Notes from the Conference - November 13-14, 2014 - Ak Yatırım
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Notes from the Conference
November 13-14, 2014Table of Contents Banks Garanti Bank 1 Halkbank 1 Vakifbank 2 Yapi Kredi 2 Non-Banks Akcansa 3 Aksa Enerji 3 Aksigorta 4 Alarko Holding 4 Arcelik 5 Aselsan 5 BİM Magazacilik 6 Brisa 6 Cimsa 7 Coca Cola Icecek 7 Emlak REIC 8 Ford Otosan 8 Migros 9 Royal Hali 9 Sabanci Holding 10 Sise Cam 10 TAV Airports 11 Tekfen Holding 11 Teknosa 12 Tofas 12 Tupras 13
BANKS
NEUTRAL
Current price: TRY 8.88
12-mo T.Price: TRY 9.30
GARANTI Analyst Hakan Aygun
+90 (212) 334 94 65
hakan.aygun@akyatirim.com.tr
• There was no major flash news in the meeting with Garanti. The management stated that they had already achieved their 4Q14
targets and were turning their attention to 2015. The budget targets are planned to be disclosed in a meeting in January.
• Basically, income on CPI linkers in 4Q14 was guided as TRY420mn (vs. TRY290mn in 3Q14). Despite resiliently high deposit
costs, the NIM will rise on a QoQ basis with the use of swap funding and better yield on CPI linkers. Finally, with normalized NPL
formation (based on the guidance) we do not see any threat to our forecast of 2.0% QoQ EPS growth for the Bank in 4Q14.
Thus we leave our net profit forecasts unchanged at TRY3,300mn for 2014 and TRY3,850mn for 2015.
• Coming to the prospects for 2015, there was limited guidance with only unofficial guidance provided (the Bank is still drawing
up its budget plans). Generally, Garanti appears very comfortable for 2015 and stated that it did not expect any increase in the
Central Bank’s policy rate; in fact, with inflation set to fall from 9.3% at the end of 2014 to 7.3% by the end of 2015, and with no
Fed rate hike likely before 3Q14, a policy rate cut seems possible.
• However, Garanti prefers to adopt a conservative stance, expecting a largely flat NIM with some upside potential more likely in
2015. On the other hand, loan growth in 2015 is projected to be very similar to that seen in 2014.
• As far as funding is concerned, we would not be surprised if the bank focuses on TRY deposit growth, since the Bank admitted
that a switch from swaps into TRY deposits may be an option if rates ease.
NEUTRAL
Current price: TRY 14.75
12-mo T.Price: TRY 15.90
HALKBANK Analyst Hakan Aygun
+90 (212) 334 94 65
hakan.aygun@akyatirim.com.tr
• During our meeting with the management, the flash news was that the specifications of the privatization tender of the bank’s
non-life insurance and pension companies would be publicized in a couple of weeks’ time. This may lift market sentiment since
the deferral of the procedure (the original plan was to complete the sale in 2014) had raised some concerns.
• There was only some broad guidance for 2015, as the budget planning process was still in progress. Still, we sensed that
although the contraction in the NIM contraction had been unexpected, loan growth would be similar to that seen in 2014.
• On monetary policy, the bank was optimistic, stating that the technical easing in inflationary pressure in 1H15 might strengthen
the Central Bank’s hand in cutting the policy rate. Accordingly, this would bring the bank’s 2015 NIM to above the 2014 level.
• As far as asset quality is concerned, no further big ticket NPL inflow is expected in 2015. Indeed, the loan composition is seen as
more protected than the sector as a whole thanks to the relatively low share of big ticket corporate loans.
• The management expects a contraction of just 5% in its potential fee and commission generation as a result of BRSA
regulations and reiterated that the burden resulting from commission reimbursements in 9M14 had amounted to TRY65mn,
adding that a major easing in this cost item would relieve some of the pressure on operating costs in 2015.
• The bank guided that the NIM would rise on a QoQ basis in 4Q14, thanks to a higher yield on CPI linkers (albeit with a
stubbornly higher cost of deposit funding), while reiterating its guidance for a 15% YoY contraction in EPS for 2014.
1NEUTRAL
Current price: TRY 4.81
12-mo T.Price: TRY 4.80
VAKIFBANK Analyst Hakan Aygun
+90 (212) 334 94 65
hakan.aygun@akyatirim.com.tr
• The easing in provisioning policy may be a major catalyst for Vakifbank in 4Q14. The management said that with the planned
reduction on fully provisioned Group IV loans to the legal cap of 50% (bringing overall NPL coverage to 88% from 94% at end-
3Q14), the Bank could release c.TRY220mn from its loan loss provision reserves and report a slight YoY increase in its earnings.
• The management also clarified that the transfer of General Directorate of Foundations’ (GDF) 58% stake to the Treasury could
be completed by the end of 1H15, adding that the main reason for this transaction was to provide cash to the GDF for its
restoration work and had no connection with an SPO. The management does not see any prospect of an SPO in the next 1 – 2
years. The Pension Fund (owns a 16% stake) will be also given a put option at a discounted price (GDF has a control premium).
• After the completion of the share transfer, Vakifbank expects more focus on the establishment of the participation banking
business, since the Treasury will inject a fresh US$300mn of capital into the Bank for this investment.
• The Bank projects a QoQ increase in its NIM for 4Q14 on the back of higher yield of CPI linkers. With regard to asset quality, the
Bank does not see any specific risk which would lead to a divergence from sector trends. Meanwhile, the bank maintains its
optimistic view on the collection of legacy NPLs.
• We were told that the additional operating costs due to reimbursements of commissions amounted to around TRY91mn, and
as with other banks, an easing in this item is expected in 2015, with operating costs rising by around CPI +200bps in 2015.
• After the guidance on NPL coverage, we have raised our net profit forecast for 2014 by 8% to TRY1,590mn, implying little YoY
change in performance. Our net profit forecast for 2015 remains unchanged at TRY1,650mn.
NEUTRAL
Current price: TRY 4.91
12-mo T.Price: TRY 4.90
YAPI KREDI BANK Analyst Hakan Aygun
+90 (212) 334 94 65
hakan.aygun@akyatirim.com.tr
• After four years in the doldrums, Yapi Kredi is growing full steam ahead and the management reiterated its plan of being
Turkey’s top private bank with a 14.0% market share in loans within 5 years (from the current 9.9%) through organic growth.
• During the 5-year investment period, the RoE is expected to be 100bps lower than the sector average and beat the sector
average by 100bps – 200bps starting from the sixth year.
• The management stated that the credit card franchise was an effective tool to gain 315,000 new clients (30% through credit
cards) in 2015, adding that the cost of acquisition was 2 ½ times higher for non-card customers.
• The Bank plans to reach 1,003 branches by end-2014 (up from 978) - more openings underway to achieve targeted growth.
• A QoQ increase in the NIM in 4Q14 could be possible thanks to the impact from CPI linkers. The bank projects a stable NIM for
2015 on the back of its 7.5% inflation projection (down from 9.3% for 2014), assuming no change in the CBT’s policy rate.
• The management highlighted its commitment to maintaining its solvency, asset quality and liquidity ratios at its internal
thresholds, adding that the bank does not expect a major specific NPL formation, with rise in its NPL ratio in 2015 set to be in
line with the sector, at around 20bps YoY. The internal threshold stands at 14% and we were told that there would be three
options to improve the solvency ratio if needed; issuing sub-ordinated debt, issuing Tier-1 debt (under Basel III criteria) and
finally a capital injection. Meanwhile, the bank’s loan / deposit ratio is planned to be maintained at its current level of 108%.
• We were left with a very positive impression of Yapi Kredi after our meeting with the management. Even though the plan to
expand its market share in loans by 4pps within five years still looks very challenging, we still think the Bank will attract investor
attention with more modest market share gains unless there is a serious asset quality problem in the process.
2NON - BANKS
OUTPERFORM
Current price: TRY 13.90
12-mo T.Price: TRY 16.50
AKCANSA Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• The management appears bullish on the domestic cement market for 1H15, amid rising government infrastructure
investment ahead of the election. For the residential side, the company considers urban transformation an important
rd
driver of cement consumption and expects demand to accelerate. The contribution of the 3 Bridge will diminish by the
end of 2014, but the new airport offers massive potential for Akcansa going forward, guiding for 0.5mn tonnes of cement
sales in 2015 followed by 1mn tonnes of cement sales each in 2016 and 2017.
• The Company raised its domestic grey cement prices to reflect the 6% electrify tariff hike in October, in a bid to defend its
margins. No pressure seems likely on the cost side in 2015, as pet-coke (US$70/tonne) and coal prices are globally at their
lowest levels. The company expects electricity tariffs to be raised by around 5% after the 2015 general election.
• In the Marmara region, prices are still going up on a MoM basis (November price of TRY145/tonne, up from TRY120/tonne
at the beginning of January), thanks to dry and mild weather. Moreover, the company plans to export 100-200K tonnes of
cement to the US market (Florida region) in 2015.
• Akcansa is not interested in the Lafarge-Holcim assets, as their German partner, Heidelberg, had withdrawn from the race.
• The management maintains their long-term target to increase the use of alternative fuel from the current 10% to 20% by
2020 to sustain the high margins. The company also plans to invest in wind turbines at its Canakkale plant, and is currently
performing feasibility studies. It aims to meet the plant’s entire electricity needs through its own wind turbine.
• Tupras will start to produce pet-coke in 2015 (800,000 tonnes per year, meeting almost 30% of Turkey’s total annual pet-
coke needs) and Akcansa will be one of the potential buyers of Tupras’ pet-coke.
OUTPERFORM
Current price: TRY 2.94
12-mo T.Price: TRY 3.48
AKSA ENERJI Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• The first phase (135MW) of the 270MW Bolu lignite-fired power plant is expected to be completed in December 2014 with the
second phase (135MW) completed by 1Q15, in line with our forecasts. Following regulatory approvals, the power plant will
gradually enter operation in 1H15. The power plant is expected to support Aksa Enerji’s profitability with an annual sales
volume of 2TWh and an EBITDA margin of 55-60% (according to the guidance provided by the management), compared to our
forecast for an EBITDA margin of 44%.
• The management is in negotiations for three new lignite mines/projects, which are expected to be similar to Bolu - Goynuk in
terms of their business model. Any positive developments regarding these potential projects may serve as a short-term catalyst
for Aksa Enerji shares going forward.
• The management aims to increase its installed capacity from 2,200MW at the end of 2014 to 2,553 MW by the end of 2015
through the inclusion of the 270MW Bolu lignite power plant in addition to wind farm projects with a total installed capacity of
83MW.
• The company guides for capex of US$130-140mn in 2015.
3OUTPERFORM
Current price: TRY 2.71
12-mo T.Price: TRY 3.50
AKSIGORTA Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• The management’s guidance for Aksigorta’s 2014 net profit has declined from TRY90-100mn to TRY70-75mn, in line with our
net profit forecast of TRY68mn.
• Guidance for 2014 premium growth is slightly above 15% (compared to our estimate of 16% and their previous guidance of 15-
18%), mainly due to the slowdown in MTPL generation
• No guidance has been provided for the 2015 budget, which is expected to be completed by the end of November or early
December. However, the management is not optimistic regarding the growth of the non-life insurance market, expecting a
mere 11-12% growth in 2015. Note that we project 13% premium growth and TRY90mn net profit for Aksigorta in 2015.
• The management expects an upward revision in MoD policy prices from 2015, mainly on the back of the depreciation of the
TRY. There has been no change in MoD prices in 2014 (when compared to 2013) despite a 15% depreciation of the TRY
(resulting in an increase in spare part expenses), which caused a total 10% increase in the segment’s total costs of the segment.
• On the other hand, the company does not expect a recovery in MTPL prices in the short term. The company’s initial reaction of
expecting a slowdown in MTPL premium growth until prices normalize is in line with our forecasts.
• Aksigorta is interested in the sale of Halk Sigorta (HALKS TI, N/R), which is expected to be completed in 2015, as well as the sale
of Gunes Sigorta (GUSGR TI, N/R), which may be on the agenda by 2016.
NEUTRAL
Current price: TRY 3.89
12-mo T.Price: TRY 4.48
ALARKO HOLDING Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• The negotiations for the US$700mn in financing for the Karabiga coal-fired power plant (1,320MW) are expected to be finalized
by the end of the year. The Karabiga project is planned to be completed by the end of 2017 (compared to our projection for
mid-2018).
• The Karakuz HEPP (76MW) is expected to be operational in 1Q15.
• The Company’s backlog stands at US$298mn according to the most recent figures. Any positive developments in potential
contracting projects, which include TANAP (US$1.5-2.0bn consisting of three lots), the Qatar mega reservoir project (US$2.5bn
consisting of five stages), metro construction projects in Turkey (estimated US$500mn), three railway construction projects in
Turkey (each estimated at US$100mn-US$150mn), an ethylene cracker and PE plant construction project (US$400mn) and the
Baltic urea plant construction project (Russia – US$250mn) would serve as short-term catalyst for the shares.
• A 10MW solar power plant project in Konya (Central Anatolia) is expected to be completed in 2015. Alarko guides for a total
capex of US$10mn.
• The 50% stake sale in Alfarm Alarko-Leroy (a seafood business), which is an equal JV between Alarko and Leroy Seafood ASA
Group, is expected to be completed by the end of 2014. Alarko is in talks with Leroy Seafood Group ASA for the sale of its stake.
The seafood business (with a BV of around US$2mn for its 50% stake) will record a net profit of TRY0.8mn (for the 50% stake) in
2014, according to our forecasts.
4NEUTRAL
Current price: TRY 13.00
12-mo T.Price: TRY 14.50
ARCELIK Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• The fall in the EUR/US$ is negatively affecting the European margins, but the management will use every tool (price
increases, changing the procurement currency from US$ to EUR) to deliver its EBITDA margin target of 11% for 2015.
• The company expects some recovery in the domestic market in 2015, thanks to the release of pent-up demand in 2014. In
fact, Arcelik started to see some pent-up demand being realized in August and September. No official guidance has been
announced, yet the company forecasts domestic volumes to grow above GDP growth (guiding for 4-5%) in 2015.
Forecasting international revenues (especially in Europe) is currently difficult; thus, our understanding is that European
revenues and margins could be weak in 1Q15, although the slack may be picked up from strong domestic operations.
• The investment in Thailand will be a green-field investment at the initial stage if the company receives an investment
incentive from the Thai authorities (which they expect soon). Arcelik plans to invest US$100mn to build a refrigerator plant
and set up marketing units in Indonesia, the Philippines and Vietnam. Going forward, Arcelik’s target is for sales in
Southeast Asia to contribute around 8% to total consolidated sales (in parallel with the current contribution from its sales
to Africa). Arcelik guides cap-ex of €150mn for 2015 (excluding the Thailand investment).
• Sales of high margin POS machines are supportive of electronics revenues, but the sales performance is weak, since the
government is still reluctant to implement the change of POS machines with the new ones. However, the management
thinks sales of POS machines may start to increase after the election, thus supporting margins in the electronics segment.
• Working capital is expected to decline in 4Q amid seasonality, with the company maintaining its 35% working
capital/revenues target for 2014 and into the medium term.
OUTPERFORM
Current price: TRY 10.40
12-mo T.Price: TRY 12.10
ASELSAN Analyst Bora Tezguler
+90 (212) 334 94 67
bora.tezguler@akyatirim.com.tr
• Even if the Turkish government is planning to reduce military spending, this will not be in the area of materials purchases - so
Aselsan will not be affected. Also, Defense Industry Military Support Fund receives income directly from income and
corporation taxes, where there are US$6bn funds available for military spending.
• Aselsan is targeting to achieve a steady level of exports at 25% of sales by 2016. As the Company’s product portfolio range
increases with new contracts like the Altay tank series there will be demand for these new products from foreign clients. The
25% export share is included in the Company’s long-term target of achieving 18% - 20% EBITDA margin.
• Previously, Aselsan had explored alternative financing channels such as a potential corporate bond issue and a secondary
public offering. These may be exercised in the future, but there is not a firm time-line. With the large Defense Industry Support
Fund, the Company has easy access to financing anyways and is able to raise borrowing at low cost. Financing is used for
ongoing investments, export financing and R&D expenditures.
• The Golbasi Radar Facility is to become fully operational by April 2015. The new facility will help to grow the business offering
larger space for capacity expansion.
• Among major potential projects that should keep the pipeline at US$3bn – 4bn in the coming years are Altay Tank series
(estimated revenues for Aselsan at US$750mn for first batch of 250 tanks) and the long-range anti-missile system that could be
re-tendered in early 2015 and worth about US$500mn for Aselsan.
5NEUTRAL
Current price: TRY 50.00
12-mo T.Price: TRY 48.00
BIM Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• Bim is on course to reach its 2014 guidance for store openings and close the year with 4,500 stores in Turkey. The
company wants to increase its penetration as much as possible, and thus plans to open 500 new stores each year until it
reaches a network of 6,000 stores by the end of 2017.
• The company targets 15-20% top-line growth (more likely to be at the upper-end of the range) and a 5% EBITDA margin
for 2015. The pay rise that took place in January 2014 will not be repeated in 2015, when the company plans to raise
employee’s pay at a rate of CPI +1% to 2%.
• For 2015, BIM targets 2%-3% real LfL growth at the top-line with positive traffic and capex-to-sales ratio of 2.5% in 2015.
• A101 store openings are proceeding more rapidly than Bim (700-800 stores/y), while UCZ’s store openings have slowed
down with the new owner. SOK & Dia are still in the merger process. Thus, the competitive environment is not too fierce.
• The “FILE” brand targets the middle class segment; the first supermarket is expected to be opened within the next six
months. The company will not be aggressive in this segment in the initial phase, as they are planning to open only 5-10
new FILE stores (on a trial basis in some pilot locations in Istanbul) during 2015. The management stated that the company
had already secured the rental contracts of two stores in Istanbul, adding that if they were satisfied with FILE’s operations,
the company may consider some small acquisitions in the market in order to increase penetration. Regarding competition,
their main target will be mainly Migros’ 2M stores and CarrefourSA supermarkets.
• “FILE” will operate with a higher number of SKUs (c.4,000 compared to 600 in most Bim stores) with larger retail space
(c.1,000 sqm per store vs. 300 sqm per store currently) and a greater focus on fresh fruit, vegetables and meat segments.
NOT RATED
Current price: TRY 9.15
BRISA Analyst Can Ozcelik
+90 (212) 334 94 58
can.ozcelik@akyatirim.com.tr
• Brisa is the domestic market leader with a 32% market share followed by Michelin (16% - 17%), Pirelli and Goodyear (each
commanding market shares of around 10%). The top four players control 70% of the domestic market.
• In terms of price positioning based on a 100 index, Goodyear, Pirelli and Lassa (Brisa’s brand) are 85-90. The Brisa brand and
Michelin are in the premium segment. Brisa started importing products from Bridgestone’s discount brand, Dayton, to
compete in the low-cost segment. Because of the customs union, there are no import barriers, but there are high barriers to
entry in the sector given its capital intensive nature. Only one player - Sumitomo - has entered the market in 25 years; the
Sumitomo investment is for a new tire plant in Cankiri (in the North of Anatolia) and will have a 10mn unit capacity. Production
will come on-stream in 2017 with maximum capacity to be reached in 2020. Production will be focused on exports and OEM
markets, so should not lead to direct domestic competition.
• As the majority of the company’s cost items are oil-driven (c.20% of total COGS), the company stated it will benefit from the
plunge in oil prices in 2015. Assuming a 28% gross margin for 2014; a 20% drop in oil prices should mean c.3pps increase in
gross margin for 2015, ceteris paribus. It was stated that a similar positive case occurred for natural rubber, which constitutes
30% of the total costs that had seen falling prices in the 2013-14 period due to excess capacity.
• Brisa has a new tire plant project in Aksaray (Central Turkey); construction and production starts in 2015 with maximum
capacity of 4.2mn tires to be reached in 2023 and carry total production capacity from 11.0mn tons to 15.2mn tons. The
investment received a 60% tax incentive; the company guided that it would pay a 2% effective tax rate up until 2018.
6OUTPERFORM
Current price: TRY 15.65
12-mo T.Price: TRY 18.60
CIMSA Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• The management appears bullish for 1H15 given the likelihood of increasing government infrastructure investment ahead
of the election. Although the company did not provide top-line guidance for 2015, it is targeting EBITDA growth in line with
the rate of CPI inflation.
• New capacities that became operational in 2Q14 in the Mediterranean region are expected to pressure grey cement
prices, but the management claims Cimsa will be less affected from this price war in the region, thanks to converting one
of its mill to white cement from grey cement at the Mersin plant.
• Grey cement prices are still climbing (average TL130/tonne in 9M14, TL137/tonne in October). The management has
reflected the electricity price hike to their product prices to defend margins. No problems have been experienced on the
white cement side, with both pricing and export demand satisfactory.
• No cost pressure is likely in 2015, as pet-coke (US$70/tonne) and coal prices are globally at their lowest levels. The
company expects electricity tariffs to be raised by around 5% after the 2015 general election.
• For the Sancim acquisition, the management expects to hear the outcome of the Competition Board’s approval by the end
of the year – they currently estimate the probability of approval at 50-50%.
• Cimsa aims to upgrade Afyon Cement’s capacity very shortly, as the plant currently cannot meet the necessary demand in
its hinterland.
• A ~90% dividend pay-out ratio is to be maintained this year, suggesting a ~9% dividend yield.
NEUTRAL
Current price: TRY 47.10
12-mo T.Price: TRY 59.80
COCA COLA ICECEK Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• Per capita soft drink consumption in Turkey is particularly low outside big cities and in the Eastern regions – one strategic aim
going forward is to attract new consumers by encouraging them to try Coca-Cola products. The increasing focus on the
immediate consumption channel lies at the forefront of this strategy and, accordingly, the company will continue with its
efforts to increase “cold availability”.
• The share of IC packs in total Turkey volumes is now 19%, having increased from 18% last year and 15% in previous years – this
should rise to over 20% in the short term and continue to rise going forward. The higher share of IC will support profitability.
• After holding product prices steady in Turkey throughout the first 9 months of the year, the company raised the prices of its
2.5lt PET product (the most demanded SKU) by 9% in October. The real impact of this increase will be seen in 2015. Its
competitors have not yet raised their prices, but the management expects them to follow suit in due course.
• The company reiterated its 2015 volume growth guidance as “low single digit” levels in Turkey and “mid-teens growth” in
International operations. Consumer demand has been weak in Turkey so far in 2014, but a pick up may well be seen ahead of
the 2015 election, falling back thereafter. The management reminded us that they had suspended sales activities in Northern
Iraq due to security concerns and were cautiously expecting 10% volume growth in Southern Iraq.
• The plan to build three new plants in Pakistan by 2017 will basically serve to support the efficiency of the operation, as the
locations of the current plants do not allow for expansion, and their machinery is somewhat outdated.
7OUTPERFORM
Current price: TRY 2.56
12-mo T.Price: TRY 3.40
EMLAK REIC Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• The management is confident that it will achieve pre-sales of 10,000 homes and TRY1bn of net income for 2014.
• No official guidance has yet been announced for 2015, but the management appears bullish for the residential sector in
the coming months, on the back of the expected decline in interest rates (supported by lower inflation) that should
support residential demand.
• The management plans to acquire additional plots of land around Istanbul from TOKI (investing around TRY1.5bn by the
end of the year), expanding its land-bank portfolio.
• The company launched the mid-to-high segment “KOY” project last week. The project consist of 1,100 homes with a sales
price of TRY5,500/sqm.
• The management expects to tender the Sariyer and Maltepe plots, corresponding to 33% of the total land bank portfolio
(in value terms – TRY1.7bn) during 2015.
• Pre-sales of Ozak REIC’s Kazlicesme project is expected to start by 1H15, and the project will then become Emlak’s biggest
ongoing residential project.
• Despite ongoing speculation, the management does not expect the removal of exemption on corporation tax for REICs.
NOT RATED
Current price: TRY 49.40
FORD OTOSAN Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• The following 2014 guidance was provided: total market; 740,000 units (includes heavy trucks) (13% YoY decline – 16% realized
as of 10M14), Ford Otosan: 93,000 units local sales (55,000 realized in 9M), 193,000 units of exports (138,000 realized in 9M).
• There is no word on 2015 guidance yet; the company is still drawing up its plans and will announce its guidance by the
beginning of 2015. Still, we will probably see volumes exceeding their 2014 level, but remaining below the 341,000 units in 2013.
• Ford will likely close 2015 with a 7.5% EBITDA margin, unchanged YoY. Its EBITDA margin is expected to improve slightly in
2015, depending on exchange rates and market conditions. The eventual target is a return to its historical average level of 10%
margins beyond 2017.
8OUTPERFORM
Current price: TRY 21.45
12-mo T.Price: TRY 26.00
MIGROS Analyst Bertug Tuzun
+90 (212) 334 95 31
bertug.tuzun@akyatirim.com.tr
• The management expects the top-line trends seen in 2014 to continue into 2015 with a 6.0-6.5% EBITDA margin. The
company’s main focus is on profitability rather than aggressive top-line growth. The management also stated that there is
a lot more to do on supply chain efficiency, thus supporting its gross margins going forward.
• Migros recorded 15% YoY top-line growth in 3Q14 – retail space growth was 6% with 9% LfL growth. Migros posted small
positive traffic growth in 2014, and a similar trend is expected in 2015.
• On the balance sheet, Migros targets a 3x net debt/EBITDA for the short term (3Q14 realization was 3x), and is considering
extending the maturity of its debt for another five years after 2018 (the current maturity date of the total debt).
• Regarding forecourt stores at Petrol Ofisi petrol stations, Migros is currently conducting trials of the format, with current
plans to open 100 stores each year. Note that these stores will have 800 SKUs with a store size of around 50 sqm.
• Migros still has not noticed any impact from the CarrefourSA restructuring (for example with its aggressive store
openings). On the subject of Bim’s move to expand into the supermarket segment, the management thinks that there is
sufficient potential in the market and would prefer Bim to compete in the supermarket sector rather than local chain
butchers (offering fresh meat) and bazaars (offering fresh vegetables). Moreover, Migros expects Bim’s FILE brand to
favour unorganized retail market consolidation.
• There was no comment on BC Partner’s Migros stake sale to Anadolu Group at TRY26/share.
U/R
Current price: TRY 3.11
12-mo T.Price: U/R
ROYAL HALI Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• The management blamed the poor 3Q14 financial performance (YoY decline in carpet and yarn volumes, revenue growth
slowing down to 6% YoY after the 45% YoY recorded in 1H, EBITDA margin sliding to 6.5% after 16% in 1H, bottom-line dipping
into the red after the TRY18.5mn recorded in 1H14) on the unexpected (and unprecedented) slackness in carpet demand. They
are nevertheless cautiously optimistic for 4Q, expecting c.15% YoY growth at the top-line and an EBITDA margin of 15%.
• The 2015 budget is not yet out. Nevertheless, on preliminary figures, the company expects revenue growth in the mid-teens
and a 1pp YoY rebound in its EBITDA margin. The yarn segment could prove particularly important, thanks to the contribution
of the new higher-margin products (polyamide and polyester yarns). The investments in new lines to produce these products
are now complete and production is in the ramp-up period. More detailed guidance for 2015 will be provided soon.
• Royal’s net debt increased significantly to TL138mn at the end of 9M14, particularly due to the increase in working capital. The
management said that it had taken a number of measures, such as providing extended payable terms to the dealer network in
the face of the weak consumer demand. The company also stated that it was offered an attractive discount in their bid to buy
acrylic yarn (an input for carpet segment), and had accordingly decided to pre-purchase a hefty portion of their need for 2015.
An Eximbank loan facility was used to finance this purchase – accordingly, the increase in net debt is a temporary phenomenon.
• The management reiterated their plan for “no-capex” in 2015.
9NOT RATED
Current price: TRY 10.25
12-mo T.Price: TRY 12.60
SABANCI HOLDING Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• The 2014 management guidance for EBITDA growth in each segment (over the 2013 figures) has been revised: Energy: 20-30%
(Previously: 30-35%) , Cement: 35-40% (Previously: 30-35%), Retail: 5-15% (No change from previous), Industrials: 25-30% (No
change), Insurance: 5-10% (Previously: 10-15%)
• No guidance is yet available for 2015.
• Enerjisa’s IPO is expected to be held in 2017 at the earliest, depending on the liberalization of the market, supply/demand
dynamics and the completion of projects in progress and the integration of the Ayedas and Toroslar distribution grids.
Enerjisa’s three old natural-gas-fired power plants, with a total installed capacity of 250MW - Adana (120MW), Mersin (65MW),
and Canakkale (65MW) - are expected to be closed down by the end of this year. The company’s total installed capacity would
then decline to 2,550MW by the end of 2014, once these power plants have been wound down. We expect the company’s
installed capacity to reach 3,045MW by the end of 2015 following the inclusion of the Dogancay HEPP (62MW), the Yamanli II
HEPP (82MW), the Dagpazari – Bares wind farm extension (51MW), and the 300MW of Tufanbeyli lignite-fired power plant
(450MW). The remaining 150MW is expected to be in operation in 1Q16.
• There may be plans to increase the free float of Carrefoursa as well as the industrials companies (Kordsa could be on the
agenda). However, no schedule has been announced.
NEUTRAL
Current price: TRY 3.52
12-mo T.Price: TRY 3.65
SISE CAM Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• Following the disappointing 3Q14 top-line realizations (US$770mn in 3Q14, US$2.4bn for 9M14), the management guided for
US$3.2bn in revenues for the year-end (our estimate: US$3.3bn). The 4 main segments will provide more or less equal
contributions to the top-line, as they did in 9M14 - apart from the flat glass segment, which will comprise a slightly higher share
in revenues thanks to the increasing contribution from the new capacities that came on stream earlier in the year.
• Trakya Cam’s Bulgaria investment will likely enter operation in 1Q15. Our current estimate was for the new investment to
become operational by the end of 2014.
• Trakya Cam’s flat glass line in Russia, which entered operation in 2Q14, has only provided a very limited contribution to
volumes so far – the CUR was low during the ramp-up period, but is constantly increasing.
• The Chemicals segment, led by the flagship company, Soda Sanayi, has posted the highest EBITDA margin among all segments
in 9M14 – no change is expected in this trend in 4Q14.
10NEUTRAL
Current price: TRY 18.60
12-mo T.Price: TRY 18.30
TAV AIRPORTS Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• The result of the La Guardia tender may be delayed into 2015, although timing will still depend on the US authorities – there
were expectations in the market that the tender result may be received before the end of the year.
• Negotiations with the Turkish Airports Authority regarding an extension to the international terminal at Istanbul Ataturk Airport
are about to be completed. The extension involves the addition of 8 air-bridges to the terminal, which will lead to an increase
of around c.10mn to the passenger capacity (from the estimated 60mn-65mn currently to 70mn-75mn). Construction is
expected to take 15-16 months, so if the negotiations are concluded and construction kicks off by the beginning of 2015, the
new capacity will be in operation by 2Q16.
• New apron space for aircraft at the Istanbul Ataturk Airport, currently under construction, will be ready by 2Q15.
• The company noted that the recent expansion of the service operations (such as the acquisition of duty-free areas in several
airports in Tunisia and Oman) would be considered as a strategic decision that the company would continue to pursue in the
coming periods.
OUTPERFORM
Current price: TRY 5.60
12-mo T.Price: TRY 7.26
TEKFEN HOLDING Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• There have been 6 bidders for TANAP (US$1.5-2.0bn consisting of three lots); Tekfen is among the bidders. Any positive news
flow by the end of the year may be a short-term catalyst.
• The EBITDA margin in the contracting segment is guided at 7-8% in 2014, and is set to exceed its 2014 level in 2015 mainly on
the back of projects in Azerbaijan, with a backlog of US$1.3bn (61% of the total September 2014 backlog). We conservatively
project an EBITDA margin of 7% in 2015.
• By the end of September 2014, a total of US$240mn had been spent on Toros Agri’s (fertilizer segment) US$300mn sulphuric
and phosphoric acid investment, which is expected to be completed by the end of 2014. Following the completion of the
US$300mn investment at the end of this year, Toros Agri will be self-sufficient in its sulphuric and phosphoric acid needs, and
we forecast that its fertilizer EBITDA margin will improve by 40bps to 12.3% in 2015 compared to the 11.9% average over the
last eight years. A higher-than-expected contribution may bring US$5-10mn of upside to our 2015 forecasts.
• Uncertainty surrounding the suspended Libya project (US$100mn backlog) and uncollected receivables (US$80mn) connected
to the project continues. However, there are no planned provisions to be set aside in the short-term regarding the Libya
Project.
11OUTPERFORM
Current price: TRY 8.09
12-mo T.Price: TRY 12.00
TEKNOSA Analyst Bora Tezguler
+90 (212) 334 94 67
bora.tezguler@akyatirim.com.tr
• A key driver of growth in the consumer electronics retail sector is the more rapid replacement cycle seen for TVs. Previously,
consumers replaced their television sets every 10 years. With flat screen TVs offering new features, the replacement cycle has
fallen to 3-4 years. Teknosa is the largest seller of TVs in Turkey.
• Teknosa commands negotiating clout with its suppliers by virtue of its size advantage. Despite some fluctuation, Teknosa is able
to maintain a negative figure for working capital days: its target is to maintain a level of negative 15 days. Teknosa works with
an advanced CRM program with 4.5mn loyalty card-holders, giving the company a competitive advantage. Teknosa’s fully-
owned pure online retailer, Kliksa, is growing rapidly with the company aiming for the latter to become the number one online
retailer within 4-5 years.
• The weaker operating environment in 2014 led to some rationalization as Teknosa closed some less profitable or loss-making
stores. The reduced number of stores helped lower FX-denominated operating expenses. The share of rent in sales is expected
to fall from 5.4% in 3Q14 to 5% in 4Q14 compared to its peak of 6.1% in 1Q14. The process of store closures will continue in
1H15, yet Teknosa still guides for the addition of 10,000sqm in net additional retail space in 2015 and another 20,000sqm each
year from 2016. The consumer financing program, introduced in 2H14, is on course to meet the Company’s stated goal of
covering 10% of its sales. In October, Teknosa entered an agreement with Akbank (in addition to its existing agreement with
ING) to offer consumer financing.
• The Turkish consumer electronics retail sector had been growing 20-30% p.a. before 2014. A more normalized 10% -15% annual
growth is expected from 2015. Teknosa plans to expand its market share, targeting 20% top-line growth per year from 2016.
NOT RATED
Current price: TRY 49.40
TOFAS Analyst Omer Omerbas
+90 (212) 334 95 21
omer.omerbas@akyatirim.com.tr
• An update was provided on the recent announcement regarding the investment to add two new PC models to its portfolio (a
hatchback and an estate model). The news followed the announcement of a new saloon model announced earlier in the year.
All of the models will be produced on the same platform. The investment costs are US$520mn for the new saloon and
US$500mn for the new hatchback and estate models. The saloon production line will have a capacity of 75,000 vehicles per
year, while the production line for the hatchback and estate models will have a total capacity of 100,000 vehicles per year. The
saloon will be launched in 2H15, with the hatchback and estate models following in 2016. Tofas had been Fiat’s LCV hub; with
the new investment, it will become Fiat’s only producer that will serve Europe’s largest PC segments.
• The investments are crucial from an efficiency perspective; the saloon model is highly popular in Turkey with the hatchback
being more popular in Europe. Tofas will be using a single platform to serve both regions.
• Tofas’s current annual capacity stands at around 400,000 vehicles per year, and there is some flexibility to increase this to
425,000 vehicles (by increasing the number of shifts). With the current Doblo contract, new PC models (saloon, hatchback and
estate) and depending on the size of the Minicargo contract, which will be renegotiated next year (currently 165,000
units/year, of which 150k units are covered by Take-or-Pay), the company will likely reach full capacity in 2017.
• 2014 guidance: total market: 700-720K units (15%-17% YoY decline – 16% realized as of 10M14), Tofas: 90-95K units in the local
market (59K realized in 9M14), 140-150K units of exports (105K realized in 9M14).
12NEUTRAL
Current price: TRY 49.70
12-mo T.Price: TRY 54.00
TUPRAS Analyst Hakan Deprem
+90 (212) 334 94 62
hakan.deprem@akyatirim.com.tr
• The management guides a CUR of 74-75% in 2014 and 90% in 2015 (when the RUP will be up and running), in line with our
forecasts.
• The management expects a net refining margin of US$2.5-3.0 per barrel in 2014, in line with our forecast of US$2.54. After the
RUP enters operation in January, we expect the company’s net refining margin to improve to US$4.84/bbl.
• Tupras was awaiting the signing of an agreement between the Kurdish Regional Government and Baghdad to purchase Kurdish
crude oil. The KRG and the Central Iraqi government in Baghdad have reportedly finally agreed on the sale of Kurdish crude oil.
Tupras, with a direct pipeline connection to Ceyhan, is expected to benefit from the heavy crude purchases from Northern Iraq.
Note that 1mn tonnes of purchases may improve Tupras’ 2015 net refining margin by around US$0.11/bbl according to our
rough estimates.
13This report has been prepared by Ak Investment (Ak Yatırım Menkul Değerler A.Ş.) by using the
information and data obtained from sources which are reasonably believed to be trustworthy. The
statements indicated in the report should not be assumed to be sales or purchase offers under any
circumstances. Ak Investment does not guarantee that the information contained is true, accurate and
unchangeable. Thus, the readers are advised to have the accuracy of the information contained
confirmed before acting by relying on such information and the readers shall bear the responsibility of
the decisions taken by relying thereon. Ak Investment shall not in any case be responsible for
incompleteness and inaccuracy of the information. Furthermore, the personnel and consultants of Ak
Investment and Akbank shall not have any responsibility in any case for direct or indirect damage
caused by such information. Moreover, Ak Investment shall not be held liable for any damage to the
hardware or software of the receiver caused by a virus, detected transfer or any other technical reason in
case of the receipt of the reports via internet or through e-mail.
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