ss STRATEGY May

ss

Times of Lasting Bubbles

STRATEGY

Equity Outlook

May 14, 2013 Erkan Savran +90 212 334 9460

[email protected]

Revising our Index target to 101,500, and downgrading our call for equities to Neutral – This is the fourth

time that we are reducing our cost of equity since last September, when the bond yields had declined by 200

bps to 7.4% then since end‐May 2012. Bond yields now hover around %5, with the potential to decline some

more, although the room for further declines surely narrowed. Accordingly, we lower our TL cost of equity by

100bps from 12.5% to 11.5% (both risk free rate and market risk premium lowered from 6.25% to 5.75%) and

US$ cost of equity by 50bps to 8%. Since last September, our cost of equity thus declined from 15.5% to 11.5%,

while our BIST‐100 Index target rose to 101,500 from 70,000.

Our current Index target indicates 11% upside for equities, suggesting more caution from a risk‐reward

perspective. Hence, we downgrade our call for equities to Neutral from Overweight. The fact that market has

become more flow‐driven rather than fundamentals, as exemplified by the market pull‐back in last March up

until the BoJ’s put (this time not Bernanke), should not be overlooked.

Rating upgrade expectation holds up the market, while global liquidity driven fund inflows continue to

inflate the multiples – Rating upgrade expectations by another rating agency is the major factor holding up

the market during times of pull‐back. Currently, Moody’s rating outlook for Turkey stands at Positive, while

that of S&P’s is Stable, with both agencies’ Turkey ratings are one notch below the investment grade. We

attach more than 50% probability to at least one agency upgrading Turkey to investment grade until the year‐

end.

Global liquidity and significant foreign inflows to Turkey continue to trigger Central Bank action on local

rates. The Turkish Central Bank, with full focus on financial stability, lowered the official policy rate to 5%,

and signalled that they could take further action should foreign inflows continue with the same momentum,

and pointing to REER for anticipating strength of the required policy response. This in turn blows a bubble in

equities led by banks, which may continue in the short‐term.

Re‐rating has run its course, to a great extent – Market is currently trading at 2013F P/E at 12.1x, over the

historical average of 4Q‐forward looking P/E at 10.1x, and very close to 12.5x which is one std. dev. above the

historic average. Although it is normal that the multiples of Turkish equities should re‐rate in line with

investment grade expectations and historical averages may lose their significance, we are currently at 20%

premium to our historic (1‐yr forward looking) P/E. Our Index target at 101,500, indicating a market 2013F P/E

of 13.5x, is at 33% premium to historic average. That is, re‐rating has run its course to a great extent.

What to expect in the short‐term? – Well, stars are apparently aligned: abundant global liquidity, a distinct

and decent Turkish growth story, a somewhat tamed current account deficit, a chance for peace in

southeastern Turkey, etc. So, we all should enjoy the ride, while it lasts, and if it lasts. Along those lines, when

the upgrade to investment grade does take place, knee‐jerk reaction from the market should be profit taking.

Mid‐to‐long term impact on the market, however, would hinge on the magnitude of fund inflows and macro

fundamentals thereafter.

1

Sectoral Picks – From sectors, our picks are REIT, cement, consumer durables, mining, autos, airlines, and

glass. Our dislikes are steel, utilities, beer and media.

Top Picks – From banks, we like Is Bank and Yapi Kredi Bank; and from non‐banks Alarko Holding, Emlak

REIT, Kardemir, Koza Altin, Trakya Cam, and Turkish Airlines.

2

COMPANY NAME TICKER

OLD 12M TARGET

(TL per share)

NEW 12M TARGET

(TL per share) UPSIDE RATING Adana Cim. (A) ADANA 4.76 5.14 10% Market Performer Anadolu Efes AEFES 26.80 29.20 6% Market Underperformer Akcansa AKCNS 11.60 12.15 11% Market Performer Akfen Holding AKFEN 8.00 8.30 60% Market Outperformer Aksa AKSA 4.72 5.62 3% Market Undererformer Aksa Enerji AKSEN 5.66 5.78 18% Market Performer Aksigorta AKGRT 2.60 2.84 16% Market Performer Alarko Holding ALARK 6.48 6.90 20% Market Outperformer Anadolu Cam ANACM 4.25 4.30 50% Market Outperformer Anadolu Hayat ANHYT 5.64 6.10 3% Market Underperformer Anel Elektrik ANELE 2.06 2.12 23% Market Performer Arcelik ARCLK 14.00 14.50 7% Market Performer Aselsan ASELS 9.06 10.97 -1% Market Underperformer Asya Bank ASYAB 2.50 2.60 17% Market Performer Banvit BANVT 4.58 5.35 33% Market Outperformer Coca Cola Ic. CCOLA 42.60 63.50 15% Market Performer Cimsa CIMSA 12.60 13.50 18% Market Outperformer Emlak REIT EKGYO 3.70 3.92 25% Market Outperformer Eregli EREGL 2.36 2.47 19% Market Performer Ford Otosan FROTO 22.50 26.60 -1% Market Performer Garanti Bank GARAN 10.40 11.50 10% Market Performer Halkbank HALKB 21.80 24.00 15% Market Outperformer Hurriyet HURGZ 1.10 1.20 12% Market Performer Ipek Enerji IPEKE 6.10 5.51 12% Market Outperformer Is Bank ISCTR 8.20 8.80 19% Market Outperformer Is REIT ISGYO 2.10 2.20 28% Market Outperformer Koc Holding KCHOL 9.72 11.0 -3% Market Performer Koza Anadolu KOZAA 8.10 7.70 81% Market Outperformer Koza Altin KOZAL 49.5 43.5 34% Market Outperformer Kardemir (D) KRDMD 2.09 2.50 27% Market Outperformer Migros MGROS 26.50 28.80 19% Market Outperformer Reysas REIT RYGYO 1.12 1.18 74% Market Outperformer Sabanci Hol. SAHOL 12.54 13.30 8% Not Rated Sasa SASA 1.25 1.27 13% Market Performer Selcuk Ecza SELEC 2.96 2.70 30% Market Outperformer Sise Cam Hol. SISE 3.51 3.51 14% Market Performer Sekerbank SKBNK 2.10 2.30 7% Market Underperformer Sinpas REIT SNGYO 1.88 2.00 32% Market Outperformer TAV TAVHL 13.7 14.60 30% Market Performer Turkcell TCELL 13.75 14.05 25% Market Outperformer TEB TEBNK 2.80 3.00 11% Market Outperformer Turkish Airlines THYAO 8.60 9.30 15% Market Outperformer Tekfen Hol. TKFEN 7.98 8.62 23% Market Performer Teknosa TKNSA 12.37 12.79 3% Market Performer Tofas TOASO 14.35 15.60 16% Market Outperformer Trakya Cam TRKCM 3.65 4.14 34% Market Outperformer T.S.K.B. TSKB 2.90 3.00 15% Market Performer Turk Telekom TTKOM 9.32 9.88 14% Market Performer Turk Traktor TTRAK 57.0 64.00 -1% Market Performer Tupras TUPRS 56.50 60.00 13% Market Performer Ulker ULKER 10.50 12.00 -20% Market Underperformer Vakifbank VAKBN 6.70 7.80 11% Market Performer Yapi Kredi YKBNK 6.70 7.10 18% Market Outperformer

3

Top-Picks

Hakan Deprem +90 212 334 9462

SUMMARY RESULTS & FORECASTS (TLmn)

4Q12 4Q11 Growth 2012A 2013F 2014F

Net Sales 437 389 12% 1,619 1,936 2,308

EBITDA 6 38 -84% 103 132 193

Net Profit 5 13 -60% 76 87 116

We maintain our ‘Market Outperformer’

rating for Alarko Holding. Our 12M

target price per share at TL6.90 represents

a 20% upside potential.

Potential projects to support backlog:

The Company’s recent backlog is

US$1,484mn. There are three potential projects to be included into the backlog in 2013. First, there is a US$120mn

extension in Bozshakol copper plant construction project in Kazakhstan. The company has recently secured

US$40mn portion of the amount mentioned above. The remaining part is expected to be added in the following

months. In addition, Taldykol sewer pond liquidation project (US$150mn) and a highway project (US$100mn) in

Kazakhstan are other potential projects to be short-term catalysts on any positive newsflow. We expect that Alarko

should secure new projects with a total size of US$475mn in 2013 and 2014 to increase its contracting revenue from

US$350mn in 2013 to US$550mn in 2015 that is included in our forecasts.

Karabiga Power plant to bring upside risk: Alarko Holding received the license for the 1,320MW coal-fired

power plant (Karabiga – Canakkale (Turkey)) in April 2013. The project will be executed by Cenal, the 50%-50% JV

of Alarko Holding and Cengiz Group. The construction of the port for the power plant is expected to start in June

2013. The Management revised down their capex guidance for the power plant to US$1,350mn (previously

US$1,500mn). The project will be financed by 25% equity and 75% debt. Approximately half of the debt will be

secured from China Development Bank (CDB). The debt from CDM is expected to be released by September 2013.

On the other hand, the company may secure the remaining part of total debt from local banks earlier. We have not

included the project, planned to be completed by end-2016, into our valuation yet, since its financing is yet to be

completed. Were we to include the project into our valuation, Cenal would increase our estimate for Alarko

Holding’s target NAV by 27%.

Downside risks: Unexpected delays or costs in the contracting segment, failure in backlog addition, and weaker

margins in energy segment.

Price (TL / US$) 5.76 / 3.19

12M Target Price (TL / US$) 6.90 / 3.82

1-Year Price Range (Adj., TL) 5.90 / 3.59

Number of Shares (‘000) 223,467

Market Cap. (TLmn) 1,287

Net Debt (end-4Q12, TLmn) -393

Free Float 26%

Daily Vol. (3 Month, TLmn) 1.8

Ticker (Reuters, Bloomberg) ALARK.IS, ALARK TI

ISE-100 Index (TL/US$) 89,765 / 49,707

Pricing as of May 13, 2013

PERFORMANCE 1 Week 1 Month 3 Month 1 Year

TL 0.7% -1.0% 9.5% 35.5%

Index Relative 0.7% -6.7% -4.9% -11.2%

MULTIPLES 2011A 2012A 2013F 2014F

EV/Sales 0.8 0.6 0.5 0.4

EV/EBITDA 6.2 9.7 7.6 5.2

P/E 11.3 16.9 14.8 11.1

ALARKO HOLDING Market Outperformer Contracting and energy segments offer growth potential

ALARK - Price & Index Relative Performance

0.7

0.8

0.9

1.0

1.1

1.2

May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13

3.5

4 .0

4 .5

5 .0

5 .5

6 .0

Index Relative (LHS) Share Data (RHS)

TL

4

Bertug Tuzun +90 212 334 9531


1Q13 1Q12 Growth 2012A 2013F 2014F

Net Sales 375 26 1,359% 1,005 1,702 1,982

EBITDA 260 -4 n.m. 396 658 900

Net Profit 271 51 429% 523 780 978

Emlak REIT offers direct exposure to

Turkey’s lucrative residential market

growth story supported by the relatively

low interest rate environment. We

believe that longer maturity mortgages,

coupled with ongoing relatively low

interest rates, will continue to support

residential demand over the coming years.

Emlak will be the major beneficiary of new regulations in the mid-term (i.e. the sale of deforested lands (called

2B) to current occupants, urban transformation law and permission for selling real estate to foreigners). The

new regulations will speed up the renewal of old housing stock and enable TOKI (The Housing Development

Administration of Turkey; Emlak’s parent) to expropriate attractive land and properties for that purpose. This

could provide a boost to Emlak’s land bank as well as to new projects starting from 2013.

SPO is likely to be completed in late May or early June. Recall that Emlak will issue TL1.3bn new shares (paid-in

capital will rise by 52% to TL3.8bn from TL2.5bn) through a restricted rights issue. Accordingly, Emlak’s free float

will increase to 50.7% (TL1.925mn shares) from the current 25.0% and TOKI’s stake at Emlak REIT will dilute to

49.3% (TL1,875mn shares) from the current 75.0%. Hence, we believe that with the completion of the SPO, the

overhang will be lifted and will further unlock value of Emlak REIT shares. According to the management

guidance, SPO proceeds will be used for land acquisitions in Istanbul, mainly to be spent in new city area of

Istanbul (“reserve” area located in west Istanbul) as well as old Istanbul area.

2013 pre-sales performance continues to be strong. We expect Emlak’s pre-sales performance from its ongoing

projects will continue to be solid in 2013, thanks to better macro outlook, lower funding costs, and the new VAT

scheme. These developments stand to support residential construction activity in 2013. As of end-1Q13, Emlak

pre-sold 3,836 units and generated TL2.1bn pre-sales revenues compared to 9,151 pre-sales units and TL3.4bn pre-

sales revenues achieved in 2012.

‘Market Outperformer’ rating maintained. Emlak deserves to trade at a premium to its NAV, given its relatively

low risk business model (RSM) and higher growth prospects with an active portfolio. Accordingly, Emlak is

trading at 3% discount to its latest NAV/share of TL3.24 and our 12-M target price stands at TL3.92/share.

Price (TL / US$) 3.14 / 1.74



Number of Shares (‘000) 2,500,000


Net Debt (end-1Q13, TLmn) -1,265

Free Float 25%


Ticker (Reuters, Bloomberg) EKGYO.IS, EKGYO TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL 2.0% 12.3% 15.1% 37.7%

Index Relative 2.0% 5.8% -0.1% -9.7%

MULTIPLES 2011A 2012A 2013F 2014F

EV/Sales 9.2 6.6 3.9 3.3

EV/EBITDA 37.2 16.6 10.0 7.3

P/E 34.4 15.0 10.1 8.0

EMLAK KONUT REIT Market Outperformer Main beneficiary of lower funding cost

EKGYO - Price & Index Relative Performance

0.8

0 .9

1 .0

1 .1


2.0

2 .5

3 .0

3 .5


TL

5

Hakan Aygun +90 212 334 9465


1Q13 1Q12 Growth 2012A 2013F 2014F

Net Int. Inc. 1,722 1,306 32% 5,928 6,827 7,422

Net Fees 463 370 25% 1,706 1,942 2,136

Net Profit 1,024 708 45% 2,595 3,450 3,650

We are positive on Isbank thanks to its

effective re-organization strategy in recent

years, which will continue to yield fruit in

upcoming quarters. The Bank is up 83%

YoY and has outperformed the ISE-

banking index by a modest 7%. Currently,

it trades at 2013F P/B of 1.5x, less than the

average of large bank peers at 1.7x. We believe its discount is more than can be justified by its lower RoE and

quasi holding structure. After reduction of our CoE by 100bps, we have upgraded our price target by 7% to

TL8.80 per share (target Mcap: TL39.6bn) with 19% upside. We maintain our rating as ‘Market Outperformer’.

- Given the sizeable trading gains in the first quarter, seasonality of dividend income and expansion in

NPLs/Group-II loans with more rescheduled loans, we maintain our moderate forecasts for upcoming quarters.

We also think that there would be an additional TL110mn provision for the Competition Board fine in 2Q13. On

the positive side, the management still maintains its flattish NIM guidance (together with initial budget figures for

other metrics), yet admits that there could be an upside to this under current macro picture.

- Better than expected 1Q13 result is due to: i.) a resilient NIM at 4.1% in 1Q13 with only 5bps QoQ contraction (vs.

40bps QoQ erosion estimate), and ii.) a sizeable treasury income of TL153mn (though, down by 53% QoQ from a

much higher base) in 1Q13 vs. our estimate of TL50mn.

- No provision was set aside in 1Q13 for the competition fine (in the amount TL110mn, after 25% discount).

Though, there are some other non-recurring/seasonal items, including i.) TL100mn discretionary provision for

future risks, ii.) TL57mn gain on sale of non - core assets, and iii.) TL160mn dividend income (up 69% YoY) from

participations.

- Growth in non-performing loans in 1Q13 was more than in 4Q12, carrying its NPL ratio to 2.0% (up by 10bps

QoQ) at end-1Q13 and resulted in 8.4% QoQ increase in loan loss provisions in 1Q13. Yet, thanks to ease in general

provisions (from an inflated base with one-off item in 4Q12), its gross CoR in 1Q13 contracted by 12bps QoQ to

123bps in 1Q13.

- We upgrade our net profit estimate on 2013 by ~4% to TL3,450mn, implying an increase by 4.2% YoY and an

RoE of 14.2% (its sole banking RoE when adjusted for subsidiaries and discretionary provisions is around 17.2%).

Price (TL / US$) 7.42 / 4.11





Target Mcap. (12M, TLmn) 39,600

Free Float 31%


Ticker (Reuters, Bloomberg) ISCTR.IS, ISCTR TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL 0.8% 10.4% 17.4% 87.2%

Index Relative 0.8% 4.0% 1.9% 22.8%

MULTIPLES 2011A 2012A 2013F 2014F

RoE (%) 15.2% 16.5% 14.0% 13.4%

P/B 2.5 1.8 1.5 1.3

P/E 12.5 10.1 9.7 9.1

ISBANK Market Outperformer Re-organization continues to yield fruit

ISCTR - Price & Index Relative Performance

0.8

0 .9

1 .0

1 .1

1 .2

1 .3

1 .4


3.0

3 .8

4 .6

5 .4

6 .2

7 .0

7 .8


TL

6

Erkan Savran +90 212 334 9460


1Q13 1Q12 Growth 2012A 2013F 2014F

Net Sales 186 304 -39% 1,043 960 956

EBITDA 125 247 -49% 806 664 617

Net Profit 111 190 -42% 642 521 478

At oversold levels: While gold price

assumptions and valuations require a

revision, we think current levels point to

oversold territory for Koza Altin. Our

12M price target for Koza Altin (after

yesterday’s dividend payment) stands at

TL43.5, offering 34% upside.

High cash costs in 1Q13 are neither indicative for 2013 nor 2014: An important reason for the high cash cost at

US$534/oz in 1Q13 was surely the notable decline in average grade at Mastra. Yet, another was Kozal’s sales

volume which was lower than its production. We calculate that if Kozal had sold its entire production, cash costs

wouldhave declined to ~US$503/oz on our estimates. As production will progressively rise, also to be helped by

Sogut and Corakli, we expect cash costs to decline in subsequent quarters to an avg. US$446/oz in 2013.

Himmetdede to come online in late 3Q13: Himmetdede construction was initiated in October 2012. Construction

for Sogut will follow Himmetdede, and Sogut is expected to become operational by end-2014, on our estimates.

Sogut will be lucrative; we expect a new facility by end-2014: Resource growth in Sogut has been nothing but

impressive; 161K oz resource as of end-2010 rose to 815K by end-2011, and to 1.81mn oz by end-2012. Sogut,

located in the west part of central Anatolia, is a quartz-vein type mineralization with four major veins. Grade is

high at an average 9.26gr/ton, according to reserve ore outlined in SRK-audited reserve-resource statement as of

end-2012.

Production to exceed 500K oz mark by 2015: Expected start of production at Himmetdede and production

contribution from Sogut and Corakli will more than compensate for the production decline in Mastra this year,

and we forecast 338K oz production in 2012 to rise to 371K oz in 2013. As Himmetdede will fully contribute to

2014 and Sogut will potentially make a small contribution next year, production will further increase to 404K oz in

2014 according to our forecast, although next year will potentially be the last year of Mastra with continued

decline in output. As Sogut will fully contribute to 2015 and production at Diyadin will be initiated, we forecast

Kozal will have exceeded 500K oz mark by 2015, reaching a production level of ~528K oz.

Despite downward revision to gold price assumptions (2013: $1,450, 2014: US$1,300, 2015+: US$1,150), valuation

is attractive at 6.0x 2013F EV/EBITDA, and 9.5x 2013F P/E.

Price (TL / US$) 31.54 / 17.43





Net Cash (end-1Q13, TLmn) 937

Free Float 30%


Ticker (Reuters, Bloomberg) KOZAL.IS, KOZAL TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL -8.2% -16.5% -25.0% -0.9%

Index Relative -8.2% -21.3% -34.9% -35.0%

MULTIPLES (TL) 2011A 2012A 2013F 2014F

EV/Prod. ($/oz) 7,259 6,535 5,957 5,465

EV/EBITDA 6.4 5.0 6.0 6.5

P/E 10.7 7.7 9.5 10.3

KOZA ALTIN Market Outperformer Down, but certainly not out

KOZAL - Price & Index Relative Performance

0.6

0 .8

1 .0

1 .2


29.5

36.0

42.5

49.0


TL

7

Bora Tezguler +90 212 334 9467

Kardemir ‘D’ shares multiples.


4Q12 4Q11 Growth 2012A 2013F 2014F

Net Sales 388 430 -10% 1,687 2,122 2,659

EBITDA 61 83 -26% 347 441 557

Net Profit 8 5 70% 194 239 310

We have a 12-month TP for Kardemir ‘D’

shares of TL2.50 and ‘MO’ rating.

Kardemir is the largest long steel

producer in Turkey and the only

vertically integrated long steel producer.

Kardemir has 5% - 6% share in long steel

production in Turkey. Construction

activity is a major source of demand for long steel. Construction activity is expected to remain robust in Turkey

and the surrounding region, especially the Middle East in the coming years that will boost Kardemir’s revenues.

Construction activity is the main driver of growth. Kardemir is Turkey’s only integrated long steel producer and

has the largest long steel capacity. Rising construction activity in Turkey has a direct positive impact on Kardemir.

The Urban Transformation Project (UTP) is forecast to add ~US$2bn additional construction investments per year

over the next 20 years. Middle East spending on construction is estimated at US$4.3 trillion over the next 10 years

that will benefit Turkish long steel exporters and Kardemir will indirectly benefit as a primary supplier to these

producers.

Rising construction activity prompted Kardemir to expand capacity. Kardemir anticipated rising long steel

demand with increased construction activity and the UTP (that began in October 2012). Accordingly, the

Company started to undertake capacity expansion investments in 2010 to expand its capacity from 1.3mn tons to

3.3mn tons by 2015. These will be followed by a new rolling mill plant to become operational in 2014. This mill

will produce specialty long steel products that are currently imported. The Company will then either build a

second similar mill or a rail and profile mill depending on demand for c.2016.

Rail and profile demand set to grow. Turkish rail investments are set to rise in the next ten years. Turkish rail

investments are set to rise in the next ten years. Parliament recently passed the law that will liberalize the sector. It

is estimated that c.2.2mn tons rail will be demanded in Turkey over the next ten years, while Middle East rail

demand for the same period is estimated at 2mn tons. Kardemir is the only rail producer in the region and its

capacity currently is not enough to meet this demand.

Price (TL / US$) 1.98 / 1.10





Net Debt (end-4Q12, TLmn) 291

Free Float 89%


Ticker (Reuters, Bloomberg) KRDMD.IS, KRDMD TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL -2.5% 7.6% 19.3% 122.7%

Index Relative -2.5% 1.4% 3.6% 46.0%

MULTIPLES 2011A 2012A 2013F 2014F

EV/Sales 1.4 1.3 1.0 0.8

EV/EBITDA 6.2 6.2 4.9 3.9

P/E 9.4 9.0 7.3 5.6

KARDEMIR ‘D’ Market Outperformer Urban transformation boots valuation

KRDMD - Price & Index Relative Performance

0.8

1 .0

1 .2

1 .4

1 .6

1 .8


0.6

1 .0

1 .4

1 .8

2 .2

2 .6


TL

8

Omer Omerbas+90 212 334 9521


4Q12 4Q11 Growth 2012A 2013F 2014F

Net Sales 3,747 3,210 17% 14,909 17,590 21,370

EBITDA 338 624 -46% 2,078 2,432 2,796

Net Profit 265 -97 -374% 1,133 1,308 1,518

We have a ‘Market Outperformer’ rating

for Turkish Airlines (THY) with a 12M

target price of TL9.30/share, implying

16% upside potential. We value the

company through a blend of DCF and

multiples comparison analyses.

THY is defying the airline industry’s poor track record of capacity discipline with a successful expansion

strategy. THY doubled its ASK in 2008-12 and generated passenger, top-line and EBITDA CAGRs of 15%, 25% and

16% respectively. The picture was quite bright indeed in 2012, as the load factor climbed to historic highs (77.7%)

and extensive success was achieved in cost control.

Momentum to be maintained in 2013. THY targets a further 18% passenger growth and 1 pp climb in load factor

to 78.8% in 2013. The traffic performance in the January-April period confirmed that these figures are achievable,

with 26% YoY growth in passengers and 4.3 pps YoY increase in load factor. Particularly the most recent April

performance (25% YoY growth in passengers) came in as a positive surprise considering a somewhat weak

performance of the overall sector in the same period (12% YoY growth in overall Turkish air passengers.)

Glittering long term growth prospects. Situated at the crossroads of Europe, Africa and Middle East, Turkey

already saw a tremendous increase in air passengers (14% CAGR in 2002-2012) and is expected to benefit further

from the region’s growth potential. We foresee the total air passengers in overall Turkey growing by 8% in 2012-

16F and while for THY, we expect 12% CAGR in passengers and 22% CAGR in RPK in the same period. The

prospects are not limited to the mentioned period though: note that so far in 2013, the company ordered 95 aircraft

from Boeing (25 optional) to be delivered in 2016-2021 and 117 aircraft from Airbus (35 optional) to be delivered in

2015-2020. The company’s current fleet plan now reads 423 aircraft in 2021, from 200 at end-2012.

The market already praised the shiny operational performance of THY, but multiples are not demanding. The

stock price put on 188% in the last 12M and outperformed the benchmark index by 89%. Now, on 2013F multiples,

THY trades at 7.0x EV/EBITDA in line with the international peers and at 9.1x P/E, which is not fully demanding.

Price (TL / US$) 8.00 / 4.43





Net Debt (end-4Q12, TLmn) 6,760

Free Float 50%


Ticker (Reuters, Bloomberg) THYAO.IS, THYAO TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL -1.7% 15.9% 22.3% 187.8%

Index Relative -1.7% 9.2% 6.2% 88.7%

MULTIPLES 2011A 2012A 2013F 2014F

EV/Sales 0.6 0.5 0.5 0.4

EV/EBITDA 8.9 8.2 7.0 6.0

P/E 64.8 8.6 9.1 8.3

TURKISH AIRLINES Market Outperformer Strong momentum, solid long term growth

THYAO - Price & Index Relative Performance

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1 .0

1 .2

1 .4

1 .6

1 .8

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2 .2


1.6

2 .6

3 .6

4 .6

5 .6

6 .6

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8 .6


TL

9

Omer Omerbas+90 212 334 9521


4Q12 4Q11 Growth 2012A 2013F 2014F

Net Sales 334 337 -1% 1,249 1,412 1,960

EBITDA 42 75 -44% 202 290 391

Net Profit 12 43 -72% 72 132 143

We have a ‘Market Outperformer’ rating

on Trakya Cam with a 12M target price

of TL4.14/share, implying 34% upside

potential. We value the company through

a blend of DCF and multiples comparison

analyses - we assign a higher weight to

the former (75%) to better reflect the long term potential of the company.

Trakya Cam is entering the last phase of a massive investment program which foresees adding four new float

lines (or c.60% fresh capacity on top of the current 1.6mn tons/y) to the production portfolio – two in

Ankara/Turkey (580k tons/y capacity), one in Bulgaria (230k tons/y capacity) and one in Russia (230k tons/y

capacity). The new lines are scheduled to come on stream gradually in 2H13-2014. The new lines, particularly

those in Turkey, are set to serve the expected increase in local glass demand to stem from the recently initiated

“urban transformation project”. The project foresees the reconstruction of some 30-40% of the total housing stock

in Turkey in the next 15-20 years. On simple assumptions, we calculate that the new construction demand

stimulated by the project would expand the annual flat glass demand in Turkey by 5-8%. Plus, the laws that

enable foreigners acquiring real estate in Turkey and that enable construction in de-forested areas (2B) are also

supportive for the construction sector.

Plus the company is diversifying its portfolio with acquisitions: The company acquired an auto glass

manufacturer with (85k tons/y capacity) in Romania as well as signed a MoU to enter India by partnering with a

local producer.

Promises a lucrative long term growth potential. Our long term growth estimates, which foresee the company’s

current EBITDA doubling in 3-4 years, are rooted primarily in the top-line growth, while we prefer to remain

somewhat cautious on the profitability front. Note that we are estimating an average 26% EBITDA margin over

the investment horizon after 2014, compared to the company’s historic EBITDA margin of c.30%. We continue to

treat the new/upcoming Romania and India operations as upside risks and exclude them from our model at this

stage.

Price (TL / US$) 3.09 / 1.71





Net Debt (end-4Q12, TLmn) 62

Free Float 28%


Ticker (Reuters, Bloomberg) TRKCM.IS, TRKCM TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL -1.6% 5.5% 17.9% 39.4%

Index Relative -1.6% -0.6% 2.4% -8.6%

MULTIPLES 2011A 2012A 2013F 2014F

EV/Sales (adj) 1.2 1.5 1.6 1.2

EV/EBITDA (adj) 4.2 9.7 7.6 6.0

P/E 8.6 29.6 16.3 15.0

TRAKYA CAM Market Outperformer Capex burden will soon be out of the way…

TRKCM - Price & Index Relative Performance

0.6

0 .7

0 .8

0 .9

1 .0

1 .1

May-12 Jul-12 O ct-12 Dec-12 Feb-13 May-13

1.7

2 .1

2 .5

2 .9

3 .3

3 .7


TL

10

Hakan Aygun +90 212 334 9465


1Q13 1Q12 Growth 2012A 2013F 2014F

Net Int. Inc. 1,184 923 28% 4,417 5,059 5,528

Net Fees 466 385 21% 1,761 2,028 2,252

Net Profit 541 507 7% 1,913 3,340* 2,520

* incl. gains on the sale of YKSGR

We have increased our price target for

Yapi Kredi by 6% to TL7.10 per share, with

18% upside. Re‐classification of FX

securities not only supported its CAR, but

also made its medium term price multiples

more attractive relative to its peers.

Indeed, Yapi Kredi’s 2013F P/B is now at

around 1.6x, the second lowest figure in the peer group, after Isbank. The finalization of insurance stake sale

will improve its CAR by 80bps but will have more modest impact on its equity base. We maintain our rating

for Yapi Kredi as ‘Market Outperformer’.

- Yapi Kredi’s 1Q13 net earnings except for TL101mn one-off cost and TL95mn dividend income is made of core

revenues with no trading gains. Thus, the bottom-line is likely to remain stable in the upcoming quarters, in our

view (except for P/L gains on sale of the insurance stake in 3Q13F). The decline of restructured standard and

watched loans on a quarterly basis is positive for future NPL evolution and partly explains the ease in general

provision burden in 1Q13 relative to the previous quarter. Having said that, we are not fully confident over its

future tendency as former records indicate some volatility in this account. The uncertainty on this item and swap

costs (reported in FX&trading gains/losses) are the major downside risks to our forecasts.

- We upgraded our net profit estimate for 2013 by 4% to TL3,340mn implying a solid EPS growth of 12.4% YoY

(after adjustment for gain on insurance stake). Its RoE (excluding gain on insurance company sale) is likely to be

around 12.2% in 2013 and ~15.0% (when adjusted for dividends and gains on sale of insurance company together

with discretionary provision reserves and goodwill).

- The sharp contraction of its NIM by 44bps QoQ in 1Q13 stemmed from a one-off early payment penalty in the

amount of TL57mn due to closure of its high cost sub-debt before its original term. As you may recall, Yapi Kredi

had refinanced its US$585m 10year subordinated loan from its parent Unicredit carrying 3ms Libor+8.30 interest

rate with a new one with the same term but at a lower fixed cost of 5.5%. When netted for this, NIM contraction is

around 24bps, which is lower than the average NIM contraction in the sector.

Price (TL / US$) 6.04 / 3.34





Target Mcap. (12M, TLmn) 30,864

Free Float 18%


Ticker (Reuters, Bloomberg) YKBNK.IS, YKBNK TI

ISE-100 Index (TL/US$) 89,765 / 49,707



TL 3.8% 9.0% 19.5% 89.5%

Index Relative 3.8% 2.7% 3.8% 24.3%

MULTIPLES 2011A 2012A 2013F 2014F

RoE (%) 16.8% 13.8% 18.9% 12.8%

P/B 2.7 1.8 1.6 1.4

P/E 14.1 13.7 12.2* 10.4

YAPI KREDI Market Outperformer Solid performance with a positive outlook

YKBNK - Price & Index Relative Performance

0.9

1.0

1.1

1.2

1.3


2.5

3 .5

4 .5

5 .5

6 .5


TL

11

This 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.

2013 AK Investment

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