Banvit

Transcription

Banvit

Initiation of Coverage
Banvit
TURKEY- EQUITY RESEARCH
April 15, 2010
Food
Time to use the wings…
OUTPERFORM
Leader poultry meat producer with around 12% market share in very fragmented Turkish
st
market... Banvit has been ranked 1 in terms of poultry production for the last three years.
Considering its long presence in the market and consumers’ high loyalty to the brand, the
company has always enjoyed its strong image in the market while adjusting its prices, which is
always ahead of sector average.
(Initiation of Coverage)
Metin Esendal
+90 212 319 1491
Robust poultry meat demand in 2010… Owing to high red meat prices that increased by 34%
during 2009 and 20% in 1Q10, the existing shift from red meat to poultry meat will continue this
year as well. Thus, we foresee Banvit’s poultry meat sales to rise 8% in 2010.
[email protected]
Soaring prices will support top-line growth... Due to higher red meat prices coupled with
stronger poultry meat demand, poultry meat prices surged by 17% in 2009. In an environment
that imports are not allowed and domestic red meat supply is insufficient, we expect red meat
prices to stay at 30% above last year average prices. Additionally, stronger poultry meat
demand backed by existing shift from red meat to poultry meat as well as expansion in exports,
we believe domestic poultry meat producers will have the chance to push up the prices further
in 2010. Accordingly, we expect 10% increase in poultry meat prices this year.
BANVT TI / BANVT.IS
Valuation
Share Price (TRL)
4.94
Target Price (TRL)
7.15
Upside Potential
45%
Market Cap (USDmn)
336
Net Debt (USDmn)
153
Red meat revenue is forecast to triple by 2012... The company has currently 20k cattle in its
facilities but it is aimed to surge to 50k by 2012. Moreover, since 65% of Banvit’s red meat
products have sold in carcass form to third parties, the company is set to enjoy higher prices
while its production expands. Accordingly, we foresee red meat revenue to reach TRL178mn
level which is more than threefold of current figures.
EV (USDmn)
489
Avg. Daily Vol. (USDmn)
5.3
Total revenues are expected to grow by 25% YoY in 2010… Thanks to developing demand
for poultry meat and processed products coupled with more favorable prices as well as
expansion in red meat production, we expect total revenues to rise by 25% YoY to TRL1bn in
2010, followed by 20% increase in 2011, reaching TRL1.2bn.
Num. of shares (mn)
100
Please see the important disclosures at the end of this report
2010E
989
25%
129
13.0%
49
5.0%
0.5
11%
10.2
5.7
2011E
1,191
20%
143
12.0%
57
4.8%
0.6
17%
8.8
5.1
18.9%
14.5%
19.3%
Makbule Gorener
4.8%
Free Float
17.7%
Performance Chart
Return
TRL
Rel.
1M
2%
-9%
3M
28%
17%
12M
137%
16%
Mcap (US$mn)
Rel.Perf.
140%
120%
100%
80%
60%
40%
20%
0%
400
350
300
250
200
150
100
50
0
Apr-10
2009
792
22%
102
12.9%
44
5.6%
0.4
n.m.
11.4
7.2
24.8%
Valid Faruk Ebubekir
Esra Gorener
Christoffel
Emine Oksan Kocman
Feb-10
2008
650
20%
31
4.8%
-43
n.m.
-0.4
n.m.
n.m.
23.5
10%
Ownership Structure
Vural Gorener
Oct-09
(TRLmn)
Net Sales
Sales growth
EBITDA
% margin
Net Earnings
% margin
EPS
EPS growth
P/E
EV / EBITDA
18
Foreign Ownership
Dec-09
Forecasts and Ratios
5.26 / 2.15
Free Float
Jun-09
Initiating with “OUTPERFORM” rating, 45% upside potential… On the back of bright
outlook in poultry meat business and production expansion in red meat business along with
soaring prices, we believe 2010 will be another good year for the company.
12m High / Low
Aug-09
Multiple analysis shows significant discount to our peer average… Based on our 2010
EV/EBITDA estimate of 5.7x, BANVT trading at a 32% discount to our peer group average.
-167
Trading
Apr-09
Risks… Sudden hikes in poultry meat production, outbreak of any disease, surge in the
commodity prices and depreciation of TRL can be stated as the major risks. However, we
consider any improvement in incentives to boost exports as an upside risk to our valuation.
Net FX Pos. (USDmn)
1
BANVT / Initiation of Coverage
April 16, 2010
TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................... 2
INVESTMENT SUMMARY ............................................................................................... 3
RISKS ............................................................................................................................... 5
VALUATION ..................................................................................................................... 6
BUSINESS OUTLOOK..................................................................................................... 8
SECTOR OVERVIEW .................................................................................................... 16
COMPANY OVERVIEW ................................................................................................. 23
FINANCIAL STATEMENTS ........................................................................................... 25
2
April 16, 2010
INVESTMENT SUMMARY

Leader poultry meat producer with 12% market share in very fragmented Turkish
st
market... Banvit has been ranked 1 in terms of production for the last three years. Besides,
the company is the largest processed product producer in Turkey. Considering its long
presence in the market and consumers’ high loyalty to the brand, the company has always
enjoyed its strong image in the market while adjusting its prices, which is always ahead of
sector average, despite lofty competition among the players in Turkey.

Domestic poultry meat demand will continue to be strong in 2010 and beyond... Given
that per capita meat consumption is at 27kg in Turkey which is quite behind developed
countries, we believe domestic consumption has room to go a lot further. It is obvious that
per capita meat consumption – both red meat and poultry meat- in Turkey will rise as the
purchasing power of consumers improves. However, it seems to us that poultry meat
business has significant advantages against red meat business mainly owing to lower prices
(currently red meat price/poultry meat price ratio is at 3.7x which is 12% above 5-year
average of 3.3x), making poultry sector more valuable, in our view. Considering that the
existing shift from red meat to poultry meat, which can be mostly attributable to high red meat
prices, is unlikely to reverse in the short run, the company apparently will continue to be
beneficiary of this transaction in consumers’ preferences in the years ahead. We expect that
Banvit will manage to deliver 8% growth figure in its domestic poultry meat sales volume this
year, followed by 7% YoY in 2011. In addition, we foresee demand for processed products to
rise by 20% this year on the back of rebound in the macroeconomic conditions.

Soaring prices will support top-line growth... Poultry meat prices, on average, had
increased by 17% during 2009 compared to previous year. We believe soared red meat
prices played an important role in such a hike in prices in a year of economic slowdown. As a
reminder, red meat prices were up 60% in March compared to beginning of 2009. On the
back of rises in prices of red meat, that might be considered substitute of poultry meat,
coupled with stronger demand with the help of expansion in exports, poultry meat producers
had the chance to push up the prices in local market despite relatively marginal cost inflation
thereby favouring top-line as well as margins during 2009. In the 1Q10, red meat prices again
appeared very strong and were up by another 20%. Going forward, red meat prices are
expected to stay at these high levels, helping poultry meat prices go up further in 2010. We
anticipate poultry meat prices to rise by 10%, on average, over a year ago in 2010.

Contribution of exports will be limited again in 2010… Although there has been news on
a possible 500k tons of poultry meat exports to Russia in the market, market players had
widely stated that such a number is not realistic considering the existing capacity in Turkey.
Besides, production costs in Turkey are even higher than end-product prices in Russia.
Without any strong incentive, we don’t expect any major chance in exports given that current
incentive of USD26 per ton is quite away from building up a competitive advantage for
Turkish players. We assume Banvit’s export revenues to ascend by 38% YoY this year, in
USD terms, to USD30mn from USD21mn, followed by 19% increase in 2011 based on a
modest improvement in current export sales - mainly in Iraq - with a limited Russian
contribution( 3k tons for 2010 and 5k tons for the following years).
3
April 16, 2010

Red meat revenue is forecast to triple by 2012... The company initiated its red meat
business in 2006. Currently, the company has 20k cattle in its facilities but it is aimed to
surge to 50k by 2012. Accordingly, total red meat production is anticipated to be at 12.5k tons
in 2012, corresponding to 2% market share in Turkey. We believe strong price trend in red
meat business is likely to persist in the years ahead. Since 70% of Banvit’s red meat
products have sold in carcass form to third parties, the company will continue to enjoy higher
prices while its production expands. Accordingly, we foresee red meat revenue to deliver
considerable growth figures of 56%, 48% and 38% in 2010, 2011 and 2012, respectively,
reaching TRL178mn which is more than threefold of current figures.

Total revenues are expected to grow by 25% YoY in 2010… Thanks to rising demand for
poultry meat and processed products coupled with more favorable prices as well as
expansion in red meat production, we expect total revenues to rise by 25% YoY to TRL1bn in
2010, followed by 20% increase in 2011, reaching TRL1.2bn.

Margins will be intact on the back of stronger high-margin red meat business despite
some increases in raw material costs... Since around 55% of broiler meat production costs
are stemmed from feed costs which mainly consist of corn & wheat (50%) and soy bean
(35%), margins are highly sensitive to the changes in raw material costs. Prices of such
grains are expected to show moderate increases in the short run according to sector players.
Favorable effects of low-cost inventories seemed to be completed by the end of 2009.
However, considering that the high-margin red meat business will raise its share in total,
thereby compensating the unfavorable effects of cost inflation to a great extent. Thus, we
anticipate EBITDA margin to be at 13.0% level in 2010 (vs. 12.9% in 2009). Accordingly,
EBITDA will rise by 26% to TRL129mn in 2010 from TRL102mn in 2009 based on our
assumptions.

Multiple analysis shows significant discounts to our peer average… Based on both our
2010 EV/EBITDA and P/E estimates of 5.7x and 10.2x, respectively, BANVT shares are
trading at a 32% discount compared to our peer group 2010 EV/EBITDA average.

Initiating with “OUTPERFORM” rating, 45% upside potential… On the back of bright
outlook in poultry meat business and production expansion in red meat business coupled
with soaring prices, we believe 2010 will be another good year for the company, that will
deliver 25% YoY revenue growth according to our assumptions. Given that relatively
favorable raw material costs will be somewhat stable this year, margins will continue to be at
favorable levels. We value the company via a blended valuation (60% DCF Analysis and
40% 2010 Multiple Analysis). All in all, we initiate our coverage of BANVT at an
“OUTPERFORM” rating with a target price of TRL7.15 which indicates an attractive 45%
upside potential.
4
April 16, 2010
RISKS

Sudden hikes in poultry meat production in the local market… Since almost all of the
total production in Turkey had been consumed in the local market, the price has been highly
sensitive to the balance between demand and supply. Any sudden change in favor of supply
will likely put pressure on prices, hitting the profitability as it happened in 2008 which
coincided with extremely high raw material costs. Though we anticipate domestic demand to
show high-single-digit growth figures for the foreseeable future, demand-supply imbalance
derived from unplanned production jumps might pose a risk on margins, in our view.
However, with the increase in exports, the companies now have the chance to sell their
surplus production via exports, lifting such a pressure on prices to some extent.

Outbreak of any disease remains as one of the major risks… Any news flow regarding
diseases seen in poultry sector - the most known one is avian influenza aka bird flu -, might
deteriorate consumer’s appetite, leading to lower demand in the domestic market as well as
pressure on prices and margins.

Depreciation of TRL is another short-term risk due to high short FX position… As of
2009YE, the company has USD167mn short FX position, which is mostly related to loans
received for existing investments in Romania operation and red meat business. Thus, any
change in TRL/USD in favor of USD might result in a contraction at the bottom-line in the
upcoming periods. In addition, net debt position of the company stood at USD153mn.
Accordingly, Net Debt/EBITDA ratio was at 2.3x level which can be evaluated as relative high
in comparison with our industry coverage average of 1.4x despite traditionally highly-indebted
structure of food companies.

Surge in the commodity prices… Since 55% of poultry meat production costs have been
derived from feed costs, more than expected increase in corn, soybean and wheat prices
might pose a threat on profitability if the company cannot pass on the cost inflation to
consumers.

Improvement in incentives for exports is an upside risk… Considering the recent talks on
poultry meat exports to Russia, Turkish government may initiate new incentive or improve its
existing incentive to help local producers receive higher share in global market. Given current
high raw material costs and inadequate incentives, Turkish producers have no chance to be
an important player in the international arena at the moment.
5
April 16, 2010
VALUATION
Our blended valuation consists of 60% DCF analysis and 40% multiple analysis…
We have valued Banvit through a blended valuation including 60% DCF and 40% peer group
analysis consisting of both domestic and international peers. Our DCF analysis for BANVT
indicates a target value of USD425mn based on WACC of 10.4%, two-year beta of 0.9 and a longterm growth rate of 3% in USD terms. Accordingly, cost of equity and after-tax cost of debt are
anticipated as 11.1% and 8.0%, respectively. Additionally, BANVT shares are trading at 32%
discounts compared to our peer group average. All in all, our blended valuation shows a 12M
target share price of TRL7.15, corresponding to 45% upside potential.
Table 1. BANVT - Valuation Summary
Weight
Implied Mcap
DCF
60%
425
Multiple Analysis( 2010 EV/EBITDA & P/E)
40%
451
100%
435
USDmn
Blended Valuation - USD
Current Mcap - USD
336
Current Share Price - TRL
4.94
12M Target Share Price -TRL
7.15
Upside Potential
45%
Source: Oyak Securities
Table 2. BANVT - DCF Analysis
USDmn
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
Revenue
418
503
512
635
704
768
822
870
921
976
1153
63.8%
20.4%
1.8%
24.2%
10.9%
9.0%
7.1%
5.9%
5.8%
5.9%
5.6%
Growth (%)
EBITDA
2019E*
69
24
66
83
85
85
90
95
101
107
126
16.6%
4.8%
12.9%
13.0%
12.0%
11.0%
11.0%
11.0%
11.0%
11.0%
11.0%
EBIT
53
1
43
57
57
57
62
65
69
73
86
Unlevered taxes
11
0
9
11
11
11
12
13
14
15
17
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
43
1
34
46
46
45
49
52
55
59
69
-40
-56
-38
-32.0803
-32
-22
-23
-26
-28
-29
-35
Margin(%)
Effective tax rate (%)
NOPAT
Capital expenditures
Depreciation & Amortization
14
21
21
23
25
25
25
26
28
30
35
Change in Working Capital
0
-34
27
10
5
2
8
6
6
7
8
17
0
-10
26
33
47
43
46
49
52
62
Free-cash-flow
WACC Calculation:
Value
Target D/TC
20.0%
30 year bond
7.00%
3.00%
Value of the period ( 2010 - 2019 )
296
Company risk premium
Terminal Value
282
Equity risk premium:
Total Value
578
Beta:
Net Debt
153
Tax rate:
Financial Assets
Implied Value driven by DCF
0
425
Cost of Debt*(1-t)
4.5%
0.90
20.0%
8.0%
Cost of equity
11.1%
WACC:
10.4%
Long-term FCF growth rate
3.00%
*for terminal value
6
April 16, 2010
Multiple analysis shows significant discounts to our peer average…
Based on both our 2010 EV/EBITDA and P/E estimates of 5.7x and 10.2x, respectively, BANVT
shares are trading at 32% discount compared to our peer group 2010 EV/EBITDA average that
comprises both domestic and international comparable companies.
Table 3. BANVT - Multiple Analysis
Company
P/E
EV/EBITDA
2007A
2008A
2009A
2010E
2011E
2007A
2008A
2009A
2010E
2011E
7.0
10.7
12.8
19.2
12.8
11.1
17.0
14.3
15.9
14.1
Tat Konserve
-
n.m.
14.2
13.1
9.7
-
14.2
10.2
9.4
7.4
Pınar Entegre Et ve Un Sanayi
-
15.9
6.5
6.5
6.2
6.9
6.3
5.9
6.1
5.5
Pinar Sut Mamulleri Sanayi
9.1
11.7
7.1
7.8
6.6
6.5
7.9
5.2
6.0
5.2
Domestic Peers
8.0
12.7
10.2
11.7
8.8
8.2
11.4
8.9
9.3
8.1
Nippon Meat Packers
27.2
-
59.9
26.0
22.2
9.6
9.6
8.4
8.2
7.7
BRF - Brasil Foods
11.2
-
31.3
30.0
18.0
31.5
21.5
22.3
11.8
8.8
Tyson Foods
26.9
59.1
83.8
12.5
12.2
8.6
11.1
11.1
5.5
5.5
Rainbow Chicken
10.8
9.9
13.6
10.1
8.8
7.0
6.7
8.6
6.3
5.6
Astarta Holding
44.5
10.2
16.0
8.5
9.0
16.7
9.4
11.1
7.7
7.9
Maple Leaf Foods
17.8
53.8
17.0
12.5
10.4
7.0
8.7
6.9
6.3
5.8
Sanderson Farms
14.4
-
14.5
11.8
10.7
8.0
30.8
7.1
5.9
5.4
8.1
6.2
8.5
8.6
10.9
4.3
2.7
4.1
4.4
3.7
20.1
27.8
30.6
15.0
12.8
11.6
12.6
10.0
7.0
6.3
Ulker Biskuvi Sanayi
People's Food Holding
International Peers
Domestic Peers
8.0
12.7
10.2
11.7
8.8
8.2
11.4
8.9
9.3
8.1
International Peers
20.1
27.8
30.6
15.0
12.8
11.6
12.6
10.0
7.0
6.3
Our Peer Group
14.1
20.3
20.4
13.3
10.8
9.9
12.0
9.4
8.2
7.2
8.8
-11.8
11.4
10.2
8.7
8.1
23.5
7.2
5.7
5.1
-37%
n.m.
-44%
-24%
-19%
-18%
96%
-24%
-32%
-29%
Banvit - Our Estimate
Pre (+) / Discount (-)
Source: Bloomberg Estimates, Oyak Securities Estimates
* Prices as of April 15, 2010
7
April 16, 2010
BUSINESS OUTLOOK
BANVIT – #1 Poultry meat producer in Turkey…
Banvit is the leading poultry meat producer in Turkey while commanding around 12% market share
in a very fragmented Turkish market. The company has also produced processed products and
feed products. In addition to poultry business, red meat processing facility became operational in
2008. The company is ranked 1st in poultry meat production and red meat production as well as
processed meat products in the domestic market.
Table 4. Daily Capacity
Operation
Chicken Slaughterhouse
Turkey Slaughterhouse
Location
Capacity(units)
Bandirma
200k
İzmir
100k
İzmir
4k
Red Meat Slaughterhouse
Bandirma
37.5 tons
Processed Product
Bandirma
105 tons
Hatchery
Bandirma
400k
Bandirma
1760 tons
Bandirma
440 tons
İzmir
880 tons
Feed
Eskişehir
220 tons
Hatchery
Romania
115k
Feed
Romania
240k
Source: Banvit
Broiler meat business comprises lion’s share of total revenues…
Poultry meat business, consisting of broiler and turkey business, was again the main revenue
generator during 2009 that constituted 68% of total revenues. Total poultry meat revenue - broiler
(95%) and turkey (5%) - reached TRL534mn in 2009YE, was up by 29% on the back of impressive
growth in broiler meat revenues driven by both stronger domestic and export sales and advanced
prices in the local market. In addition, turkey meat revenue increased by 14% over a year ago in
2009. Processed meat segment is in the second position in terms of revenue contribution, holding
around 14% share in total. Despite a slight decrease in sales volumes, processed meat revenue
grew by 12% in comparison with last year in 2009 which was totally attributable to hikes in prices.
On the other hand, feed segment lost some ground in 2009 due to weak demand in domestic
market, ranked 3rd with 7% share in total revenues. Red meat business continued to climb up
during last year again. It posted an impressive 183% YoY growth in 2009 owing to both volume
growth and price increases thereby attaining TRL56mn level equalling to 7% of total revenues.
Figure 1. Revenue Breakdown as of 2009
Turkey 4%
Veal 7%
Other 4%
Broiler
Processed
Products
Feed 7%
Feed
Processed
Products 14%
Broiler 64%
Veal
Turkey
Other
Source: Company Data
8
April 16, 2010
A clear domestic play…
Since contribution of exports has been very limited, Banvit can be considered a clear domestic
play. Around 96% of total revenues are generated in domestic operations whereas export’s share
stood at 4% as of 2009. Moreover, as it can be seen in the figure below that historically export
revenues hadn’t exceeded even 5% of total revenues. Even though there has been widely
speculations appeared on the media regarding exports to Russia, we don’t expect any major
impact from exports to Russia unless an attractive incentive will not be given considering current
imbalance between production costs and possible export prices. All in all, it seems to us that
exports will continue to have low contribution to the revenue for both Banvit and other local
producers for the foreseeable future.
Figure 2. Revenue Contribution by Division
1,400
Domestic
Exports
6%
Export's Share In Total
1,200
1,000
5%
5%
5%
800
5%
3%
4%
600
400
2%
2%
200
4%
2%
2%
1%
0
0%
2005
2006
2007
2008
2009
2010E
2011E
Source: Company data, Oyak Securities
Total revenues are expected to grow by 25% YoY in 2010…
Following a strong year, we anticipate the company to continue to post considerable top-line
growth figure this year thanks to rising demand for poultry meat and processed products coupled
with more favorable prices. As the red meat prices are likely to stay at current high levels during
2010, which surged by 25% last year and 20% YTD this year, the shift from red meat to poultry
meat continues, in our view. Since Banvit’s red meat business is at early stages and it has sold
70% of red meat products in carcass form as well as penetration of its packaged red meat
products has been very limited currently, we believe that the company will be less affected by this
shift and the company will even enjoy higher prices. Moreover, with expansion in red meat
production (capacity increase from 20k cattle to 30k cattle during the year), it is likely to support
top-line growth further in 2010 as well. All in all, we expect total revenues to rise by 25% YoY to
TRL989mn in 2010, followed by 20% increase in 2011, reaching TRL1.2bn.
Figure 3. Revenue Forecasts (TRL mn)
1600
Broiler Meat
Processed Products
Feed
Red Meat
Turkey Meat
Other
1200
800
400
0
327
365
544
2005
2006
2007
650
2008
989
1,191
2010E
2011E
792
2009
*2005&2006 Revenue Breakdown is not available.
9
April 16, 2010
Domestic poultry meat business will continue to be the key revenue generator this year
with another impressive 19% improvement over a year ago…
Turkish poultry meat consumption has been on an impressive upward trend for a long time (
CAGR of 10% between 1990-2009 period). Accordingly, per capita poultry meat consumption in
Turkey rose to 17kg in 2009 from 5kg in 1994, which was up by 250% (9% CAGR between 19942009 period) whereas per capita red meat consumption fell to 12kg from 21kg during the same
period. We believe such trend in consumer’s preference won’t reverse in the short run and poultry
meat demand will be robust in the following years. It is obvious that the company has mostly
benefited from this trend as one of leading company in the domestic market. Besides, as the
purchasing power of consumers rises, we suppose domestic meat consumption to go further
considering low per capita consumption of Turkey compared to that of developed countries. We
foresee domestic sales volume to grow 8% YoY this year, followed by 7% growth in 2011.
Figure 4. Domestic Poultry Sales Volume & Volume Growth
160
Sales Volume
20%
Volume Growth
120
16%
139
130
120
110
12%
98
80
85
8%
40
4%
0
0%
2006
2007
2008
2009
2010E
2011E
In addition to volume growth, the poultry meat price has been rising as well on the back of stronger
demand and soared prices in substitutes. Given that red meat and poultry meat can be evaluated
as good substitutes, consumers’ preference has been always sensitive to the changes in prices. It
is worth noting that veal carcass prices jumped by 24% YoY in 2009, leading consumers to prefer
less expensive products. As a result, total domestic poultry market was again up by around 4%
during 2009 despite severe slowdown in the economy. During the first quarter, red meat prices has
risen another 20%. Going forward, it seems to us that the current veal prices are likely to ease to
some extent during 2010 with additional red meat supply, especially, after 2Q10 but not that much
to change consumers` preferences. It will continue to stay close to these high levels in 2010, in our
view, which makes poultry meat more attractive thereby strengthening the bargaining power of the
poultry meat producers while the prices are being adjusted.
Figure 5. Veal Carcass Price vs. Fresh Chicken Price(TRL)
20
Fresh Chicken Prices
Veal Carcass
16
12
8
4
Mar'10
Dec'09
Jun'09
Sep'09
Mar'09
Dec'08
Sep'08
Jun'08
Mar'08
Dec'07
Sep'07
Jun'07
Mar'07
Dec'06
Sep'06
Jun'06
Mar'06
Dec'05
Sep'05
Jun'05
Mar'05
0
Source: Turkstats
10
April 16, 2010
To sum up, such strong price trend in red meat will favor poultry meat consumption further in 2010
and beyond, in our view, helping poultry meat producers attain more favorable end-product prices
as well. As the prices are mostly determined by the demand-supply balance in domestic market, in
the light of our stronger demand expectation along with high red meat prices, poultry meat prices
are forecast to rise by 10% YoY, on average, this year following a very strong 17% YoY increase
in 2009. All in all, we expect domestic poultry meat revenue to grow by 19% to TRL607mn in 2010
from TRL511mn in 2009.
Figure 6. Domestic Poultry Revenue(TRLmn) and Revenue Growth
800
Revenue
60%
Revenue Growth
50%
695
600
40%
607
376
200
30%
511
400
20%
406
10%
257
0%
0
-10%
2006
2007
2008
2009
2010E
2011E
Processed products revenue is set to surge in 2010…
Similar to higher demand for poultry meat, we believe consumers preference to company’s
processed products volume will grow by 20% this year on the back of improvement in the
macroeconomic environment. All in all, we envisage the company to record significant growth
figures in the near term with 31% YoY and 23% YoY in 2010 and 2011, respectively.
Figure 7. Domestic Processed Products Revenue (TRLmn)
200
Processed Products
160
176
143
120
99
80
109
87
71
40
0
2006
2007
2008
2009
2010E
2011E
11
April 16, 2010
Red meat business is on the rise…
Red meat business of the company had become operational in 2006. Total amount, invested in
this business, reached USD45mn and total cattle capacity is 48k units. Currently, the company has
20k cattle in its facilities but it is aimed to surge to 50k by 2012. Accordingly, total red meat
production is anticipated to be at 12.5k tons in 2012, corresponding to 2% market share in Turkey.
In other words, once the number of cattle will attain planned level, the company will widen its
leading position in red meat production. As a reminder, red meat sector traditionally has been
dominated by small-scale producers in Turkey and big facilities couldn’t control even 1% of the
market due to extremely fragmented structure of the sector.
Table 5. Number of Cattle Forecasts (000 units)
Cattle Number
2009
2010E
2011E
2012E
20
30
40
50
Source: Company Estimates
Accordingly, red meat revenue is forecast to triple by 2012…
As we mentioned before, red meat prices has been on upward trend since the second half of 2009.
Current prices are up by 60% compared to beginning of 2009 however we expect the prices to
somewhat decrease starting from 2Q10. But we don’t expect a major drawback in red meat prices
and strong price trend is likely to continue in the upcoming period since it is really hard to boost the
supply the short run and current imbalance between demand-supply is likely to continue .On the
other hand, we saw that company has benefited from this upward trend in red meat prices as a
supplier since 70% of its products have sold in carcass form to third parties. Regarding the prices,
we envisage red meat prices to be up by 25% compared to last year, on average, during 2010,
followed by slightly-below-CPI trend for the foreseeable future. All in all, volume expansion
combined with increasing in prices will support red meat revenues of the company this year and
beyond. Thus, we project red meat revenue to deliver growth figures of 56%, 49% and 38% in
2010, 2011 and 2012, respectively, reaching TRL178mn which is more than threefold of current
figures. Accordingly, share of red meat business in total will rise to 13% in 2012 from 7% in 2009,
partly lowering the risks regarding the company’s dependency on poultry business.
Figure 8. Red Meat Revenue (TRLmn)
200
Red Meat Revenue
178
160
120
129
80
87
56
40
6
8
2006
2007
20
0
2008
2009
2010E
2011E
2012E
12
April 16, 2010
Contribution of exports will continue to be limited in 2010…
Export revenues had accounted for a small portion of total revenues of the company. Note that
owing to low incentives as well as high production costs had made domestic players less
competitive abroad. Besides, limitations on Turkish poultry meat producers implemented by
importer countries lead Turkish companies to export to very limited number of markets. On the
other hand, Iraqi market has suffered a supply problem during late-2008 since the major supplier,
Brazil, had faced some difficulties in delivery. Then, some of Iraqi demand had met by Turkish
players. Although the prices of Turkish exports were above that of Brazilian exports, taste of
Turkish fresh poultry meat had been liked by consumers in Iraq, according to market players.
Since then, exports to Iraq gained momentum during 2009. Though total Iraqi import demand from
Turkey is foresee to grow by 20% this year from 50k tons of poultry meat to 60k tons, contribution
will be limited given that the amount is still very low and the prices are below prices in local market.
Likewise, we assume Banvit’s export revenues to ascend by 38% YoY this year, in USD terms, to
USD30mn from USD21mn, followed by 19% increase in 2011 based on a modest improvement in
current export sales with a limited Russian contribution (3k tons for 2010 and 5k tons for the
following years).
Figure 9. Export Revenues (USDmn)
40
Other Exports
Russian Contribution
8
30
5
20
10
6
8
12
21
25
27
2006
2007
2008
2009
2010E
2011E
0
Despite higher raw material costs, margins are anticipated to be intact on the back of
stronger high-margin red meat business in 2010...
Around 65% of poultry meat production costs are stemmed from feed costs - corn and soybean
costs comprised 55% of feed costs. As a reminder, 90% soybean need of Turkey has been
imported with an 8-13% customs duty. However, corn has been met from local market but at a
higher price compared to international prices. Moreover, customs duty on corn stands at 130%.
Note that global material prices hit their record-highs in mid-2008, since then those started to fall
during second half of 2008 and 2009. In parallel to global trends, corn prices had dropped by 8%
in Dec’09 compared to record-highs seen in mid-2008, favoring the profitability of the company.
Furthermore, poultry meat prices were up by 25% YoY, on average, during 2009, pushing up the
margins further. Accordingly, EBITDA margin stood at 12.9% in 2009 (vs. 4.8% in 2008).
Figure 10. Profitability
20%
EBITDA Margin
16.6%
10%
12.9%
13.0%
12.0%
11.0%
2009
2010E
2011E
2012E+
9.2%
6.2%
4.8%
0%
2005
2006
2007
2008
Source: Company Data, Oyak Securities
13
April 16, 2010
Going forward, on the domestic front, corn prices and soy bean prices, on average, are anticipated
to be surpass the increases in poultry meat prices to some extent during this year. In addition,
favorable effect of low-cost inventories seemed to be completed by the end of 2009. However,
considering that the high-margin red meat business will raise its share in total, thereby
compensating the unfavorable effects of cost inflation. Accordingly, the company will be successful
in keeping EBITDA margin at 13% level in 2010, in our view. Since the prices are mostly
determined by the balance between demand and supply, considering the fluctuations in raw
material prices and possibility of over-production, we believe EBITDA margin will be stabilized at
11% level in 2012 and beyond.
Figure 11. Breakdown of Feed Costs
Other
15
Corn&
Wheat
50
Soybean
35
Depreciation of TRL is a short-term risk due to high short FX position…
As of 2009YE, the company has USD167mn short FX position, which is mostly related to loans
received to finance existing investments in Romania and its red meat business. Thus, any change
in TRL/USD in favor of USD might result in a contraction at the bottom-line in the upcoming
periods. In addition, net debt position of the company stood at USD153mn, while majority of debt
was USD denominated. Accordingly, Net Debt/EBITDA ratio was at 2.3x level which can be
evaluated as relative high in comparison with our industrial coverage average of 1.4x despite
traditionally highly-indebted structure of food companies.
Capital expenditures…
Banvit has allocated around USD20mn capital expenditures for its existing facilities per year in
Turkey. The company also has a new investment in Romania. Around EUR26mn had already
been invested for those operations. Additional EUR12mn will be invested in Romania in the
following two years. Besides, the company has another investment in bio-energy production by
using wastes derived from red meat business. The company plans to complete EUR6mn
investment for this project in two years again
14
April 16, 2010
Table 6. Segmental Analysis
Revenue - TRL mn
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
CAGR 2009-14E
366
389
506
612
704
796
893
1,002
15%
Processed Products
89
102
114
149
183
215
253
298
21%
Feed
48
67
58
78
100
116
135
151
21%
Red Meat
15
20
56
87
129
178
217
230
33%
8
25
28
35
43
50
57
64
18%
Broiler Meat
Turkey Meat
Other
18
48
30
29
34
38
43
48
10%
Total
544
650
792
989
1,191
1,392
1,597
1,792
18%
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
Growth %
Broiler Meat
n.a.
6%
30%
21%
15%
13%
12%
12%
Processed Products
n.a.
15%
12%
31%
23%
18%
18%
18%
Feed
n.a.
39%
-14%
35%
28%
16%
16%
12%
Red Meat
n.a.
29%
183%
56%
48%
38%
22%
6%
Turkey Meat
n.a.
218%
14%
25%
20%
17%
15%
12%
Other
n.a.
170%
-38%
-2%
15%
13%
12%
12%
Total
n.a.
20%
22%
25%
20%
17%
15%
12%
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
CAGR 2009-14E
142
93
171
218
256
292
335
376
17%
26.2%
14.4%
21.5%
22.0%
21.5%
21.0%
21.0%
21.0%
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
CAGR 2009-14E
69
2
67
89
97
103
120
134
15%
12.7%
0.3%
8.4%
9.0%
8.1%
7.4%
7.5%
7.5%
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
CAGR 2009-14E
90
31
102
129
143
154
175
197
14%
16.6%
4.8%
12.9%
13.0%
12.0%
11.0%
11.0%
11.0%
Gross Profit - TRL mn
Total
Gross Margin
Operating Profit - TRL mn
Total
EBIT Margin
EBITDA - TRL mn
Total
EBITDA Margin
15
April 16, 2010
SECTOR OVERVIEW
Turkish Poultry Sector
According to TZOB data, around 12,650 broiler and 2,800 egg poultry houses have operated in
Turkey. More than 500k people are employed in the sector and the contribution of the sector to
Turkish economy is about USD3bn annually. In addition to these, total capacity attained
approximately 4,500 tons daily production of poultry meat, amounting to around 1.40mn tons
production per year. Accordingly, the capacity utilization ratio in slaughterhouses is at around 90%
level as of 2008. According to sector officials, total capacity can be raised to 1.5mn tons in a short
time by improving the efficiency of the supplier side even without new investments.
Turkish poultry production has been on a strong upward trend during the last 30 years. Moreover,
the development of the sector had gained enormous momentum between 1990 – 2000 periods;
reaching a total of production level of 752k tons in 2000 compared to 217k tons in 1990. We see
that the trend had continued over 2000-2009 albeit at a slower pace compared to pre-2008 period,
thereby increasing the total production by almost twofold to 1.31mn in 2009. Keeping in mind that
almost all of the production had been consumed in the local market, consumption is highly
sensitive to domestic conditions. During the last decade, the market had experienced two
significant declines in 2001 and 2006. The reason behind the former was the economic crisis seen
in Turkey in 2001 and total production was down by around 11% compared to previous year. The
latter was stemmed from the avian influenza seen in Turkey in late 2005 and 2006, leading to
around 5% contraction in domestic demand over a year ago in 2006. However, it can be clearly
seen in the figure below, apart from a few years, Turkish poultry meat production had been on an
impressive increasing trend for a long time, delivering a 10% CAGR between 1990-2009 periods.
We expect 8% growth in poultry meat production in 2010 on the back of high prices in red
meat business coupled with soaring export demand…
We expect domestic poultry production to deliver 8% growth in 2010 on the back of lower red meat
demand driven by recent jump in prices, followed by 7% and 6% growths in 2011 and 2012,
respectively. Later, we expect 5% increase in the domestic market per year in line with 5-year
CAGR of 5% on the back of increase in both domestic demand and addition of new export
markets.
Figure 12. Turkish Poultry Meat Production(mn tons)
1.6
1.2
0.8
0.4
2011E
2008
2005
2002
1999
1996
1993
1990
0.0
Source: BESD-BIR, Oyak Securities Estimates
16
April 16, 2010
Per capita domestic consumption still has room to go…
Though the consumption had posted considerable increases over the last decades, we believe
domestic consumption has still room to go since the per capita meat consumption is lagging
behind the developed countries with 27kg meat consumption vs EU per capita consumption of
80kg or Russian consumption of 58kg. On the other hand, if we just consider the poultry meat,
Turkey is not away from such countries in terms of per capita consumption. However, in our view,
it is better to evaluate the meat consumption as all, instead of partial analysis. Hence, we strongly
believe total meat consumption will increase as the purchasing power of the consumers advances
and eating habits changes towards healthier products in the upcoming years and Turkish meat
consumption is likely to narrow the gap to some extent in the medium term.
Figure 13. Per Capita Meat Consumption By Country as of 2009
150
Broiler
Pork
Beef and Veal
120
90
60
30
India
Eastern Europe
Egypt
Turkey
CIS
South Africa
Japan
South Korea
Russia
Mexico
Taiwan
New Zeland
EU
Brazil
Australia
Canada
Argentina
United States
0
Source: FAPRI 2009 Global Outlook, Oyak Securities Estimates
Highly fragmented domestic market…
Turkish poultry market has been a highly fragmented market as it is seen in the figure below.
Currently, more than 20 companies are operating in the market. However, top ten companies have
been dominating the market with around 77% market share. Banvit has been in the first place for
three years with around 12% market share, followed by Beypilic and Erpilic. Sekerpilic, the other
listed company, can be counted as one of a mid-scale producer so far and according to 2008
th
figures it was ranked 7 in the market with around 6% market share.
Figure 14. Companies by market share as of 2008
Banvit
12%
Other
23%
11%
Koy-tur
Pak
Mudurnu
Abalioglu
3%
4%
6%
6%
11%
6%
Sekepilic
Keskinoglu
Beypi
Erpilic
9%
9%
Senpilic
CP
Source: Banvit
17
April 16, 2010
The major cost items - corn and soy bean- prices appear to be still at relatively favorable
levels…
Corn and soy bean are the major cost items in poultry meat production, which constitute 55% of
feed production costs. Thus, price changes in such grains might have an important impact on
profitability of the sector. During 2000-2006 period, the price trends in both corn and soybean
seem to be flat with the exception of some small periods. However, those started to surge in line
with other commodities in early 2007 on the back of higher global demand for consumption and
also bio-energy production. Since the energy costs had surged during that period and also such
commodities had been also using in bio-energy generation, global prices had surged further during
2007 and 2008 and hit its all-time highs in mid-2008.
Figure 15. Corn & Soy bean price trends
600
Corn Prices - USD
Soybean Prices - USD
500
400
300
200
100
Feb'09
Jun'09
Dec'08
Jun'08
Dec'07
Jun'07
Dec'06
Jun'06
Dec'05
Jun'05
Dec'04
Jun'04
Dec'03
Jun'03
Dec'02
Jun'02
Dec'01
Jun'01
Dec'00
Jun'00
0
Source: Indexmundi.com
All in all, we saw that surge in corn and soybean prices hurt the margins of the whole companies in
Turkish poultry sector in 2008 due to the facts that




Roughly half of feed costs have been stemmed from corn and soy bean costs
90-95% of soy bean need has been exported
Domestic corn prices are correlated with global price trends but it almost two times of
global price
Due to over-production in domestic market, the company(and also all other players in
domestic market) couldn’t pass on cost inflation to consumers
On the other hand, with the decrease in consumption and declined energy costs in second half of
2008, the prices began to decrease. Current global prices look to be 35-40% lower compared to
all-time-highs realized in mid-2008. Going forward, according to many sector players in both
domestic and global arena the prices seem to be stabilized at these levels on the back of larger
harvest and lower demand as well as favorable oil prices resulting in less bio-energy demand. It is
anticipated that the prices won’t hit peaks recorded in 2008 again in the short-mid run.
18
April 16, 2010
High raw material cost & Low incentives deteriorate exports…
Turkish live chicken production cost stands at around 76 Euro cent, which is quite high compared
to foremost exporters, namely USA and Brazil. It is obviously seen that production costs are
almost two times of costs in such countries. The reason behind this huge difference is much higher
feed prices in Turkey, accounting for around 55% of chicken production costs.
Figure 16. Live Chicken Production Cost
Broiler Meat Production Cost (EU Cent)
Turkey
Turkey
80
EU
EU
USA
USA
Brazil
50
Brazil
Broiler Meat Exports (000 tons)
20
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Source: TZOB, USDA
*The width of bubbles shows total broiler meat production…
In addition to cost disadvantages, Turkish producers had also suffered from very low government
incentives which can be considered extremely ineffective in comparison with the amount of the
incentives provided by the EU and USA. According to deal between Turkey and World Trade
Organization (WTO), incentives are only permitted to be provided to exporter company via export
refund of USD26 per ton. However, EU’s export refund has started to offer export refund at
EUR240 per ton and it has been escalating every year, reaching EUR550 per ton in
2008(Following the global recession, it fell to EUR300 as of 21.11.2008). Given that production
costs are significantly high compared to global competitors and export refunds are far behind EU
and USA’s incentives, Turkish producers hadn’t been price-competitive, thereby having a very
small portion in world trade. On the other hand, considering the neighborhood of Turkey, namely
Russia and Middle East Countries, demanding one third of global exports, Turkish producers
would have a great potential to be an important exporter if the problems derived from costs and
incentives are solved.
Figure 17. Incentives
800
Incentives USD
600
600
400
400
200
26
0
Turkey
EU
USA
Source: Company Data
19
April 16, 2010
Gate to Middle East: Iraq...
Iraqi poultry industry definitely has been in a crisis for a long time on the back of weaker price
competitiveness against international counterparts and withdrawal of government subsidies. As a
result, it was seen that 60% of poultry farms was closed in some regions. On the other hand, with
relatively low prices compared to local producers, importers had a chance to gain more market
shares. By lowering local production during the years, weight of importers in total market reached
74% in 2006 from 48% in 2003 according to USAID data. Besides, total market contracted by 18%
to 100k tons in 2006 during the same period. On the other hand, per capita broiler meat
consumption had significantly contracted to 3.8kg in 2006 from 15kg in 1992 (pre-embargo times).
Given that the poultry consumption has been on the rise in whole Middle East countries (per capita
consumption in Saudi Arabia is 33kg and in UAE 50kg), per capita consumption in Iraq might
bounce back to its pre-embargo levels gradually in the mid to long run.
Figure 18. Poultry Meat Consumption Per Capita in Iraq
1,000
Total Market (000 tons)
25
Consumption per person kg
800
20
600
15
400
10
200
5
0
0
2005
2006
2010E
2020E
Source: IZDIHAR, USAID
However, considering the price gap between local products and imports ( the price of localproduction chicken ranges between USD2500-3000 per ton vs imported Brazilian chicken is
USD1650 per ton), the dominance of imports over local products is highly likely to continue in the
years ahead unless any major import restriction won’t be imposed by the government. Going
forward, we predict exports to Iraq to continue to rise gradually. As a consequent, we expect 20%
increase in exports over a year ago in 2010, followed by 10% growth in the foreseeable future.
Figure 19. Poultry Meat Prices in Iraq Market(USD per ton)
Iraqi Fresh Meat
Turkish Fresh Meat
Brazilian Frozen Meat
0
1000
2000
3000
Source: IZDIHAR, Thepoultrysite.com, BESD-BIR
20
April 16, 2010
Long-awaiting story: Exports to EU Countries
According to the report of the committee sent by EU in 2003, it was stated that Turkish poultry
producers had adequate technological and hygienic standards to export to EU countries. Again, in
2006, one of representative of SANCO repeated the intention that Turkey was suitable to be added
to the list including the countries that are able to export to EU countries. Talks between Turkey and
EU regarding the poultry export had, however, geared down following the avian influenza
appeared in Turkey in 2005. Since then, it is seen that the negotiations had been in idle mode until
the beginning of 2009. In March 2009, seven Turkish companies had been approved to export
products which are processed over 70C to European Union.
Table 7. Turkish Poultry Establishments Authorized by the EU
Company
City
Banvit
Balikesir
Seker Pilic
Balikesir
Beypi
Bolu
Pinar Entegre Et ve Un Sanayi
Izmir
Keskinoglu
Erpilic
Senpilic
Manisa
Bolu
Sakarya
Source: USDA
Following approval, such companies started to export to EU at limited amounts. On the other hand,
since Turkey is not among the countries that can export poultry meat to EU, exports of processed
products put on hold by the EU officials again. Currently, companies are awaiting approval again to
restart processed products’ exports.
21
April 16, 2010
Will Russia-US dispute on chlorine-treated poultry meat open a new export opportunity for
Turkish poultry sector?
It is better to start with what recently happened between Russia and US in order to understand the
current situation. Remember that Russia banned the import of poultry meat treated with chlorine
st
effective from Jan 1 2010, thus, US - the biggest exporter to Russia - had to stop its exports due
to this regulation. According to sector officials, aim of this new regulation was to put a cab on
imports thereby supporting the local production in Russia. Note that Russia consumed around
3.5mn tons of poultry meat in 2009, about 900k of which was imported, mostly from the US (
around 22% of total market) according to Russian sources. On the other hand, Russian Prime
Minister Putin previously announced that poultry meat imports may be stopped by 2015 as the
country plans to be self-sufficient by that day. Besides, Russia plans to import a total of 780k tons
of poultry meat in 2010 and gradually decrease the share of imports to 550k tons by 2012.
Following Russia-US dispute on exports, there had been a conversation between Turkish and
Russian politicians regarding poultry meat need of Russia in the short run. Then, it was stated by
Turkish officials that 500k tons of poultry meat was demanded by Russia for 2010. At the first
sight, it seemed to be possible but we believe Russian market is far away from being such a
significant growth opportunity for Turkish players.
The reasons behind our thought are as follows:
As we mentioned above, Russia plans to be self-sufficient in terms of poultry
meat production by 2015. Furthermore, the country supports local production
instead of meeting its need through much cheaper imports.
Capacity of Turkish market stands at around 1.30mn tons of poultry meat.
Thus, such a supply will lead to shortages in domestic market as well as sharp
increase in local prices.
Current prices in Russian market are even below Turkish player’s production
costs. Without any incentive, exports to Russia don’t look feasible.
80-85% Russian exports are chicken leg or derivatives of it, which are also
popular in Turkey. If Turkey will export just chicken legs rather than a whole
chicken, it has to find another market to sell remaining parts, that are as
valuable as legs in domestic market.
On the other hand, according to recent announcements by the officials in Turkey, Turkish players
can start to export with an amount of 50-60k tons of poultry meat this year and 100k tons in 2011.
Yet, at first Russia has to allocate some quota for Turkey in order to start the exports, which was
stopped in 2005 due to bird flu news. Currently, 6 poultry meat producer have been approved by
Russian Authority and another 11 producer are awaiting approval. All in all, we expect exports to
Russia to initiate this year and to attain as much as 50k tons that would make a limited positive
impact on Turkish sector outlook, in our view. Going forward, even though Russia would be selfsufficient in the near term, we believe Turkish exports will be successful in keeping at least 50k
tons export per year by mostly serving to niche markets.
22
April 16, 2010
Red meat business in Turkey…
It is clearly seen that total number of cattle and sheep&goat in Turkey has been on a declining
trend for a long time. Indeed, cattle number seems to be almost flat during the last 20 years
however sheep&goat population had almost halved in this period.
Figure 20. Total Number of Cattle and Sheep&Goat in Turkey (mn)
80
Sheep&Goat
Cattle
60
40
20
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Source: Turkstat
The reasons resulted in contraction in domestic cattle and sheep population during such period can
be summarized as follows:

The increase in meat prices fell behind the increase in costs

Low margins

Decrease in number of pastures due to unfavorable weather conditions

Illegal entries from neighbor countries

Low state incentive compared to neighbor countries

Lack of strategic planning in the sector
Due to imbalance between demand and supply, red meat prices started to increase in mid-2008
following a 5-year flat period. Although the current imbalance structure has been exist in the past
years, the prices seem to have been flat due to additional cow supply from milk producers. Note
that some of the milk producers had sent their cows to slaughterhouse due to low profitability in
milk business. Considering the current structure in Turkish red meat business is likely to continue,
we don’t expect the prices to come back to 2009 levels again in the short run. However, with the
additional supply starting from 2Q10, red meat prices will ease to some extent in the upcoming
periods, in our view.
23
April 16, 2010
COMPANY OVERVIEW
Banvit A.Ş. began operations in 1968 under the name of “Bandirma Abic Ltd.” as a small feed
producer company. Following long presence in feed production, the company gradually started to
produce broiler chickens in 1984, thereby becoming the first domestic company to provide the
local market with cleaned and packaged fresh chicken. With addition of other production lines
coupled with introduction of modern equipments, the company managed to enlarge its production
capacity during the years. Besides, it acquired a poultry processing plant, Tadpi facility, located in
Armutlu, İzmir in 2000. Currently, the company owns the largest facility for broiler chicken
production in Turkey with availability of processing 400k birds per day and 125mn birds per year.
In addition to domestic facilities, the company has a hatchery with a capacity of 700k eggs per
week in Romania.
Domestic Operations…
The company management started a restructuring process in 1996. İzmir Armutlu plant was
acquired in 2000 and started to produce turkey products in 2001 following a revision in the facility.
After the addition of food production facility in Bandirma (further processing plant) became
operational, new ready-to-products such as cooked meatballs, kebabs, gyros, burgers, coated
products, salami, sausages and franks were added to company’s production portfolio in 2001 as
well. In addition to these, the production of red meat has begun in 2005. The Armutlu plant in İzmir
was transformed to chicken processing facility from turkey processing facility. Therefore, turkey
production was relocated to new processing facilities leased in İzmir, with capacity of 900 turkeys
per hour. Besides, red meat processing facility became operational in 2008 by expanding further
processing plant.
Operations in Romania…
Banvit Aliment Romania S.R.L. “Banvit Romanya” was founded in 1999. A hatchery with capacity
of 345k eggs per week was established in Romania in 2007(following the addition of new
machinery, total capacity raised to 700k eggs per week in 2008). In addition to those, 5 breeder
pullet farms, 10 hatcheries and a feed mill were acquired in Romania in 2008.
Ownership structure…
Gorener Family members have been the main shareholders of the company. Since 1992,
company shares have become listed on Istanbul Stock Exchange (ISE). As of 9M09, 17.74% of
total are trading on ISE while 6% of those are held by foreign investors as of November-end.
Figure 21. Ownership Structure
Free Float
17.74%
Fatma
Görener
4.83%
Emine Esra
Cristoffel
Görener
14.51%
Vural
Görener
24.76%
Emine
Okşan
Koçman
19.29%
Valid Faruk
Ebubekir
18.87%
Source: Banvit
24
April 16, 2010
Table 8. BANVT - Income Statement
TRLmn
2007
2008
2009
2010E
2011E
544
650
792
989
1,191
1,392
-401
-556
-621
-772
-935
-1,100
Revenues
Cost of Goods Sold
2012E
Gross Profit
142
93
171
218
256
292
Operating Expense
-73
-92
-104
-129
-160
-189
Operating Profit
69
2
67
89
97
103
Depreciation
19
27
32
36
42
45
Severance Provisions
EBITDA
2
3
4
4
5
5
90
31
102
129
143
154
2
2
11
2
2
2
Other Expenses
-1
-1
-8
-2
-2
-2
Financial Income/Expenses
11
-55
-12
-27
-25
-27
Other Income
0
0
0
0
0
0
82
-52
58
62
72
76
-25
10
-13
-12
-14
-15
57
-43
44
49
58
61
2007
2008
2009
2010E
2011E
2012E
Gross Margin
26.2%
14.4%
21.5%
22.0%
21.5%
21.0%
Operating Margin
12.7%
0.3%
8.4%
9.0%
8.1%
7.4%
EBITDA Margin
16.6%
4.8%
12.9%
13.0%
12.0%
11.0%
Net Margin
10.5%
-6.5%
5.6%
5.0%
4.8%
4.4%
2007
2008
2009
2010E
2011E
2012E
Minority Interest
PBT
Taxes
Net Income
Profitability
Growth
Sales Growth
49.0%
19.6%
21.8%
25.0%
20.4%
16.9%
Gross Profit Growth
97.5%
-34.3%
82.5%
27.6%
17.7%
14.1%
Operating Profit Growth
403.6%
-97.3%
n.m.
33.9%
8.4%
6.8%
EBITDA Growth
168.0%
-65.4%
228.4%
25.7%
11.4%
7.2%
Net Profit Growth
369.7%
n.m.
n.m.
11.7%
16.9%
5.3%
2007
2008
2009
2010E
2011E
2012E
Assumptions
CPI avg
8.8
10.5
6.2
10.1
8.0
7.0
USD/TL Average
1.3015
1.2929
1.5471
1.5572
1.6917
1.8132
USD/TL Year-End
1.1647
1.5123
1.5057
1.6424
1.7409
1.8855
Euro/USD Average
1.3662
1.4663
1.3900
1.3423
1.3500
1.3240
Euro/USD Year-End
1.4684
1.4156
1.4347
1.3500
1.3500
1.3000
25
April 16, 2010
Table 9. BANVT - Balance Statement
2007
2008
2009
2010E
2011E
2012E
Cash and cash equivalents
8.2
19.6
4.3
2.9
3.6
9.3
Investment securities
0.2
0.0
0.0
0.0
0.0
0.0
Trade receivables
82.3
90.3
125.1
157.2
186.1
213.6
Inventories
64.8
65.0
73.5
88.8
105.1
120.5
Live İnventories
34.8
56.0
74.8
90.9
112.7
135.6
Other current assets
10.8
25.0
34.3
36.1
38.0
39.9
Total current assets
203.3
255.9
312.0
375.9
445.4
518.9
Trade Receivables
0.0
0.0
0.0
0.0
0.0
0.0
Investment securities
0.0
0.0
0.0
0.0
0.0
0.0
Tangible assets
99.0
127.8
145.4
155.6
163.1
151.9
Intangible assets
0.7
1.8
1.5
1.6
1.7
1.6
TRLmn
ASSETS
Current assets:
Non-current assets:
Other non-current assets
6.7
23.0
12.9
13.3
13.8
14.3
Total non-current assets
106.5
152.6
159.8
170.6
178.6
167.7
Total Assets
309.7
408.6
471.8
546.4
623.9
686.6
Short-term bank borrowings
33.5
99.2
145.4
139.2
138.9
103.3
Trade payables
49.2
79.9
83.6
103.6
130.7
156.7
Other current liabilities
15.1
9.9
18.2
21.8
26.6
31.3
Total current liabilities
97.7
189.0
247.1
264.6
296.2
291.3
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Non-current liabilities
Long-term bank borrowings
55.3
130.3
88.6
96.5
84.9
91.9
Provision for employment termination benefits
1.9
2.0
2.2
2.2
2.2
2.2
Other non-current liabilities
2.4
1.5
5.4
5.4
5.3
5.2
59.5
133.8
96.2
104.1
92.4
99.4
Total liabilities
157.2
322.7
343.3
368.7
388.6
390.7
Minority interest
0.0
0.0
0.0
0.0
0.0
0.0
Total non-current liabilities
Total shareholders' equity
152.5
85.8
128.5
177.8
235.3
296.0
Total liabilities and shareholders' equity
309.7
408.6
471.8
546.4
623.9
686.6
EFFICIENCY RATIOS
Net Cash Cycle
135
108
96
94
91
89
Receivables Days
55
51
58
58
57
56
Payables Days
45
52
49
49
51
52
Inventory Days w/o live assets
59
43
43
42
41
40
Inventory Days with live assets
124
110
87
85
85
85
26
EQUITY RESEARCH
Valuation Approach
Valuation tools employed most frequently are Discounted Cash Flow (DCF) and International Peer Group Comparison, though
other metrics such as Dividend Discount, Gordon Growth, and Replacement Value Methods are also used wherever appropriate.
Oyak Securities analysts may calculate the target return of each stock considering only one method or assigning different weights
to more than one method depending on the analyst’s opinion. The “Expected Market Return” (EMR) of the ISE-100 is determined
through aggregate target returns of each stock under coverage based on their respective free float market capitalization. Our
coverage accounts for around 80% of the total market capitalization of the ISE.
Rating Methodology
Oyak Securities assigns recommendations to each stock according to the following criteria:
Price target for a stock represents the value analyst expects the stock to reach during our performance horizon, which is 12
months. For stocks with an OUTPERFORM recommendation, target return must exceed the EMR by at least 10% over the next 12
months. For a stock to be classified as UNDERPERFORM, the stock must be expected to under perform the EMR more that 10%
over the next 12 months. Stocks that an analyst expects to perform parallel to the EMR within a band of +/- 10% are rated as
MARKETPERFORM.
Rating
Expected Return (%)
Outperform
> EMR + 10
Marketperform
= EMR +/- 10
Underperform
< EMR - 10
Oyak Securities analysts review their recommendations under continuous
screening. Nevertheless, at times, target return of a stock may be allowed to move
outside our rating intervals as a result of share price fluctuations. Under such
circumstances, the analyst may choose not to change his/her recommendation.
Disclaimer
This document has been produced by OYAK Yatirim Menkul Degerler A.S. ("OYAK Securities") solely for information purposes and constitutes no
offer or solicitation of an offer to buy or sell any securities. OYAK Securities obtains information from sources considered to be reliable, but does not
guarantee its accuracy or completeness. Under any circumstance, OYAK Securities or others associated with it cannot be held liable for any
damages resulting from inaccuracies/deficiencies and commercial use of this information. All opinions and estimates constitute those of OYAK
Securities’ Research Department as of the date of the report and hence do not represent the opinions or estimates of any other OYAK Group
companies. The information and opinions are subject to change without notice. OYAK Securities and others associated with it may hold positions
and effect transactions in securities of entities mentioned in the document. In addition, investors should assume that OYAK Securities and others
associated with it might have, might be seeking or will seek investment banking or other business relationships with the companies in this report.

Banvit

Transcription

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