ton of US$461 in 2Q22. According to Worldsteel Outlook Oct 2021 report, global steel demand is expected to growth by 2.2% to 1.9bn ton in 2022 on top of 4.5% growth realised in 2021. Post-pandemic recovery in global demand coupled with supply side restrictions due to ongoing Russia-Ukraine conflict and lower export pressure could lead global prices remain high for the foreseeable future. Considering the current pricecash cost spreads and momentum in global prices, in our base scenario, we believe that Erdemir will increase its EBITDA/ton to US$407 in 2022E from US$365 in 2021, assuming avg- Turkey HRC price of US$1,048 in 2022E from average of US$948 in 2021. Considering that Turkey HRC prices and HRC- Raw Material spreads were standing at US$1,285 and US$595 as of last week, we see an upside risk to our revised off-consensus estimates. Rather than raw material increases, sudden plunge in steel prices could be the major risk. Considering the Russia- Ukraine conflict and supply side restrictions in China, we do not expect significant pressure on prices for the foreseeable future. However, considering the cyclical nature of the steel sector, we expect steel prices to stabilise at a lower level in 2023.