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Baku Olympic Stadium to be delivered in 2015. Tekfen Holding was awarded a $640mn project by the State Oil Company of Azerbaijan Republic (SOCAR) to construct the Baku Olympic Stadium and deliver it by March 2015. This will be a "cost-plus" project, which secures margins.
The 2013 backlog implication. There are three scenarios that we believe could happen next: 1) Tekfen receives nothing in the remainder of the year, which we think is highly unlikely; 2) Tekfen receives a project basket from Iraq, Qatar and South Arabia totalling $800mn, which has a very high probability of occurring, in our view; 3) Tekfen also receives the Star refinery project from SOCAR in 4Q13, which is our base-case scenario. Our base-case scenario secures 17% average backlog growth and other potential big projects would be considered an upside surprise. In our calculations, we have assumed Tekfen consumes $325mn backlog per quarter.
What are the margin implications? The stadium is a rare "cost-plus" project, for which the contractor charges a fixed margin in addition to all costs. Hence, it is typically superior to lump-sum turn-key deals. Given the project's size and its estimated 26% weight in backlog as of 1Q13, we think it could return the segment's EBITDA margin (8.3% as of 9M12) to its historical 9-10% range.
We maintain our forecasts. Our valuation model assumes a $2,125mn average backlog in 2013, flat YoY, and a 10.2% segment EBITDA margin. Following this new project, we think there is a good chance Tekfen could have a $2,500mn average backlog for 2013, hence higher construction revenue and EBITDA than we currently estimate. We plan to revisit our estimates after management provides an update on its guidance for margins in a few weeks.
Reiterate BUY rating; expect further support from dividends. We maintain our BUY rating on the stock with a TP of TRY10.0/share and 36% potential upside. We also calculate a DPS of TRY0.38 (a 5.1% yield) to be distributed in May, which we think should support the stock price into the dividend season.
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