Eczacibasi Ilac Outperform

Eczacibasi Ilac
Outperform
March 8, 2016
Share Price
12M Target Price
Potential Return
TL4.14
34%
TL3.09
Mcap
More REIC, less pharma
TL1,694m n
EV
USD580m n

Real estate investments to continue in Ayazaga Istanbul.

Defensive name with a strong cash position and stable rental
revenues from the Kanyon complex.
Stock Market Data (07.03.2016)
Initiating coverage with an Outperform recommendation with a
12-month target share price of TL4.14, 34% upside.
Rel. Performance:

Investment Thesis:
Real estate investments continue to be lucrative. Since the sale of
its generic drug production business to Zentiva in 2007, Eczacibasi
Ilac (ECILC) has carried out its pharmaceutical and fast moving
consumer goods (FMCG) trade operations through strategic
partnerships with leading global brands. However, the Company
primarily creates value from a direct involvement in real estate
projects; with Kanyon and Ormanada being notable examples to
date. The Company is to benefit heavily from real estate
development projects in the next few years. On April 10, 2015, the
Company purchased Yeni Tekstil’s factory in Ayazaga Istanbul for
USD24.25mn. This factory is adjacent to Ezcacibasi Ilac’s serum
production plant, which will terminate its operations this year. With
the purchase, the Company now has a 76k sqm (23k from Yeni
Tekstil, 53k from Baxter) plot where it can develop a new real estate
project. Meanwhile, Eczacibasi Holding has a 320k sqm plot in
Kartal on the Anatolian side of Istanbul and investors are patiently
waiting for newsflow regarding a new project on this plot. Note that
Eczacibasi Ilac has a 37.28% stake in Eczacibasi Holding.
Growth continues in the healthcare and consumer segments. While
Eczacibasi Ilac’s true growth story lies in real estate development
projects, the Company also has initiatives to strengthen its position
in the healthcare and consumer products segments. Eczacibasi Ilac
started to distribute Procter & Gamble products to 4,000
pharmacies in Turkey in July 2014, which boosted healthcare
revenues by 52% YoY in 9M15. The consumer segment recorded
18% YoY growth in the same period.
Very strong cash position. At a time when most emerging market
companies struggle with highly leveraged balance sheets,
Eczacibasi Ilac boasted a TL448mn net cash position as of 9M15.
The Company’s TL641mn cash position is 40% denominated in
EUR and 54% in USD, while only 6% of the cash is TRY
denominated, providing FX gains in times of TL weakness.
Catalysts: i) News of a project development in Ayazaga, most likely
in 2017-2018, ii) Receival of a construction permit for the Kartal
plot, iii) A dividend payout higher than in previous years.
Valuation: We initiate coverage for Eczacibasi Ilac with an
Outperform recommendation and a 12-month target price of
TL4.14/share, indicating a 34% upside. We value Eczacibasi Ilac
with a SOTP valuation and apply a 35% holding discount to reach
our target NAV of TL2.27bn.
Risks: The main risk is a downturn in the economy, which could
negatively affect demand and also delay potential real estate
projects. Share sale by ECZYT could also create a share overhang.
TL1,245m n
Bloomberg/Reuters:
ECILC.TI / ECILC.IS
1 mth
3 mth
-2%
17%
12M Range (TL):
12mth
27%
2.28 / 3.34
Average Daily Vol (TLmn) 3 mth:
10.6
YTD TL Return:
17%
Beta (2year, w eekly)
0.87
Weight in BIST-100
0.00
Shares Outstanding (mn):
548.2
Foreign Ow n. in Free Float :
Current
12M ago
31%
43%
The Com pany in Brief
Eczacibasi Ilac operates in the trade of pharmaceutical and
FMCG products, w ith a main focus on the healthcare and
personal care segments. The Company carries out its trade
operations through strategic partnerships, w hile it is also
involved in real estate development - notable past projects
include Kanyon Shopping Mall and Office Complex and
Ormanada Residential Project.
Shareholders Structure
Eczacibasi Holding
Eczacibasi Yatirim Holding Ortakligi (ECZYT.IS)
50.62%
28.81%
Others
20.57%
Financials/Ratios
2014
2015E
2016E
2017E
Net Sales (TLmn)
1,047
1,159
1,299
1,456
-7%
11%
12%
12%
-5
31
60
82
-121%
n.m.
93%
36%
YoY
EBITDA (TLmn)
YoY
Net Income (TLmn)
-43
87
100
104
-170%
n.m.
14%
5%
EBITDA margin
n.a
2.7%
4.6%
5.6%
Net margin
n.a
7.5%
7.7%
7.2%
EBITDA Margin
n.m.
2.7%
4.6%
5.6%
P/E (x)
n.m.
19.4
17.0
16.2
EV/EBITDA (x)
n.m.
39.9
20.7
15.2
EV/Sales (x)
1.2
1.1
1.0
0.9
-0.08
0.16
0.18
0.19
YoY
EPS
DPS
0.08
0.09
0.11
0.12
Div. Yield
2.6%
3.1%
3.7%
3.8%
ROE
n.m.
3.1%
3.5%
3.6%
Analyst: Deniz Egemen
+90 (212) 384 11 30
Analyst: Emre Cezairli
+90 (212) 384 11 36
degemen@garanti.com.tr
ecezairli@garanti.com.tr
Eczacibasi Ilac
March 8, 2016
RESEARCH
SUMMARY FINANCIALS (TLmn)
Income Statement
Net Sales
Gross Profit
Operating Profit
Consolidated EBITDA
Profit (Loss) from Subsidiaries
Net financial Inc./ Exp & Other
Profit (Loss) before Tax
Tax
Minority Interests
Net Income
Ratios
EBIT Margin
EBITDA Margin
Net Income Margin
2014
1,047
190
-25
-5
-54
30
-51
-10
-18
-43
2015E
1,159
256
13
31
-5
90
98
-19
-8
87
2016E
1,299
299
41
60
-5
77
113
-22
-8
100
2017E
1,456
336
61
82
-5
62
119
-23
-8
104
n.m.
n.m.
n.m.
1.1%
2.7%
7.5%
3.1%
4.6%
7.7%
4.2%
5.6%
7.2%
11%
n.m.
n.m.
12%
93%
14%
12%
36%
5%
Sales Growth
EBITDA Growth
Net Income Growth
Balance Sheet
Current Assets
Cash and Cash Equivalents
Short-Term Trade Receivables
Inventories
Other Current Assets
Long Term Assets
Total Assets
Short Term Liabilities
Short-Term Financial Loans
Short-Term Trade Payables
Other Short-Term Liabilities
Long Term Liabilities
Long-Term Financial Loans
Other Long-Term Liabilities
Shareholders Equity
T. Liabilities & S.holders Equity
2014
1,035
649
212
155
20
2,228
3,263
376
113
234
29
126
31
95
2,761
3,263
2015E
1,055
635
255
145
20
2,290
3,345
410
130
250
30
130
35
95
2,805
3,345
2016E
1,117
652
272
175
18
2,300
3,417
425
125
270
30
140
40
100
2,852
3,417
2017E
1,154
669
285
185
15
2,329
3,483
444
127
282
35
144
35
109
2,895
3,483
Cash Flow Summary
EBITDA
WC Change
Operating Cash flow
Capex
Investing cash flow
Dividends paid
Change in net debt
CF from financing activities
2014
-5
-4
6
-42
-106
53
150
10
2015E
31
-17
-5
-108
-120
44
35
110
2016E
60
-27
5
-20
-65
52
-18
77
2017E
82
-11
26
-20
-69
62
-20
59
Key metrics
Net Debt/EBITDA (x)
Net Debt/Equity (x)
Capex/Sales (%)
WC Change/Sales (%)
ROCE (%)
ROIC (%)
FCF yield (%)
2014
n.m.
-0.2
4.0%
-0.3%
-0.9%
-1.6%
n.m.
2015E
-15.0
-0.2
9.3%
-1.5%
0.5%
-0.2%
n.m.
2016E
-8.1
-0.2
1.5%
-2.1%
1.4%
0.8%
n.m.
2017E
-6.2
-0.2
1.4%
-0.8%
2.0%
1.6%
n.m.
2
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
INVESTMENT THEME







We initiate coverage for Eczacibasi Ilac, a pharmaceuticals, FMCG
trade company and real estate developer with an Outperform
recommendation.
Our 12-month target price of TL4.14/share indicates a 34% upside
potential. We value Eczacibasi Ilac with a SOTP valuation and
apply a 35% holding discount to reach our target NAV of TL2.27bn.
The Company’s healthcare and consumer products segments
constitute only 6% of our target NAV.
On the other hand, the real estate assets owned by the Company
constitute 32% of our target NAV.
The majority of the value comes from long-term financial assets for
sale, which is Eczacibasi Holding’s stake, constituting 49% of its
NAV.
The Kanyon, Ormanada and Ayazaga plots (76sqm) have 14%, 5%
and 13% shares, respectively in our target NAV calculation. The
Company has a stable revenue stream from the Kanyon complex,
around USD20mn per annum. The Ormanada residential project is
located in Zekeriyakoy, very close to Istanbul’s third bridge project
and the Company has already sold 186 units out of 273 with a sales
price between USD500k and USD2.2mn.
The Company’s net cash position together with its real estate stock
in its portfolio makes Eczacibasi Ilac a defensive pick, in our view.
The Company has an FX-denominated TL641mn cash position and
a net cash position of TL448mn as of 9M15.
More REIC, less pharma
Since the sale of its generic drug production business to Zentiva in 2007
(75% stake sold in 2007 for EUR460mn, with the remaining 25% stake
sold in 2009 for EUR171mn), the Company has carried out its
pharmaceutical and FMCG trade operations through strategic
partnerships with leading global brands; such as Schwarzkopf and Nivea
in the personal care segment, as well as Monrol and Baxter in the
healthcare segment. However, the most lucrative periods in the
Company’s timeline was when it was directly involved in real estate
projects.
Kanyon was a joint venture project between Eczacibasi Ilac and Is REIC
(ISGYO, OP), a modern architectural epitome in the midst of Levent, the
crowded financial district of Istanbul. It was Turkey’s first open-air
shopping mall concept when it began operating in 2006. The Company
also built Ormanada, a luxury residential project in the suburb of
Zekeriyakoy in Istanbul. Deliveries of Ormanada started in 2013 and as of
9M15, 186 units out of 273 had been sold.
We believe Eczacibasi Ilac will greatly benefit from its real estate
development projects in the next few years from its plot in Ayazaga and
with a possible development on Eczacibasi Holding’s plot in Kartal.
3
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH


On April 10, 2015, the Company purchased Yeni Tekstil’s factory in
Ayazaga for USD24.25mn. This factory is adjacent to Ezcacibasi
Ilac’s Baxter (serum production) plant, which will terminate its
operations this year. With the purchase, the Company now has a
76k sqm (23k from Yeni Tekstil, 53k from Baxter) plot where it can
develop a new real estate project.
Eczacibasi Ilac holds a 37.28% stake in its parent shareholder,
Eczacibasi Holding. With a land bank of 320,000sqm, Eczacibasi
Holding is the largest landowner in the Kartal Sub-Center Urban
Regeneration Project, which is a partnership that involves a number
of public and private investors. The aim of the project is to create a
whole new sub-center on Istanbul’s Anatolian side and spur
economic growth in the area, which is relatively less developed
compared to central Istanbul. Progress on this project has been
linked to the finalization of legal procedures related to the details of
the 1/1000 master plan approved by the Istanbul Metropolitan
Municipality in the first quarter of 2011. Eczacibasi Ilac would
benefit from a real estate development project in Kartal through its
stake in Ezcacibasi Holding, its parent company.
Very strong cash position
At a time when most emerging market companies struggle with highly
leveraged balance sheets, Eczacibasi Ilac boasted a TL448mn net cash
position as of 9M15. The Company could potentially use the cash to
invest in new operations, acquire new plots, or simply keep the cash and
book interest and FX gains when the USD and EUR appreciate against
the TRY. The Company’s TL641mn cash position is 40% denominated in
EUR and 54% in USD, while only 6% of the cash is TRY denominated.
Eczacibasi Ilac’s FX-denominated net cash position enables the Company
to become an excellent defensive pick, in our view, particularly in a
volatile environment for equity markets. Note that thanks to its long FX
position, the Company recorded TL136mn in net FX income in 9M15 due
to the depreciation of the TRY.
A consistent dividend payer
The Company distributed around TL50mn in cash dividends on average in
the past five years. In 2014, the Company posted a TL43mn net loss,
mostly due to the TL36mn net loss incurred from its 25% stake in its
subsidiary, Vitra Karo. However, despite the net loss in 2014, the
Company still distributed a gross dividend of TL44mn from its retained
earnings and excess reserves. We believe this trend will continue with its
strong net cash position and stable cash flow coming from the real estate
portfolio.
2010
2011
2012
2013
2014
2015E
2016E
2017E
Net Income/Loss (mn TL)
60
89
34
61
-43
87
100
104
Gross Dividend (mn TL)
38
55
55
53
44
52
62
65
DPS (TL)
0.07
0.10
0.10
0.10
0.08
0.09
0.11
0.12
Pay out Ratio
64%
62%
159%
86%
n.m.
59%
62%
62%
Dividend Yield
2%
3%
3%
3%
3%
3%
4%
4%
Source: Eczacibası Ilac, Garanti Securities Estimates
4
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
The FMCG sector looks resilient
While Eczacibasi Ilac’s investment story lies in real estate development
projects, we believe that the Company is also poised to benefit from the
rapidly growing FMCG sector in Turkey. According to global research firm
Nielsen’s 2015 “Growth Reporter,” Turkey was the fastest growing FMCG
market among 21 European countries with 12.4% YoY nominal sales
growth in 3Q15 (Europe’s average sales growth was 1.3%). We believe
that Eczacibasi Ilac is likely to continue to benefit from this strong sector
tailwind.
However, there exists a risk factor in the FMCG segment - most personal
hygiene products, sold under Eczacibasi Girisim, are domestically
produced in Turkey, while raw materials are mostly imported. Therefore,
TRY depreciation against FX currencies pushes raw material prices up.
The Company is not immediately able to reflect the costs to its product
prices because consumers shift to substitutes in case of product price
hikes. For instance Selpak, the leading tissue brand in Turkey (similar to
Kleenex), is made up of 100% imported cellulose, which means its
production costs depend 100% on the USD.
Nuclear medicine is growing as well
The halting of low margin pharmaceuticals operations (such as Baxter’s
serum production) and a new focus on higher margin nuclear medicine
products is a favourable strategy for sustainable profitability, in our view.
The completion of Eczacibasi-Monrol’s radiopharmaceutical investments
in Poland, Bulgaria and Romania could further enhance the top line in
2016.
A global bioscience and biopharmaceuticals company called Baxalta,
founded in 2015 after a spin-off from Baxter, could invest in Turkey to
produce bio products and take part in private and public sector tenders. If
such an investment were to materialize, Eczacibasi Ilac would most likely
be involved as a minority partner.
Partially immune from the bleak pharmaceuticals sector outlook
In Turkey, the Ministry of Health determines drug prices by referencing
European countries with low drug prices, including Greece. Until
September 2015, the drug sale price was determined by a EUR exchange
rate of 1.95 (despite the fact that imports were based on the recent EUR
exchange rate, which is currently around 3.3). Considering this unfair, the
Turkish Pharmacists’ Association took the process to court. As of
September 2015, the EUR exchange rate multiplier for drug sale prices
has been raised to 2.07, still a very low rate for drug importers and local
producers who acquire raw materials from the current 3.3 EUR/TRY rate.
As a result, the legal dispute continues and the Turkish pharma sector
outlook is not as cheerful as the FMCG or real estate sectors, which are
the Company’s other operational segments.
5
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
As of 9M15, only around 20% of the Company’s total sales came from the
healthcare segment. The segment is the only operational division of
Eczacibasi Ilac with its bottom line in the red. However, the Company also
includes the sale of healthcare products other than drugs within the
“healthcare” sales segment and while we do not have the exact sales
breakdown, we believe that Eczacibasi Ilac’s diversified sales platform
and wide product mix minimizes the Company’s exposure to ongoing
problems with drug sale prices in Turkey.
A fine example of this immunity would be the agreement with Procter &
Gamble (P&G). Eczacibasi Ilac started to distribute P&G’s products, such
as Orkid, Prima, Gillette, Ipana, Oral-B, Head&Shoulders, Blendax,
Koleston and other P&G health and grooming brands to 4,000 pharmacies
in Turkey starting from July 2014. The distributorship deal boosted
Eczacibasi Ilac’s healthcare sales by 52% YoY (9M15 vs. 9M14). While
this is most likely to be a one-off boost, such products within the
healthcare segment will continue to be a solid driver of Eczacibasi Ilac’s
sales performance.
Iran remains a long term opportunity
According to the management, it is too early to comment on Iran. The
Company is in the early stages of feasibility studies, trying to discover the
capacity conditions and licensing mechanisms in Iran. An entry would
most likely be through a JV, but finding the correct strategic partner is key.
Risks


It is fair to say that the healthcare segment and Kanyon revenues are
mostly immune to a downturn in the economy. However, potential real
estate projects could be delayed during a slowdown in the economy.
Meanwhile, Eczacibasi Yatirim Holding Ortakligi (ECZYT.IS, Not
Rated), which has a 28.8% stake in the company, trades ECILC
shares periodically. Any share sale by EZCYT could also create an
overhang on ECILC’s share price.
6
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
VALUATION
We value Eczacibasi Ilac with SOTP valuation and apply a 35% holding
discount to reach our target NAV. Our 12-month target price of TL4.14/
share indicates a 34% upside.
Summary NAV Table (TLmn)
Valuation Method
Stake in NAV
Value
Healthcare
DCF
2%
70
Consumer Products
DCF
4%
139
Kanyon Complex
DCF
16%
498
Ormanada
DCF
5%
159
Ayazaga Land
Fair Value Estimate
13%
456
Financial Assets (Eczacibasi Holding
37.28% stake)
Book Value 9M15
49%
1,721
Net Cash (9M15)
13%
448
Total
3,492
Holding Discount (35%)
1,222
TOTAL TARGET NAV
2,270
Eczabasi Ilac's Current M.Cap.
1,694
Discount to Target NAV
-25%
12M target share price (TL)
4.14
Current Share Price (TL)
3.09
Upside Potential
34%
Source: Garanti Securities
Main Assumptions and Forecasts
Healthcare Segment (2% of NAV)
In the healthcare segment Eczacibasi Ilac has pharmaceutical
subsidiaries (Original Medicine and Eczacibasi Pharma Marketing),
hospital products (Eczacibasi-Baxter Hospital Supply), dialysis market
(RTS Renal Tedavi Hizmetleri), healthcare services (Eczacibasi Health
Services) and in the nuclear medicine sector (Eczacibasi-Monrol Nuclear
Products).
We calculate a target value of TL70mn for the healthcare segment
with a DCF analysis, assuming a 6% terminal growth rate in our DCF
model. We applied 10% as the risk free rate, while assuming a market risk
premium of 5.5% in calculating the cost of equity. Accordingly, we assume
a 13.6% WACC.
We forecast that revenue growth will be lower in 2016-2017 due to the
halt of Baxter’s serum production operations. We assume that revenues
will increase slightly above the inflation rate after 2017, while the EBITDA
margin will gradually increase to 5% in the next five years.
7
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
Consumer Products Segment (4% of NAV)
In the personal care segment Eczacibasi Ilac has subsidiaries in
consumption products (Eczacibasi Girisim Marketing), wet wipes
(Eczacibasi Hygiene Products) and hair care products (EczacibasiSchwarzkopf).
We calculate a target value of TL139mn for the consumer products
with a DCF analysis, assuming a 5% terminal growth rate in our DCF
model. We applied 10% as the risk free rate, while assuming a market risk
premium of 5.5% in calculating the cost of equity. Accordingly, we assume
a 13.6% WACC.
We assume that revenues will increase 4-5pp above the inflation rate,
while the EBITDA margin will remain around 2% in our projection period.
Kanyon Complex (16% of NAV)
Eczacibasi Ilac owns 100% of Kanyon’s office block and 50% of the
shopping mall. Eczacibasi Ilac’s rental income totalled TL46.4mn from
Kanyon’s office and the shopping mall complex at the end of 9M15 with
full occupancy, while there was TL0.4mn in maintenance expenses. The
occupancy rate is almost full at the Kanyon complex.
We value the Kanyon complex with the DCF method, with a USD
WACC of 10.5%, while assuming USD20mn in annual rental income,
rising 1% in real terms with an annual maintenance expense of
USD0.2mn. Accordingly, we reach a fair value of TL498mn for
Kanyon.
In the FY14 financial footnotes, management calculated the fair value for
Kanyon as TL557mn, of which TL256mn was from the Kanyon Shopping
Mall and TL301mn was from the Kanyon Office. While our fair value
estimate is lower than management’s estimate, note that the yield in the
benchmark TL bond was 8.00% at the end of 2014 vs. the current yield of
10.70%.
Ormanada (5% of NAV)
In December 2007, Eczacibasi Ilac acquired 50% of the 22 lots in
Zekeriyakoy, Istanbul with a 196.4k sqm area. The remaining 50%
belongs to Eczacibasi Holding. Ormanada project is developed at this
land and the Company has already sold 186 units out of 273 with a sales
price between USD500k and USD2.2mn.



The total construction area at Ormanada is around 90k sqm. House
sizes in the project range between 170sqm and 700sqm with a
sales price between USD500k and USD2.2mn.
There are 273 units in total, of which 188 are villas and 85 are
apartments.
There are 150 units in the first phase and 123 units in the second
phase. Deliveries in the first phase started in April 2013 and
deliveries in the second phase started in December 2013.
8
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH

As of 9M15, 116 units in the first phase and 70 units in the second
phase have been sold.
We reach a fair value of TL159mn for the residential portfolio of
Eczacibasi Ilac in the Ormanada project while assuming that total
sales revenues from the remaining units will total around TL230mn
in the next five years. We used a TL WACC of 15.5% with a 10% RFR,
5.5% MRP, and a Beta of 1.0.
Our assumptions for Eczacibasi Ilac’s main operating segments,
healthcare, consumer products, and real estate are summarized in the
table below.
Summary Estimates for Main Segments (TLmn)
2012
2013
Healthcare
Sales
107
Growth
2014
2015E
2016E
2017E
2018E
2019E
124
165
230
248
266
292
322
16%
33%
39%
8%
7%
10%
10%
Gross Profit
45
51
58
78
87
94
108
119
EBIT
-23
-27
-23
-14
-4
1
6
10
EBITDA
-21
-25
-20
-11
-1
4
9
13
Gross Margin
42%
41%
35%
34%
35%
36%
37%
37%
EBIT Margin
-21%
-22%
-14%
-6%
-2%
1%
2%
3%
EBITDA Margin
-19%
-20%
-12%
-5%
0%
2%
3%
4%
Consumer Products
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
Sales
682
779
728
844
954
1,078
1,218
1,376
14%
-7%
16%
13%
13%
13%
13%
85
103
92
127
153
172
195
220
EBIT
8
-5
-11
0
10
16
18
21
EBITDA
11
1
-4
7
18
25
27
31
Gross Margin
12%
13%
13%
15%
16%
16%
16%
16%
EBIT Margin
1%
-1%
-2%
0%
1%
2%
2%
2%
EBITDA Margin
2%
0%
-1%
1%
2%
2%
2%
2%
Real Estate
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
Sales
158
223
154
85
97
112
117
121
Gross Profit
34
52
40
51
59
69
71
74
EBIT
25
39
24
36
44
53
55
58
EBITDA
31
45
34
44
53
62
65
69
Gross Margin
21%
23%
26%
60%
61%
61%
61%
61%
EBIT Margin
16%
18%
16%
43%
46%
47%
47%
48%
EBITDA Margin
20%
20%
22%
52%
54%
55%
56%
57%
Growth
Gross Profit
Source: The Company, Garanti Securities Estimates
9
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
Eczacibasi Ilac’s consolidated income statement is derived from its main
operating segments, namely healthcare, consumer products and real
estate which combines the Kanyon Complex, Ormanada and Eczacibasi
Property Development and Investment. On a consolidated basis, the
healthcare and consumer products segments together constitute over
90% of revenues, while the majority of the EBITDA, over 65%, comes
from the real estate business.
We project an improvement in the consolidated EBITDA from TL31mn in
2015 to TL60mn in 2016 with improving profitability in the healthcare and
consumer products segments. The significant portion of the EBITDA will
again come from the real estate segment.
2016E Segmental Breakdown (TLmn)
Revenues
Real estate, consumer
products and
healthcare segments
account for 7%, 73%
and 19% of revenues,
respectively.
However, the majority
of the EBITDA, 76%,
comes from the real
estate segment.
EBITDA
248
1,299
18
954
69
53
-1
97
Real Estate
Consumer
Products
Healthcare
Total
Real Estate
Consumer
Products
Healthcare
Total
Source: Garanti Securities Estimate
Below the operating line, both in FY13 and FY14, Eczacibasi Ilac
recorded net losses from its subsidiaries with the equity pick-up method
(-TL51mn and -TL54mn, respectively). Management does not expect such
losses in the coming years. Net losses from its subsidiaries was
accounted for via the equity method. Losses amounted to TL4mn in
9M15, much lower when compared to the past years.
Thanks to its substantial cash position in hard currency, the depreciation
of the TL provided FX gains for the Company in the past years and is set
to continue. All in all, we project a bottom line of TL87mn at end FY15,
rising to TL100mn in FY16.
Consolidated Income Statement
2013
2014
2015E
2016E
2017E
Sales
1,126
1,047
1,159
1,299
1,456
Gross Profit
206
190
256
299
336
EBIT
10
-25
13
41
61
EBITDA
24
-5
31
60
82
Profit (Loss) from Subsidiaries
-51
-54
-5
-5
-5
Net financial Inc./ Exp & Other
118
30
90
77
62
Tax
-29
-10
-19
-22
-23
Minority Interests
-3
-18
-8
-8
-8
Net Income
61
-43
87
100
104
Gross Margin
18.3%
18.2%
22.1%
23.0%
23.1%
EBIT Margin
0.9%
n.m.
1.1%
3.1%
4.2%
EBITDA Margin
Net Income Margin
2.1%
5.5%
n.m.
n.m.
2.7%
7.5%
4.6%
7.7%
5.6%
7.2%
Source: Eczacibasi Ilac, Garanti Securities Estimates
10
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
Other main lines in the NAV Table
Ayazaga Plot (13% of NAV)
On April 10, 2015, the Company purchased Yeni Tekstil’s factory in
Maslak Ayazaga (Istanbul) for USD24.25mn. This plot is adjacent to
Ezcacibasi Ilac’s Baxter (serum production) plant, which will terminate its
operations this year. Eczacibasi Ilac will continue to use the factory to
stock pile its inventory until the end of 2016. With the plot purchase, the
Company now has a 76k sqm (23k from Yeni Tekstil, 53k from Baxter)
plot where it can develop a new real estate project.
According to the government’s “Urban Transformation Project,” the
Maslak Ayazaga district will be destined as a project area and companies
located there will move their facilities and plants to other regions until the
end of 2016.
In Maslak Ayazaga, prices per sqm vary between TL4,000 – TL20,000
according to various real estate valuation companies. We valued the
Ayazaga plot at TL6,000 per sqm and reached a fair value of
TL456mn. Recent projects in the area are in demand with high price tags.
For instance, the “Vadi Istanbul” project is selling for c.USD3,000+VAT
per sqm in that area. Indeks (INDES, OP) and Seba Construction have
sold their project in the same area at USD3,800 per sqm.
Financial Assets (49% of NAV)
Eczacibasi Ilac has a 37.28% stake in its parent shareholder, Eczacibasi
Holding. For the sake of simplicity and also to remain conservative,
we used the book value of the Eczacibasi Holding stake reported in
its 9M15 financials, which is TL1.72bn.
In its FY14 financial statement’s footnotes, the company states the fair
value of its Eczacibasi Holding stake as TL1.712bn. Eczacibasi Holding is
valued as TL4bn and in order to eliminate the cross-ownership value,
Eczacibasi Ilac deducts its 37.28% stake from this value as well as
another TL522mn to reach a fair value of TL2bn. Then, another TL302mn
is deducted as a liquidity discount to reach a fair value of TL1.71bn for the
37.28% Eczacibasi Holding stake.
(mn TL)
Eczacibasi Holding fair value
4,000
ECILC's 37.28 %stake in Eczacibasi Holding
1,491
Cross ownership impact
Fair Value before liquidity discount
Liquidity discount (-)
Fair Value of ECILC's 37.28% stake in Eczacibasi Holding
523
2,014
302
1,712
Source: FY14 footnotes of ECILC
11
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
Eczacibasi Holding reached a combined net turnover of TL7,429mn in
2014 (2013: TL6,735mn). Building products made up 37% of the total
revenues, while the contribution of healthcare and consumer products
stood at 10% and 18%, respectively. Other products and services
accounted for the remaining 35%. In 2014, Eczacibasi Holding’s EBITDA
figure reached TL578mn (2013: TL548mn).
Eczacibasi Holding has a 320k sqm plot in Kartal Istanbul adjacent to the
Marmara Sea and investors are patiently waiting for newsflow regarding a
project on this plot. Emlak Konut REIC’s (EKGYO, OP) has a plot in very
close proximity. In December 2012, Eltes Insaat and the Dap Yapi bidding
group offered TL534mn of the company’s share for Emlak Konut REIC’s
revenue sharing project on the 65k sqm plot in Kartal. The group kicked
off the sales of the IstMarina project on the plot in 2014 and Emlak Konut
REIC’s share increased to TL672mn in November 2015 due to the high
sales performance. As of January 2016, 1,312 independent units among
the total 1,833 units were sold.
Net Cash (13% of NAV)
As of 9M15, the Company is maintaining its TL641mn cash position in
EUR (40%), in USD (54%) and in TL (6%). The Company’s net cash
position stood at TL448mn at end-9M15.
Holding Discount (35%)
We applied a 35% discount to our target NAV. Currently, among the
conglomerates in our coverage, Sabanci Holding trades at a 34% to its
current NAV, while Koc Holding trades at a slight premium to its NAV.
Sise Cam trades at an 18% premium to its current NAV. Note that all
three names have subsidiaries trading on the BIST. Meanwhile, among
the REICs, Emlak Konut REIC trades at around a 46% discount to its
NAV, while its one-year average discount is around 32%. Considering this
sample, and Eczacibasi Ilac’s cross ownership structure, we believe
applying a 35% discount to our target NAV is fair.
12
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
THE COMPANY
Eczacibasi Ilac’s main shareholders are Eczacibasi Holding and
Ezcacibasi Yatirim Holding with 50.62% and 27.30% stakes, respectively.
There is a cross-ownership structure with the main shareholder as
Eczacibasi Ilac has a 37.28% stake in Eczacibasi Holding.
Shareholder Structure
Cross-Ownership Structure
Eczacibasi Ilac (ECILC.IS)
Others;
20.57%
Eczacibasi
Yatirim;
28.81%
37%
Eczacibasi
Holding;
50.62%
27.30%
51%
Eczacibasi Holding
(parent company, not listed)
15%
Eczacibasi Yatirim
Ortakligi A.S.
(ECBYO.IS)
Eczacibasi Yatirim
Holding Ortakligi A.S.
(ECZYT.IS)
Source: The Company
Eczacibasi established the first modern pharmaceutical production plant in
Turkey in 1952 and dominated the Turkish pharmaceutical industry until
2007 – when the Company began to search for a strategic partnership,
following local and global changes in the pharmaceutical sector. In a
transitionary period between 2007-2009, Eczacibasi Pharmacutical
Industries transferred all of its shares in Eczacibasi Healthcare Products
and Eczacibasi Ozgun Chemicals, its subsidiaries, to a leading global
pharmaceutical company, Zentiva N.V. 75% of the shares were
transferred in 2007 and the remaining 25% stake was transferred in July
2009. Following the transfer of the controlling shares, Eczacibasi’s trade
name was changed to “EIS Eczacibasi Pharmaecutical, Industrial and
Financial Investments, Industry and Trade Inc.” in 2008.
Today, the Company has halted its pharmaceutical production operations
completely and its operations now include pharmaceutical trade and trade
of FMCG products with a main focus on the distributorship branch of
healthcare and personal care brands. Eczacibasi Ilac carries out its
distributing operations through strategic partnerships with globally
acclaimed brands. Meanwhile, the Company is also directly involved in
real estate development.
Divisional Summary of ECILC
Healthcare
Eczacibasi Pharmaceutical Marketing
Eczacibasi Pharma Cyprus
Eczacibasi Pharma Trade
Eczacibasi-Baxter Hospital Products
Eczacibasi-Monrol
Eczacibasi Healthcare Services
Personal Care
Real Estate
99.9% Girisim Marketing
48.1% Kanyon Office
100.0%
99.9% Eczacibasi Hygiene
48.1% Eczacibasi Real Estate
99.5%
99.9% Eczacibasi-Schw arzkopf
47.0% Kanyon Shopping Mall
50.0%
50.0%
Ormanada Project
50.0%
50.0%
48.4%
Affiliate Companies Joint Ventures Subsidiaries Financial Investments
Other
Eczacibasi Holding
Eczacibasi Foreign Trade
Vitra Karo
Eczacibasi Information Tech.
37.3%
26.4%
25.0%
14.0%
Source: The Company
13
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
Healthcare Division
Eczacibasi Pharmaceuticals Marketing (EIP)
Eczacibasi Pharmaceuticals Marketing carries out the marketing,
promotion, sales and distribution of imported and contract manufactured
pharmaceuticals for mass and niche markets and health-based personal
care products. Its growing portfolio currently comprises products licensed
by many globally acclaimed brands, as well as its own brand of nutritional
supplements. In July 2014, EIP signed an exclusive agreement with
Procter & Gamble, encompassing the distributorship of products, such as
Orkid, Prima, Gillette, Ipana, Oral-B, Head & Shoulders, Blendax,
Koleston and other P&G health and grooming brands. EIP also continues
to expand its pipeline with Golderma, a European company focused
exclusively on dermatology. According to IMS data, the Turkish drug
market grew by 14.2% in 9M15 in TL terms, while EIP grew by 20.8% in
the same period.
Eczacibasi-Baxter Hospital Supply
Eczacibasi-Baxter is Turkey’s leading supplier of innovative alternative
treatments in critical therapy areas, such as bleeding disorders, cancer,
severe malnutrition, primary immunodeficiency and other autoimmune
diseases. It is also a major manufacturer of parenteral solutions,
peritoneal dialysis products and other hospital supplies in Turkey, as well
as being a key importer of anesthesia, parenteral nutrition and other renal,
biological and biosurgery products. With an annual capacity of 65mn
units, Eczacibasi-Baxter manufactures 123 varieties of high quality
parenteral solutions. The Company has supplied periotenal dialysis
solutions to the UK, France, Germany, Belgium, Hungary, Romania,
Poland, Croatia, Bulgaria and Albania.
Eczacibasi Health Services
Eczacibasi Health Services, established in 2001, was the first in Turkey to
be licensed by the Ministry of Health as a home healthcare company after
the issue of a related regulation in 2005. The Company offers on-site
nursing care, physician, therapist, and dietician visits, sleep testing
services and long-term rentals of medical equipment. It also provides
support services, such as lab tests. More than 500,000 patients have
been served by the Company in 2014.
Eczacibasi-Monrol Nuclear Products
Established in 2008 as an equal share joint-venture, the Company has
pioneered the development of nuclear medicine in Turkey. The Company
has 11 production plants-seven in Turkey and four abroad. Aside from
radiopharmaceutical production plants in Sofia, Warsaw, Bucharest and
Cairo, the Company has cyclotron facilities in Kuwait, Dubai and Tripoli.
With 15 distributors in Turkey, Eczacibasi-Monrol markets its generators
and iodine oral capsules and solutions in more than 30 other countries as
well.
14
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
Consumer Products Division
Girisim Marketing
Established in 1978, Eczacibasi Girisim ranks among Turkey’s top FMCG
companies in terms of its size, sophistication, breadth and product range.
The Company has three main lines of business; managing a portfolio of
FMCG brands owned by Eczacibasi Holding, distributing FMCG brands as
a sales partner of global clients and manufacturing a variety of FMCG
products at its plant in Gebze, Turkey. Eczacibasi works with 48 local and
global brands.
Eczacibasi Hygiene Products
Eczacibasi Hygiene is the frontrunner of Turkey’s wet wipe market with
the popular Uni brand, which was acquired in 2012. The Company
manufactures wet wipes, baby and personal care products at its Istanbul
plant and has launched numerous firsts in its market segments, including
chemical-free cotton wipes for newborns, shampoo with a special formula
for newborns, disposable wash caps, eye make-up remover discs, steamactivated menthol dry wipes, and water-dissolvable toilet tissue. Aside
from Turkey, Ezcacibasi Hygiene currently serves countries in 53
countries around the world, most recently in Afghanistan, Australia,
Colombia, Iran and Vietnam.
Eczacibasi-Schwarzkopf Professional Hairdresser Products
Established in 1999, Eczacibasi-Schwarzkopf builds on a business
partnership that started in 1952, when Eczacibasi first introduced
Schwarzkopf’s hair product to the Turkish market. Today the Company
operates as a 50-50 joint venture and markets 10 leading Schwarzkopf
brands in Turkey.
15
Please see the last page of this report for important disclosures.
RESEARCH
Eczacibasi Ilac
March 8, 2016
Real Estate Division
Rapid urbanization and economic growth, rising income levels, and
burgeoning international interest in Turkey have made its property market
one of the most promising in Europe. In Istanbul, where the Eczacibasi
Group is expanding its activities through prestigious mixed-use,
residential, and office development projects, property demand has soared
over the last decade.
The market for high quality residences with easy access to the city center,
such as Eczacibasi’s Ormanada project, offers strong potential in the
medium to long term. Demand for A-grade Office space also continues to
be high, particularly in central business districts like Levent, where the
Eczacibasi Group’s mixed-use shopping mall and office structure,
Kanyon, is located.
Eczacibasi Property Development and Investment
Eczacibasi Property Development is a real estate developer and project
manager established in 1989 to develop Group-owned real estate and
create unique projects along with select partners. To date, the Company
has completed the following majör projects: Kanyon, Ormanada
Residences, “193” Office Tower, E-Kart Electronic Card Systems
production plant, and the Eczacibasi Sports Club’s sports hall.
Kanyon Complex
Kanyon is a mixed-use facility with an innovative modern architectural
style situated in Levent, Istanbul; the heart of Istanbul’s crowded financial
district, as well as a very central residential hub. One of Europe’s largest
multifunctional centers, Kanyon, is an equal share joint venture between
Eczacibasi Pharmaceutical and Industrial Investment (ECILC) and Is Real
Estate Investment Trust (ISGYO). Several well-known national and
international companies were involved in this USD200mn project,
including Jerde Partnership International, Tabanlioglu Architects, Arup
Engineering and Tepe Construction.
Kanyon has 179 residential apartments ranging from 80sqm studios to
280sqm duplexes. The business tower offers 30,000sqm of rental offices
on 26 floors. The 40,000sqm open-air shopping area is lined with146
boutiques, numerous restaurants, cafes, kiosks, a cinema, health and
fitness center, a gourmet market and an outdoor performance area.
Creating a whole new approach to shopping, Kanyon attracts some
30,000 visitors daily.
Source: The Company
Ormanada Residential Project
Ormanada, located on a 220,000sqm of plot in Zekeriyakoy, a woodsy
suburb to the north of Istanbul, is a low-rise, moderate-density gated
community which was completed in 2014. Ormanada comprises 269 villas
and 25,00sqm of parks and other green space areas. It also features
2,500sqm of social living space, including walking and bicycle paths,
tennis courts, a basketball and multi-purpose sports field, playgrounds
and recreational areas. Ormanada is located very close to Istanbul’s third
bridge under construction.
16
Please see the last page of this report for important disclosures.
Eczacibasi Ilac
March 8, 2016
RESEARCH
Price Performance
4.00
3.25
2.50
1.75
ECILC
03.16
02.16
01.16
12.15
11.15
10.15
09.15
08.15
07.15
06.15
05.15
04.15
03.15
02.15
01.15
1.00
BIST-100
Source: Matriks
Quarterly Financials
Eczacibasi Ilac Summary Financials
(mn TL)
Change
3Q14
4Q14
1Q15
2Q15
3Q15
9M14
9M15
268
263
303
286
283
784
872
6%
Gross Profit
33
54
70
63
69
136
201
107%
9%
47%
Operating Profit
-18
-5
8
-2
10
-20
16
n.m.
n.m.
n.m.
EBITDA
-13
1
13
2
14
-6
29
n.m.
518%
n.m.
Profit (Loss) from Subsidiaries
-20
-27
-7
2
1
-27
-4
n.m.
-52%
n.m.
Financial Inc./ Exp. & Oth. Inc./
Exp (net)
22
-1
40
20
61
31
121
181%
202%
288%
Tax
-4
-3
-10
-4
-15
-8
-29
n.m.
n.m.
n.m.
n.m.
238%
n.m.
Net Sales
Net Income
-12
-27
32
18
62
-17
112
Net Cash
509
505
500
371
448
509
448
Working Capital
-153
-133
-158
-159
-159
-153
-159
Shareholders Equity
2,847
2,761
2,793
2,765
2,834
2,847
2,834
3Q15/3Q14 3Q15/2Q15
-1%
9M15/9M14
11%
Ratios
Gross Margin
12.4%
20.5%
22.9%
21.9%
24.3%
17.4%
23.0%
11.9 pp
2.4 pp
5.6 pp
Operating Margin
n.m.
n.m.
2.7%
n.m.
3.5%
n.m.
1.8%
n.m.
n.m.
n.m.
EBITDA Margin
n.m.
0.4%
4.1%
0.8%
5.0%
n.m.
3.3%
n.m.
4.2 pp
n.m.
Net Profit Margin
n.m.
n.m.
10.7%
6.4%
21.8%
n.m.
12.9%
n.m.
15.5 pp
n.m.
Source: Rasyonet
17
Please see the last page of this report for important disclosures.
RESEARCH
Disclaimer
This document and the information, opinions, estimates and recommendations expressed herein, have been prepared
by Garanti Securities Research Department, to provide its customers with general information regarding the date of issue
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Garanti Securities
Etiler Mah. Tepecik Yolu
Demirkent Sokak No:1
34337 Besiktas, Istanbul / Turkey
Phone: +90 (212) 384-1155
Fax: +90 (212) 352-4240
Definition of Stock Ratings
OUTPERFORM (OP)
The stock's return is expected to exceed the return of the BIST-100 over the next 12 months.
MARKET PERFORM (MP)
The stock's return is expected to be in line with the BIST-100 over the next 12 months.
UNDERPERFORM (UP)
The stock's return is expected to fall below the return of the BIST-100 over the next 12 months.
Please see the last page of this report for important disclosures.