Turkish auto industry: demand in full swing

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• We raise our 2011 light vehicle estimate by 19%: Following better-than-expected figures for the first eight months of 2010, we have raised our 2010 estimate of LV (PC+LCV) sales by 20%. Our estimates imply 6% y-o-y growth in the Turkish LV market in 2011E.

• The short-term outlook remains attractive: We look for 14% y-o-y growth in revenues in H2-10, bringing 2010 revenue growth to 25%, and this will be followed by 9% growth in 2011E.

• We see average share price upside of 24%: Following our estimate changes for Turkish auto companies, we have also cut our WACC* assumptions on lower risk-free rate and cost of debt assumptions. Our new target prices imply 24% upside potential on average.

• Upgrade Tofas on a valuation basis: Thanks to its 25% market share in the LCV market and 8.6% market share in the PC market, Tofas is poised to stand out as one of the major beneficiaries of the Turkish LV segment’s promising outlook.

• Reiterate 2/Outperform on Ford Otosan and Dogus Otomotiv: On the back of the Turkish auto industry’s promising outlook and the attractive valuation of Ford Otosan and Dogus Otomotiv, we reiterate our 2/Outperform ratings on these two companies.

"As the Turkish auto market is highly underpenetrated compared to European countries, we expect strong auto demand in Turkey on the back of sharp recovery in economic activity, sound consumer sentiment and increased availability of low-cost financing facilities for retail purchases," declares Akif Dasiran, CA Cheuvreux research analyst on the Turkish Auto sector.

*weighted average cost of capital