İŞ INVESTMENT – Aselsan ASELS TI Company Report 2Q16 – 18.08.2016
Strong top-line growth and deffered tax income supported 2Q16 net income despite weaker margins
Beating our house call of TL102mn with a wide range but broadly in-line with market expectation of TL118mn, Aselsan reported near flat net profit of TL124mn in 2Q16 compared to TL122mn in 2Q15. Higher than expected deferred tax income was the primary reason for the deviation in our net income estimate from the actual figure.
Above expectations (Is Investment: TL690mn; Consensus:TL707mn), Aselsan generated TL781mn revenues in 2Q16, up significantly by 44% YoY. Domestic revenues posted an eye-catching growth of 48% while export revenue grew by 23% in 2Q16 over 2Q15. New contracts of $1.8bn during 1H16 carried the backlog of Aselsan to $5.8bn as of 1H16-end from $4.3bn as of 2015 year end.
Gross margin fell sharply to 23.1% in 2Q16 down from 27.7% in 2Q15 mainly due to the increase in costs related to development and services sold. Missing expectations (Is Investment: TL135mn; Consensus:TL141mn), company’s EBITDA came in TL123mn in 2Q16, up by 12% on yearly basis much lower than the strong top-line growth. EBITDA margin deteriorated to 15.8% in 2Q16 down from 20.2% in 2Q15 falling short of our estimate of 19.6% and market call of 20.0%.
Guidance: Aselsan maintained its previous guidance of TL based top-line growth of 16%-20% with an EBITDA margin of 18% – 20% for 2016. The Company budgets TL340mn cap-ex for 2016.
Comment: Better than expected 2Q16 net profit of Aselsan was mainly driven by deferred tax income rather than improvement in operating performance. Indeed, some negative market reaction to company’s 2Q16 EBITDA margin of 15.8% below expectations might be seen. However, maintained company guidance indicating strong top-line and EBITDA growth for the second half of 2016 may limit the downside movement of the stock.