Dogus Otomotiv - Doğuş Otomotiv

Dogus Otomotiv
DOGUS OTOMOTIV
Recommendation
Upside Potential
Trading at a bargain basement price...
:
:
BUY
49%
Company Data
31/10/2005
Shares Outstanding (mn)
110
Stock Price (US$ )
3.67
Target Stock Price (US$)
5.45
Free Float Rate (%)
34%
Average Daily Volume (US$ mn)
7.65
Market Cap. (US$ mn)
403
Target Mcap
600
Exchange Rate (US$/YTL)
Key Financials
1.3473
2003
2004
2005E
2006E
12.7%
11.9%
12.5%
12.5%
Operating Margin 6.48%
5.4%
5.2%
6.0%
Ebitda Margin
5.30%
6.1%
5.9%
6.6%
Net Margin
7.37%
3.1%
3.1%
3.7%
ROE
27.5%
24.4%
24.4%
25.1%
4.0%
4.0%
2.0%
4.0%
Gross Margin
FCF Margin
Relative Performance
DOAS
(US$)
XU100
Rel %
1m
31.6%
-4.5%
37.7%
3m
32.0%
5.8%
24.8%
12 m
21.7%
52.3%
-20.1%
Share Price Performance
Price YTL
Share Price & ISE-100 Index
ISE-100
7.2
36,000
6.0
30,000
4.8
24,000
3.6
18,000
2.4
12,000
1.2
06/04
12/04
06/05
Opened to the public in June 2004, Doas is the exclusive importer and
distributer for VW passenger cars, light commercial vehicles, Scania
trucks and Krone traliers. The company controls 11% of Turkish
automotive market. DOAS’ major shareholder is Dogus Group, one of the
biggest conglomerates in Turkey.
Serves 11% of market just from selling imported vehicles... DOAS
was opened to the public in June 2004 as the exclusive importer and
distributor for Volkswagen passenger cars in Turkey (VW, Audi, Porsche,
Seat, and Skoda), VW light commercial vehicles and Scania trucks and
Krone trailers. The Company captured a 10.8% share of the overall
market in 2004, with total sales of 78,889 vehicles.
Better than expected 9M05 figures on the back of a strong 2004…
Turkey’s automotive market expanded by 88% in 2004 with sales of motor
vehicles hitting an all-time high of 753,731. This growth was spurred by
the fall in interest rates on consumer loans, pent-up demand, a strong TL,
an improving macroeconomic environment and finally the scrap incentive,
which was applied until May 2004. DOAS benefited from this strong
demand through the successful launch of new models and its high-end
product portfolio. 2005 started with a significant contraction, and the
Turkish automotive industry contracted by 15% y-o-y over the first six
months of 2005. However, the market started to recover in July and the 9month period closed with a contraction of just 6% for the overall industry.
Our revised forecast envisages a contraction of just 5% by the year-end,
compared to the 18% contraction forecast at the beginning of the year.
A pure domestic player... As DOAS only supplies the domestic market,
it is sensitive to any changes in the domestic economy and the business
environment. This is particularly true for increases in taxes and interest
rates.
Distinct dividend policy … The Company has a policy of distributing
high dividends. In accordance with its Articles of Association, DOAS will
distribute 50% of its distributable income as cash or as a stock dividend
between 2005-2008.
Attractive valuation with 49% upside potential… At its current market
cap of US$ 403 mn, DOAS trades at a 33% discount to our target market
capitalization of US$ 600 mn, and we therefore reiterate our “BUY”
recommendation.
IFRS29 Forecasts and Ratios
Fiscal
Sales
Net Profit
EBITDA
P/E
EV/Sales
EV/Ebitda
Year
(US$ mn)
(US$ mn)
(US$ mn)
(X)
(X)
(X)
6,000
2004
1,726.7
54.1
104.1
6.49
0.19
3.10
-
2005 E
1,619.5
50.6
95.3
7.90
0.23
3.98
2006 E
1,674.9
62.3
110.2
6.47
0.22
3.44
2007 E
1,736.9
65.0
113.1
6.20
0.21
3.35
Nur Karabacak
Tel: (90-212) 310 62 86
e-mail: [email protected]
November
1 2005
Dogus Otomotiv
SWOT Analysis
STRENGTHS
− Strong brand awareness and image of Volkswagen products
− Strong shareholding structure
− Broad product portfolio that fulfills the needs of different segments
(Service under one-roof)
− Consumer Finance company, VDF –JV between VW- creates
synergy, commanding 12% of the market, banks inclusive...
− Wide distribution network for easy customer access, 154
showrooms owned by third parties, 22 showrooms in major cities
owned by the company.
− High quality after-sales service increases customer satisfaction
and retention.
− DOD, the first company that offers warranty for second-hand
vehicles, pioneers its business.
− Highly flexible response to market conditions. DOAS can adjust
rapidly to slowdown in demand.
− Long-established relationship with Volkswagen A.G.
WEAKNESSES
− Low vehicle park for some models and expensive spare parts
− High price of motor vehicles in Turkey, when compared to
European average, due to high taxes.
OPPORTUNITIES
− Prospects of rising demand fuelled by positive economic outlook
and low inflation
− Potential cooperation between VW and DOAS in establishing a
production base in Turkey, as Turkey becomes a global
production hub
− Low penetration rates
− Declining interest rates will expand availability of long term
financing, assuring further growth in the industry.
THREATS
− Industry vulnerability to any instability, due to high correlation
between automotive demand and macroeconomic conditions
− Threat of sudden Government decisions on taxation issues,
creating uncertainty with the risk of reducing demand overnight...
− Intense competition, with 15 vehicle producers and more than 45
importers in the market.
− VW may seize the distributorship agreement from DOAS.
− Risk from being a sole importer and distributor, due to high
dependence on local market .
− Sale and distribution of luxury cars through independent retailers
could reduce prices.
2
Dogus Otomotiv
Valuation
We value DOAS at US$ 600 mn...
We valued DOAS using Discounted Cash Flow analysis. Our DCF
driven target value for Doas is US$ 600 mn, implying 49% upside
potential from the current Mcap of US$ 403 mn.
We have assumed a conservative CAGR of 2.6% for the growth of the
automotive industry between 2005-2010. However, we assumed a
higher CAGR of 4.5% for Doas over the same period in terms of unit
sales.
We project a 5% fall in revenues for 2005 and a 9% contraction in
EBITDA.
Imports and distribution account for around 75% of EBIT, while
automotive-related businesses contribute 21% to EBIT. The
contribution of the import and distribution segment to sales revenues is
70%.
Under stable and favorable macroeconomic conditions, we believe the
Company will capture further market share through the launch of new
models. Our estimates suggest an 11-12% market share for DOAS.
We took the 2030 Turkish Eurobond rate as the risk-free rate, which
tends to around 8%. The movements in the WACC based on changes
in the risk free rate are outlined in the table below. With a risk-free rate
of 8%, the WACC is calculated at 10.2%.
Sensitivity of WACC to risk-free rate and GDP growth
Risk Free Rate
WACC
7%
8%
9%
8.9%
10.2%
11.5%
Our sensitivity analysis, based on differing GDP growth and risk free
rates, suggests a range of between US$ 520 mn to US$ 730 mn for
the company’s fair value. For the sake of adopting a conservative
approach, we accepted our target value, of US$ 600 mn.
GDP Growth Rate
Risk
Free Rate
3
3%
7%
705
8%
552
9%
520
4%
720
600
572
5%
730
659
602
Dogus Otomotiv
Valuation (cont’d…)
DCF Valuation Summary
(US$ mn)
Forecast Cash Flow Period
Terminal Growth Rate
2005
2005-2015
1%
PV of Free Cash Flows
386
PV of Terminal Value
149
Net Cash 2005E
20
DCF Value
555
Number of Shares
110,000,000
Value of VIS
45
Target Market Cap
600
Current Market Cap
403
Discount (-)/ Premium (+)
Upside Potential
-33%
49%
Unit Sales
2003
2004
9M05
2005E
2006E
2007E
Automotive
AUDI
Porsche
SEAT
VW
SKODA
2,551
91
5,092
21,123
5,002
4,297
129
5,546
33,094
7,002
2,706
77
4,620
20,171
5,247
3,481
80
5,142
27,500
5,985
4,000
85
5,250
30,000
7,000
4,250
90
5,600
32,500
7,000
TOTAL
33,859
50,068
32,821
42,188
46,335
49,440
VW-LCV
Krone & Scania-HCV
TOTAL
10,891
1,515
46,265
26,984
1,837
78,889
22,503
1,529
56,853
30,356
1,600
74,144
31,800
1,750
79,885
32,750
1,800
83,990
2004
2005E
2006E
2007E
2008E
2009E
2010E
1,726.7
1,521.4
1,619.5
1,417.1
1,674.9
1,465.5
1,736.9
1,519.8
1,846.5
1,606.4
1,903.7
1,637.1
1,924.7
1,655.3
Cash Flow Table of Dogus Otomotiv
(consolidated figures)
(US$ mn)
Sales
- COGS
111.8
118.2
108.9
112.9
120.0
123.7
125.1
Operating Profit
+ Depreciation
- Operating Expenses
93.4
10.7
84.2
11.0
100.5
9.7
104.2
8.9
120.0
8.2
142.8
7.6
144.4
7.1
- Tax Paid
29.5
23.2
25.5
27.6
31.4
37.7
39.8
- Increase in Working Capital
50.7
-2.0
0.9
1.1
2.1
1.5
0.4
6.6
20.0
20.0
20.0
20.0
20.0
20.0
1.4
18.7
4.0
58.1
4.3
68.2
4.7
69.2
5.1
79.8
5.5
96.7
5.9
97.2
- Capital Expenditure
+Other
Free Cash Flow
Source: Company Data & Ata Invest Estimates
4
Dogus Otomotiv
Valuation (cont’d…)
Value of Vehicle Inspection Stations (VIS)
After deducting the government’s share we value the VIS at US$ 136
mn. Participation value of Doas to the value is US$ 45 mn, with 33.3%
stake.
Total planned investment for the project for 20 years is in between US
$ 120 mn and US$ 150 mn. This business’ profit margins are high,
while costs are very low due to its service business characteristic.
Consortium has the right to provide franchising to the third parties for
the stations.
Average pay-back period of the project is forecasted to be 3-4 years
and expected revenue generation for twenty years is around US$ 12
bn, as net cash flow projected is US$ 1.5 bn, again for the twentyyears period. The venture will also permit cross-selling opportunities,
which are expected to increase revenue by at least 20%. The government’s share, will be 30% between 1-3 years, 40% 3-10 years and
50% 10-20 years.
Vehicle Inspection Stations
Forecast Cash Flow Period
2005
2006-2015
PV of Free Cash Flows
546
PV of Terminal Value
142
Terminal Growth Rate
3%
TOTAL Value
688
Finance
-552
Total Value
136
DOAS’s participation
45
Source: Ata Invest Estimates
We assumed 16.3% CAGR at revenues and 30% CAGR at operating
cash flow between 2006-2010, which is still lower than the shareholder
companies’ forecasts. We deducted US$ 552 mn lump-sump payment
from DCF-driven value at one-time.
Cash Flow Statement (US$ mn)
P.Car
LCV
Turck -Bus
TOTAL Revenues
Government share
Government share (US$ mn)
TUVTURK revenue
Cost of services
Gross Profit
Tax
Gross Profit- Tax
Capex
Change in Working capital
Gross Cash Flow
Source: Ata Invest Estimates
5
2006
80.1
43.9
10.3
134.3
30%
40.3
94.0
26.3
67.7
5.4
62.2
-40
-2
20.2
2007
102.0
58.3
12.7
173.1
30%
51.9
121.1
33.9
87.2
9.9
77.3
-50
-2
25.3
2008
115.6
68.6
14.0
198.1
40%
79.3
118.9
33.3
85.6
9.6
76.0
-3
-2
71.0
2009
134.2
82.4
15.7
232.3
40%
92.9
139.4
39.0
100.3
13.0
87.4
-3
-2
82.4
2010
141.5
90.0
16.2
247.8
40%
99.1
148.7
41.6
107.1
14.5
92.5
-3
-2
87.5
Dogus Otomotiv
Valuation (cont’d...)
Global Peers Comparison Analysis
To obtain an international perspective of DOAS’ value, we compared
the Company to international distributors.
Doas trades at a huge discount to its global competitors at all
multiples. Based on the global peers’ P/E multiple Doas’ fair value
corresponds to US$ 614 mn. According to EV/Ebitda multiple, Doas
has to trade at US$ 760 mn. Lastly, based on the EV/Sales multiple
average of the global peers, Doas’ target Mcap even increases to US$
1,045 mn.
Except from the gross margin, Doas’ profit margins are not
significantly lower than the global peers’ averages.
To be on the conservative side, we did not included the results of the
global peers comparison analysis into our fair value estimation.
Mcap
(US$ mn)
P/E
EV/Ebitda
EV/Sales
Gross
Margin
EBIT
Margin
EBITDA
Margin
current
2005E
2006E
2005E
2006E
2005E
2006E
2004A
2004A
2004A
Astra International
3,655
6.61
6.27
0.01
0.01
0.80
0.74
23%
11%
13%
Carmax Inc
2,769
20.79
17.98
14.45
12.46
0.47
0.41
12%
4%
4%
S.A. D’leteren
1,421
12.48
10.15
5.51
5.21
0.77
0.73
23%
4%
18%
520
8.96
8.45
9.37
8.88
0.26
0.26
15%
3%
3%
Asbury Automotive
America’s Car Mart
average
DOAS
discount
189
9.53
8.37
8.59
7.53
0.93
0.84
46%
8%
8%
1,711
11.67
10.24
7.58
6.82
0.64
0.60
24%
6%
9%
403
7.90
6.47
3.98
3.44
0.23
0.22
12%
5%
6%
-76%
-32%
-37%
-47%
-50%
-64%
-63%
Source: Bloomberg & Ata Invest Estimates
6
Dogus Otomotiv
The Company
DOAS’ major shareholder is Dogus Group, one of the biggest
conglomerates in Turkey. The company’s shareholder structure is
outlined below:
Shareholder
share
# of shares (mn)
Doğuş İnşaat
45.4%
49.9
Somtaş Tarım ve Ticaret A.Ş.
19.9%
22.0
Katalonya
0.2%
0.2
Free Float
34.5%
37.9
Doas generates 23% of the total revenues of the Dogus Group. The
Company has three main business units creating synergies for each
other.
1- Import & Distribution (70-73% of combined revenues; 75% of EBIT)
The Company is the exclusive importer and distributor of eight vehicle
brands and their parts and accessories in Turkey. It has five brands of
passenger car (VW, Audi, Porsche, Seat, Skoda), two light and heavy
commercial vehicle brands (VW and Scania) and Krone trailers. DOAS
generates around 70% of its total combined revenues (consolidated
sales revenues + consolidation eliminations) from imports and
distribution, while nearly 75% of the EBIT comes from these
segments.
The company launched a total of 22 new models in 2005, 18 of which
were for passenger cars.
2- Retail (20-23% of combined revenues, 4% of EBIT)
DOAS is also the retailer and after-sales services provider for VW,
Audi, Porsche, Skoda, Seat and Scania vehicles. Around 20% of its
total revenue is generated from this business unit. Retail sales are
provided by independently owned dealers (154 sales points) and
DOAS-owned retail outlets (22 sales points). DOAS has the third
widest network in terms of dealerships and sales points. Its retail
business provides a valuable database of customer habits,
preferences and segmentation.
3- Automotive-Related Business (8-10% of combined
revenues, 21% of EBIT)
DOAS offers value-added services (parts and accessories operations,
consumer finance, fleet rental, second-hand cars and insurance).
Complimentary businesses include consumer finance, parts and
accessories and insurance, along with sales of second-hand cars, fleet
rental and motor sports.
VdF (Consumer Finance ): Facilitates DOAS’s sales
Vdf is a joint venture between DOAS (49%) and VW Financial
Services A.G. (51%). The Company provides consumer loans to 13
brands, with 35% of such loans extended to DOAS.
7
Dogus Otomotiv
The Company (cont’d…)
Vdf has a 65% market share among consumer finance companies and
a bank inclusive market share of around 12%. Average loans cover a
maximum of 80% of total vehicle value, with an average maturity of 30
months. This is expected to be a high growth business area.
Vdf, through Volkswagen Financial Services raised €160 mn through a
YTL denominated bond. The purpose of the deal is to finance Vdf’s
auto loan operations. Dresdner Bank was the counterparty to VW
Financial Services, which has €41 bn in assets. Half of the bonds had
a one-year maturity and the other half had a two-year maturity. The
respective coupon rates for the bonds were 15.5% and 14.25%.
Vdf is consolidated in Doas’ financials by 48% with the equity pick-up
method.
Second-Hand Business DOD: High growth prospects
DOAS’s second-hand business, DOD, manages and stabilizes the
second-hand value of DOAS brands while bringing high standards to
the second-hand car market. In addition, it was the first company to
provide warranties for used cars, which it sold. The company sold
around 3,000 vehicles in 2004, a growth of 3% y-o-y. A total of US$ 50
million in revenue was generated in 2004. We expect the second hand
car business to achieve better growth in the coming years.
One-Stop Shopping Concept
With all its business units, the Dogus Group is a service group
reaching end-consumers. The Group is trying to create synergies
between its business units and increase the depth of the services
provided through a one-stop shopping strategy aimed at fulfilling all
customer demands.
Through this structure, the Group is able to offer a broad range of
services all the way down the value chain. DOAS aims to establish a
permanent relationship with customers to ensure their satisfaction and
loyalty.
A summary of these business units:
DOGUS GROUP
Banking &
Financial
Services
Autom otive
Food –
Retail
Tourism
Construction
Media
Import &
Distribution
Audi
Porsche
SE AT
SKODA
Katalonya %50
Yüce Auto %50
Scania
VW . P.Car
VW LCV
Krone
Retail
Automotive
related business
DOAS
DOG US O TO (%86.5)
VW . P .Car
Audi
Seat
Skoda
VW LCV
Porsche
Scania
Krone
DO GUS Logistics
P arts & Acc.Im port &Dist.
VDF Holding
Consum er Finance (% 48)
Dogus
Insurance (%40)
Vdf
Consum er Finance
8
Motor Sports (%99.9)
Vdf autom otive
-Second Hand (DOD)
-Fleet Services(Europcar)
Dogus Otomotiv
The Company (cont’d…)
Effective market positioning through different brands..
In the Volkswagen Group, each brand retains a differentiated brandimage and operates as an independent entity in the market. DOAS
successfully implements this strategy in Turkey. Brand recognition is
high, with the brand being associated with high quality, reliability and
having a classy, sporty image.
Passenger Cars
Volkswagen (61% Doas PCs & 7% of Turkish PC market)
The Volkswagen brand group, which includes Volkswagen passenger
cars, Skoda, Bentley and Bugatti, offers a range of products from
small sub-compact cars to luxury saloons. The brand strategy is to set
class-beating standards to all of its product groups.
The ten best-selling Passenger Cars in Western Europe in 2004 (#3)
Renault Megane II
702,750
Ford
549,949
Volkswagen
548,723
Peugeot 206
497,122
Peugeot 307
446,404
Renault Clip
373,810
Opel Astra
352,337
Opel corsa
323,158
Ford Fiesta
307,315
Fiat Punto
T.I.V. (Cars)
304,044
14,514,977
Source: Renault Atlas 2005
Skoda Brand Group (16% Doas PCs & 2% of Turkish PC market)
Skoda offers a range of products for the economy to mid-class
segments, which deliver value for money.
Audi Brand Group (8% Doas PCs & 1% of Turkish PC market)
The Audi brand group comprises the Audi and SEAT brands, whose
brands are known for their high tech, design and class.
Commercial Vehicles
Commercial vehicles are a separate business area where the
company offers an extensive product range. The Transporter and the
Caddy are well positioned in the market, with a perception of German
engineering quality.
The ten best-selling LCVs in Western Europe in 2004 (#6)
Ford Transit
127,084
Renault Kangoo Express
106,381
Mercedes Sprinter
94,791
Citroen Berlingo
81,470
Fiat Ducato
80,594
VW Transporter
69,562
Peugeot Partner
62,506
Iveco Daily
60,506
Renault Master
54,624
Ford T. Connect
T.I.V. (LCVs)
54,279
1,942,962
Source: Renault Atlas 2005
9
Dogus Otomotiv
Sectoral Outlook: 2005 & Onwards
Turkey is a promising market...
The Turkish automotive market is one of the fastest growing markets
in Europe and has the lowest penetration level. Car penetration in
Turkey stands at just 96 per 1,000 population in a country of over 70
mn people, compared to 500 per 1,000 for Western Europe and 280
for new EU members. Thus, Turkey offers a much more promising
long-term outlook for its automotive industry than other European
peers.
Car Ownership per 1000 people
Car ownership
700
600
Average :377
500
400
300
200
100
Turkey
Romania
Slovakia
Latvia
Hungary
Poland
Bulgaria
Greece
Estonia
Lithuania
Malta
Czech Republic
UK
Cyprus
Spain
Slovenia
France
Austria
Italy
Germany
Luxembourg
0
Source: CIA Fact Book
In a stable economic environment, the local automotive market is
estimated to grow at a CAGR of 4.6% between 2003-2009, based on a
report prepared by JD Power research, while we forecast 2.6% growth
between 2005-2009. Demand is highly sensitive to price-quality
issues, and imports are significant. Imports account for 57% of the
total market; this figure increases to 69% for the passenger car
segment. On the other hand, Turkey is a net exporter in the LCV
segment, with an import ratio of 45%.
2004 was a record breaking year for the automotive sector. The sector
posted 88% growth over 2003. The passenger car segment grew by
99% y-o-y with 451,209 cars sold in 2004. While imports in this
segment increased by 103% to 311,668 units, passenger car exports
were up by only 43% to 305,072 units, making Turkey a net importer
of passenger cars.
Sales of LCVs (Light Commercial Vehicles) increased by 80% to
247,886, with imports accounting 45% of the total market. Competition
is fierce in the segment due to strong demand and the versatility
offered by such vehicles, which can be used as either passenger cars
or commercial vehicles.
Following the slow-down in 2H04 due to abolishment of the scrap
incentive, rising oil prices and higher rates of special consumption tax,
2005 started with a sharp contraction and the sector shrank by 15%,
with the passenger car segment recording the most significant
contraction with a 21% y-o-y decline in 1H. The recovery in the sector
started in July, and as of 9M05 the overall y-o-y contraction in the
sector had narrowed to 6%; it is likely that the contraction in the
passenger car segment would have been pared to around 11%.
10
Dogus Otomotiv
Sectoral Outlook: 2005 & Onwards
In our forecast made at the beginning of the year, we had forecasted
an 18% y-o-y contraction for the automotive sector for FY05. However,
once the green shoots of a recovery began to appear, we revised our
year-end contraction forecast down to 5%, corresponding to total sales
of 714,430 motor vehicles.
Auto Market
Unit Sales
2000
2001
2002
2003
2004
2005E
2006E
9M04
9M05 change %
Passenger Cars
466,726 131,438
90,615 227,036 451,209 401,576 409,608 336,173 300,288
-11%
LCV
153,511
66,834 137,033 246,886 260,000 267,800 180,798 188,902
4%
Passenger Car+LCV
620,237 183,752 157,449 364,069 698,095 661,576 677,408 516,971 489,190
-5%
Trucks
Total
38,881
52,314
35,156
-14%
659,118 195,184 174,920 400,451 753,731 714,430 731,319 557,980 524,346
-6%
Growth (%)
62%
11,432
-70%
17,471
-10%
36,382
129%
55,636
88%
52,854
-5.21%
53,911
41,009
2.36%
Source: OSD & Ata Invest Estimates
We project slow progress for the sector in 2006 with the total market
projected to grow by 2.4% y-o-y with total sales rising to 731,319 units.
We project growth to remain steady again in 2007 with 2.6%.
However, for 2008, with the launch of new versions of existing models,
and companies’ investments in new models, we expect 6.4% growth in
volumes in the sector, with total sales rising to 801,000 units.
Turkey has the highest tax rates among its European peers…
Turkey has the highest tax rates on automotive sales, and it is one of
the easiest means of tax collection for the state.
Therefore, there is an ever-present risk of overnight changes in tax
rates, creating uncertainty in the industry. Taxation is and will remain
the major threat to industry growth, with day-to-day applications and/or
overnight decisions hitting not just DOAS but the whole industry. This
threat affects investment decisions in the industry as well as
inventories, demand, profitability and company valuations.
Current taxation scheme for passenger cars and LCVs is:
PC
LCV
Motor
Base price
VAT
SCT
Total Price inc. taxes
0-1600 cc
100
18%
37%
162
1600-2000 cc
100
18%
60%
189
2001 cc +
100
18%
84%
217
Minivan, Van
100
18%
4%
123
Minivan (5 place)
100
18%
10%
130
Minibus
100
18%
9%
129
Consumer Finance
Consumer loans increased to an all time high of YTL 21,343 mn in
2004. The fall in inflation and interest rates on consumer loans on the
back of improved macroeconomic stability, the postponed release of
pent up demand and a strengthening TL — and thus increased
purchasing power — were the main factors fueling demand.
11
Dogus Otomotiv
Sectoral Outlook: 2005 & Onwards
A total of YTL 19,533 mn in consumer loans were extended in 1H05,
of which YTL 5,003 mn were for automotive loans. Plunging interest
rates on housing loans, together with rising interest in the real estate
sector has resulted in a wave of consumers taking out housing loans.
However, it is crucial to note that people frequently use retail loans,
not car loans, to purchase motor vehicles. Despite the rapid expansion
in car loans over the last three years, the terms of the loans remain
short. The longest terms are around two years, still representing a
heavy burden for the consumer. This is the area that may support
further growth when consumer financing is extended to longer
maturities.
Consumer Loans, Automobile Loans
Cons um e r Loa ns (m n US$ )
Autom obile Loa ns (m n US$ )
1 4 ,0 0 0
2000
2001
2002
2003
2004
1 2 ,0 0 0
1 0 ,0 0 0
8 ,0 0 0
6 ,0 0 0
4 ,0 0 0
2 ,0 0 0
Source: OSD
12
02-05
10-04
06-04
02-04
10-03
06-03
02-03
10-02
06-02
02-02
10-01
06-01
02-01
10-00
06-00
0
Dogus Otomotiv
Operations & Financials
Due to decreasing demand for passenger cars, especially in the luxury
car segment, with special consumption tax (SCT) rates changing
between 37%-84%, Doas’s unit sales dropped considerably in the first
half of the year.
The recovery in Doas’ passenger car sales started in the second half,
and the 37% contraction in 1H was pared to a 20% shrinkage by the
end of 9M05. Meanwhile, the company’s LCV sales had posted a
6.5% y-o-y fall in 1H, but rebounded strongly starting with July to the
extent that by the end of 9M sales for the year-to-date were 15%
higher, y-o-y, raising Doas’ market share to 11.8% (compared to 9.5%
in 9M04). Note that even acquiring 2%-points of market share is
extremely significant in this cutthroat market.
We expect Doas’ passenger car sales to decline by 16% in FY05, but
with a 12% y-o-y increase in LCV sales. A 6% overall contraction on a
unit basis is expected, in line with our 5% contraction forecast for the
sector.
DOAS
Unit Sales
2003/12 2004/12
1H05
1H04
9M05
9M04
2005 E
2006 E
Automotive
AUDI
Porsche
SEAT
VW
2,551
4,297
1,538
2,125
2,706
3,029
3,481
4,000
91
129
44
51
77
105
80
85
5,092
5,546
2,536
3,970
4,620
4,978
5,142
5,250
21,123
33,094
12,388
20,692
20,171
27,473
27,500
30,000
SKODA
5,002
7,002
2,925
4,020
5,247
5,546
5,985
7,000
TOTAL
33,859
50,068
19,431
30,858
32,821
41,131
42,188
46,335
10,891
26,984
12,860
13,752
22,503
20,442
30,356
31,800
LCV
VW
Krone & Scania
TOTAL
1,515
1,837
949
995
1,529
1,481
1,600
1,750
46,265
78,889
33,240
45,605
56,853
63,054
74,144
79,885
Source: Company Data & Ata estimates
Doas’ overall market share held steady in 9M05 at 11%, unchanged
from its 2004 level. We expect the company to maintain its 11%
market share in the passenger car segment through until the end of
the year, and forecast its market share to rise to 12% in the coming
years.
2004 Market Shares @ Passenger Cars
Doas
11%
Hyundai
9%
9M05 Market Shares @ Passenger Cars
Doas
10%
11%
Opel
8%
Others
22%
Hyundai
11%
Opel
9%
Tofas
11%
Tofas
9%
Others
29%
28%
Peugeot
5%
Peugeot
7%
Ford
16%
Ford
10%
Renault
16%
Source: OSD
13
Renault
17%
Dogus Otomotiv
We estimate US$ 1,620 mn in turnover for FY 2005, implying a 6%
decline over the US$ 1,727 mn sales revenue in 2004.
Accordingly, we estimate US$ 94.9 mn in EBITDA, 9% lower than in
2004, corresponding to an EBITDA margin of 6%.
We expect net income to contract 6% to US$ 51 mn in 2005.
We assumed that revenues would increase at a CAGR of 2.92%
between 2005-2010, with EBITDA growing at a CAGR of 8.03%. Our
EBITDA projection suggests gradual growth in the EBITDA margin
from 5.9% in 2005 to 7.9% in 2010.
Sales
Financial Highlights (US$ mn)
Ebitda, Net Income, Dividends
200
2,500
2,000
150
1,500
100
1,000
50
500
0
2004
2005E
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
Sales
1,727
1,620
1,675
1,737
1,846
1,904
1,925
2,016
2,174
2,278
Ebitda
104
95
110
113
128
150
151
158
169
176
Net Income
54
51
62
65
76
92
93
98
106
112
Dividends
26
24
30
31
37
44
45
47
51
54
Source: Company Data & Ata Invest Estimates
When Doas’ growth is viewed with respect to the historical
development of the sector, it is seen that Doas has outperformed the
overall market between 1994-2000, before growing in line with the
sector between 2001-2004. Doas’ CAGR of 52% far outpaced the
sector CAGR of 13.48% between 1994-2000. However, between
2001-2004, the sector’s CAGR was 42%, while Doas recorded a
CAGR of 45%.
800,000
700,000
60,000
456,272
400,000
46,382
393,888
388,602
323,309
300,000
100,000
70,000
503,482
500,000
200,000
80,000
725,672
635,087
600,000
90,000
78,889
80,753
262,022
39,806
44,224
29,399
280,958
11,174
4,352
172,042
20,000
15,831
10,000
4,227
0
1994
1995
1996
40,000
30,000
179,822
17,803
50,000
0
1997
1998
Total Market
Source: OSD & Company Data
14
1999
2000
2001
Dogus Otomotiv
2002
2003
2004
0
Dogus Otomotiv
Costs
Although the Company is a major importer, it has a similar and
comparable cost structure to leading automotive manufacturers.
DOAS has a higher gross margin than Tofas, Karsan and Ford
Otosan, with a 13.5% margin in 1H05. The company ranks third in
terms of its EBITDA margin, at 5.8%, trailing Ford and Tofas.
In 2005, we expect the share of operating expenses to grow from the
6% in 2004 to 7.3% due to the launch of new products. As demand
slows, companies will spend more on marketing efforts, such as
promotional campaigns.
Costs
19%
Other
26%
Distribution
7%
Marketing &
Selling
15%
Source: Company Data
15
After Sales
Services
28%
Amortization
5%
Dogus Otomotiv
Vehicle Inspection Stations
In a consortium with German TUV Suddeutschland (TUVSUD) and
AKFEN Holding (Akfen), Dogus Holding won the tender for the
privatization of motor vehicle inspection services with a bid of US$
613.5 mn (US$ 300.25 mn for the first region and US$ 313.25 mn for
the second).
Consortium Shareholding Structure (TUVTURK)
Akfen
Holding
33.33%
TUVSUD
33.34%
DOAS
33.33%
Source: Company Data
The consortium will benefit from a 10% discount on a lump-sum
payment, so the total amount to be paid will be US$ 552 mn. The
project will be 100% financed through long-term debt. The stations will
have a paid-in capital of US$ 75 mn and Doas will be able to afford
this through bank borrowing. The total planned investment for the
project will be between US$ 120 mn and US$ 150 mn over a 20-year
period. The business offers high profit margins with very low costs
thanks to its characteristic of being a service business. The consortium
has the right to provide franchising to third parties for the stations.
The project is forecasted to have an average pay-back period of 3-4
years and generate around US$12 bn in revenues over a twenty year
period, with US$ 1.5 bn in net cash flow projected, again over a
twenty-year period. The venture will also allow cross-selling
opportunities, which are expected to lift revenues by at least 20%. The
government will take a 30% share of the revenues for the first three
years, a 40% share between the third and tenth years, rising to 50%
from the eleventh to the twentieth year.
There are currently fixed stationary vehicle inspection centers along
highways in 71 towns and 13 provinces, with mobile centers in 10
provinces and 578 towns. These centers, which mainly inspect
commercial vehicles, generated US$ 110 million of turnover in 2003.
Every vehicle must go through an inspection. For passenger cars, new
cars will have to go through inspection three years after their purchase
and then undergo an inspection every two years. For commercial
vehicles, new vehicles will have to go through inspection two years
after the purchase and then be inspected each year.
The services provided in the inspection services will be executed
through franchises. TUVTURK will establish a minimum of 189 fixed
stations and 38 mobile stations in 81 cities. Around 40-50 mobile
stations will be set up for smaller towns and settlements. There will be
one franchise holder in each city, which will operate for 20 years.
TUVTURK will be the controlling body, and will be responsible to the
ministry.
16
Dogus Otomotiv
The inspection tariffs will be determined by the Ministry of Finance.
Currently, the inspection fees are YTL 100 for buses and trucks, YTL
75 for passenger cars and YTL 40 for farm tractors and motorcycles.
There are 10 mn vehicles in Turkey, with inspected cars comprising
27% of the total in 2003 (2.7 million vehicles). This proportion
expanded to 30-35% in 2004. The consortium expects this ratio to
reach 60-65% within the next three to four years and 80-90%
thereafter. The Government will also support this through new traffic
laws.
Given the growth of the automotive industry during 2004, we believe
the acquisition of inspection stations will have a positive impact on
DOAS' performance. It will also create synergies with the products and
services already offered by DOAS.
With more emphasis on the automotive-related business, the share of
this business should grow from 10% to 30% in total revenues. Its
contribution to EBIT, however, may reach up to 40%.
Revenue by Business Segments
(2004)
Revenue by Business Segments
(Future)
Auto Related
Bus.
10%
Retail
20%
Import &
Dist.
70%
Auto
Related
Bus.
30%
Import &
Dist.
50%
Retail
20%
Source: Company Data
Last word: The Council Of State approved the transfer of operating
rights for the vehicle inspection services in October 25th, so we
included the our fair value of Vehicle Inspection Stations (VIS) to our
target valuation for Doas.
17
Dogus Otomotiv
Corporate Governance
Dividend Policy
In accordance with its articles of association, DOAS plans to allocate a
minimum of 50% of its distributable net profit as annual dividends
between 2004-2008. Accordingly, it distributed YTL 34.85 mn of cash
dividends to its shareholders from its 2004 distributable income of YTL
72.32 mn.
This corresponds to a net dividend of YTL 0.32 per 1 YTL nominal
share, a payout ratio of 48.2% and a 9% dividend yield at its payment
date.
Estimated Dividend Pay-out & Yield (*)
60
18%
50
15%
40
12%
30
9%
20
6%
10
3%
0
2004
2005E
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
Dividend Pay-out
26
24
30
31
37
44
45
47
51
54
Dividend Y ield
9%
7%
9%
9%
10%
13%
13%
14%
15%
15%
(*) At dividend yield calculation, current Mcap of the comapny was used.
Source: Company Data & Ata Invest Estimates
Disclosure and transparency of operations
DOAS employs consolidated International
Standards in its financial statements.
Financial
Reporting
Board structure and process
In line with its corporate governance rules, DOAS has four different
committees under the board of directors.
Chairman
Board of Directors
Executive Comittee
Dealer Network
Comittee
Finance
Comittee
18
Risk
Comittee
HR
Comittee
0%
Dogus Otomotiv
BALANCE SHEET (US$ mn)
2004/12
2005E
2006E
2007E
CURRENT ASSETS
Cash and Cash Equivalents
53.35
40.00
62.40
63.32
Short-Term Trade Receivables
58.11
88.74
91.78
95.17
2.13
2.50
2.70
3.20
187.37
Short Term Receivables from Related Parties
Inventories
275.53
174.71
180.68
Other Current Assets
18.37
-
6.27
8.93
Total Current Assets
407.50
305.95
343.83
357.99
81.11
87.60
94.60
102.20
8.91
9.00
9.20
9.50
Tangible Fixed Assets
75.12
81.10
85.20
89.50
Intangible Fixed Assets
4.89
5.00
5.20
5.30
Deferred Tax Assets
1.66
0.00
0.00
0.00
Other Long-Term Assets
2.49
-
3.00
4.00
Total Fixed Assets
174.18
182.70
197.20
210.50
TOTAL ASSETS
581.68
488.65
541.03
568.49
LONG TERM ASSETS
Long-Term Financial Assets
Investments in Associates
SHORT TERM LIABILITIES
Short-Term Financial Loans
15.67
10.00
10.00
12.00
Short-Term Trade Payables
287.42
213.54
220.83
229.00
18.59
20.00
23.00
24.00
4.58
12.66
15.57
16.25
13.83
6.76
-
-
340.08
262.95
269.41
281.26
Long-Term Financial Loans
9.46
10.00
35.00
30.00
Provisions for Retirment Pay
1.40
2.50
2.70
2.80
Deferred Tax Liabilities
2.97
-
-
-
Short-Term Payables to Related Parties
Taxes Payable
Other Short-Term Liabilities
Total Short-Term Liabilities
LONG TERM LIABILITIES
Total Long-Term Liabilities
TOTAL LIABILITIES
Minority Interests
13.83
12.50
37.70
32.80
353.91
275.45
307.11
314.06
6.34
6.00
6.00
6.00
TOTAL SHAREHOLDERS’ EQUITY
221.43
207.20
227.92
248.43
TOTAL LIABILITIES AND S.HOLDER'S EQUITY
581.68
488.65
541.03
568.49
INCOME STATEMENT
2004/12
2005/12
2006/12
2007/12
Net Sales
1,726.67
1,619.55
1,674.90
1,736.89
Cost of Sales (-)
1,521.43
1,417.10
1,465.54
1,519.75
GROSS PROFIT (LOSS)
205.24
202.45
209.36
217.11
Operating Expenses
111.83
118.23
108.87
112.90
93.41
84.22
100.49
104.21
OPERATING PROFIT (LOSS)
Income & Expenses From Other Operations -net
1.88
2.75
2.66
2.63
13.90
14.64
14.17
13.97
Income From Participations -net
0.73
-
-
-
Net Monetary Gains/ (Losses)
1.13
-
-
-
Profit Before Tax
83.25
72.33
88.98
92.86
Taxation on Income (-)
29.52
21.70
26.70
27.86
0.40
-
-
-
54.13
50.63
62.28
65.00
Financial Expenses –net
Minority Interest
NET PROFIT AFTER TAX
19