Company Reports

Coca-Cola Icecek                       
OVERWEIGHT

Resilient growth outlook...                                                                              April 6, 2023

• Initiating with an Overweight rating… Our ex-dividend target price stands at TL322.6/share, pointing to a 12-month return of 57%. Reasons for our recommendation are: i) Solid net sales and EBITDA growth in 2023, ii) tight cost management, iii) ample headroom for new investments. CCI is trading at 2023E EV/EBITDA and P/E multiples of 3.0x and 5.6x, respectively. The stock is trading at 60% and 63% discount to its peers based on 2023E multiples, respectively.

• Solid net sales and EBITDA growth in 2023... Thanks to significant price increases and sales volume growth, we expect 73% net sales growth in 2023E. There does not appear to be any deterioration in the growth dynamics on the international side; hence, we expect 10.4% y/y sales volume growth in international operations, led by Pakistan, Kazakhstan, and Uzbekistan. For CCI’s domestic business, we expect a 1% y/y growth in 2023. Additionally, increasing demand for sugar-free products and small-package products improved the product mix and supported margins.

• Dynamic hedging & long-term visibility... The company was able to manage cost fluctuations in 2022 with tight OPEX management and price adjustments. CCI’s 2022 costs consisted of 30% concentrate, 30% packaging, 20% sugar, and 20% overhead costs. With its proactive risk policy, the company hedged 80% for sugar, 90% for aluminum, and 60% for resin. We believe hedged packaging costs and ability to reflect cost increases on prices should moderate cost pressures in 2023. As such, we expect 100bps y/y increase in EBITDA margin to 20.0% in 2023.

• Ample headroom for new investments... CCI had a net debt position of TL6,075mn as at end-2022, pointing to a net debt/EBITDA multiple of 0.6x. We expect the decline in net debt/EBITDA to continue in 2023. These low multiples provide an opportunity to achieve inorganic growth by adding new countries to the portfolio.

• Anadolu Etap & Pakistan operations... CCI purchased shares of Anadolu Etap and TCCC’s Pakistan operations from AEFES at US$112mn and US$300mn, respectively. Their contribution is not included in our valuation; however, these acquisitions may have the potential to create long-term value.

• Key risks... 1) Decline in sales volumes due to a slowdown in demand, 2) increase in raw material and energy costs beyond expectations, 3) devaluation of local currencies in operating countries.