INDES Company Update (Oyak Yatırım)

Positive outlook for ICT sector continues

We provide an Outperform rating (prev. Under Review) for Indeks Bilgisayar (INDES) with a target price of TL30.98 which corresponds to a 55% upside potential based on our blended DCF-historical multiples valuation. We expect 2023 to be another strong year for the ICT (information and communications technology) sector with more stable FX rates and higher purchasing power of consumers, especially after the recent minimum wage hike. We like the Company’s leading distributor position in the sector and its solid financials with improving EBITDA margins in recent years. The company shares trade at undemanding 3.4x and 2.5x EV/EBITDA multiples on our 2022 and 2023 forecasts, respectively.

4Q22 was another strong quarter in our view… 2022 was a strong year for INDES, as the digital transformation of work and education continued at full speed. Turkey’s attractiveness in shopping, supported by strong tourism data and an increase in the number of foreign residents, also supported sales. We expect INDES to generate TL391mn EBITDA for 4Q22, an all-time high quarterly EBITDA figure, indicating a 38% q/q and 159% y/y growth. Thus, we foresee the company to close the year with 93% revenue and 138% EBITDA growth.

Demand to remain robust in 2023… We expect the aforementioned catalysts which were in place in 2022 to continue in 2023. In addition, more stable FX rates, a higher purchasing power of consumers after wage increases and the recent extension of installment period for phone purchases could boost sales in our view. Also, the new mobile network 5G, which is expected to be released in late 2023, could contribute to phone sales as the renewals will occur upon the deployment. Accordingly, we expect 28% EBITDA growth for 2023 despite the high base of 2022.

Strong cash flow generation continues… The Company’s strict receivable policy and careful inventory management starting from 2020, along with robust EBITDA generation and low CAPEX resulted in a major increase in net cash position from -TL208mn as of end-2019 to TL867mn as of end-3Q22. We expect this positive trend in cash generation to continue in the upcoming years.
  
Our forecasts might remain conservative… For 2023 and onwards, we used conservative top-line assumptions to be on the safe side despite the significant growth potential. We also chose to be conservative in terms of profit margins and assume gross and EBITDA margins to be around 4.9%-5.0% and 3.8%-4.0% levels, respectively, throughout our forecast horizon vs 5.0% and 4.0% in 2022E.

We expect dividend distribution from 2022 earnings… Assuming a 40% dividend payout rate, we calculate TL1.0/share dividend distribution from 2022 earnings, which corresponds to 5.0% yield at the current MCAP.


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