Sector Report
Turkish Energy
Economics & FI/FX Research Credit Research Equity Research Cross Asset Research
“
Turkish GenCos: Turn on the power
052009 Bayerische Hypo- und Vereinsbank AG
UniCredit CAIB Group
UniCredit Menkul Değerler A.Ş.
”
21 May 2009
Equity Research
Sector Report
Turkish Utilities Turkish GenCos: Turn on the power To capitalize on the rapid growth and liberalization of the Turkish electricity market, we initiate coverage of four listed GenCos: Akenerji (AKENR) Buy; Zorlu Enerji (ZOREN) Hold; Ayen Enerji (AYEN) Hold; and Aksu Energy (AKSU) Sell. Growing with sustainable debt and profitability the CEZ-Akkok JV, AKENR, trades at 2010E EV/EBITDA of 6.9x and deserves a Buy with 12M TP of TRY 12.70 and 47% upside. Despite ambitious growth plans backed by the wealthy Zorlu Holding, we see ZOREN as a risky play with high FX debt (19x EBITDA) and a potential rights offering and, thus, rate it a Hold with a TP of TRY 3.40 with 2010E 6.14x EV/EBITDA. For the smaller and relatively illiquid AYEN and AKSU, we have Hold and Sell ratings with TPs of TRY 2.25 and TRY 2.55, respectively. Major risks are: delays in investments, sharp weakening in TRY, higher fuel costs vs. lower electricity prices, regulatory risks, countryrelated risks and a deeper and longer recession.
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Long-term demand to outpace supply: Turkey’s fast-growing electricity demand may fall by 4% this year, but we believe growth dynamics are still intact (CAGR of 5% in 10E-15E vs. 8% in 03-08). Since capacity build-up has also been hit by the credit crunch, supply growth should lag (CAGR of 3% in 10E-15E vs. 4% in 03-08).
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Liberalization and tight supply to push electricity prices up: With an automatic pricing system for regulated prices (TEDAS) and a semiliberalized DUY market, electricity prices are now more discernible. Despite slowing demand and lower fuel costs, we estimate a 17% cut in TEDAS prices only during 2009 given the lag in pass-through of costs and the weaker TRY and a 9% y-o-y increase in 2009 average prices while DUY prices should remain unchanged y-o-y on average due to capacity control by private GenCos. Moreover, diversification into renewables by AKENR and ZOREN act as a cushion with minimum price (EUR 55/MWh) and purchase guarantee.
■
Major catalysts: ongoing privatization and M&As: Large DisCos, such as Yesilirmak, are likely to attract leading GenCos for efficiency gains and captive market. Given tight supply, competitive bidding in tenders is probable, leading to a re-rating of listed GenCos. The year 2009 is likely to see buyouts of small GenCos by larger GenCos for their licenses while Zoren and AYEN may be long-term strategic M&A targets.
Terms and Abbreviations 2 Investment case - Turkish Power Utilities 3 Key fundamentals & valuation metrics for Listed Gencos 5 Investment case - Akenerji: Growing with sustainable debt and profitability 6 Investment case -Aksu : A small GenCo embroiled in legal dispute 8 Investment case - Ayen : More direct exposure to RES, but fairly valued 10 Investment case - Zorlu Enerji: High leverage is a major concern 12 Turkish Electricity Market Supply-Demand Dynamics for Utilities in Turkey Supply-Demand Projections for Turkey Regulatory Environment and Market Relationships Pricing Major Private Players in Turkish Equity Market Privatization of Generation and Distribution Assets Natural Gas Market
14 19 21 23 26 28 32
Companies Akenerji Aksu Enerji Ayen Enerji Zorlu Enerji
35 59 65 73
SUMMARY TABLE FOR TURKISH LISTED GENCOS 20 May 2009
Rating
Price
12M TP
Upside
COE
TRY
TRY
(%)
(%)
EV/EBITDA
P/E
2010E (x) 2010E (x)
Akenerji
Buy
8.65
12.70
47
18
6.9
9.0
Aksu Elektrik
Sell
2.84
2.55
-10
18
13.4
7.3
Ayen Enerji
Hold
2.22
2.25
1
18
7.1
5.9
Zorlu Enerji
Hold
3.12
3.40
9
18
6.1
5.4
Elvin Akbulut (UniCredit Menkul) Equity Analyst +90 212 385 9525
[email protected]
Source: Company data, UniCredit Research estimates
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
Terms and abbreviations B-O:
Build-Operate
B-O-T
Build-Operate-Transfer
BOTAS
Turkish Petroleum Pipeline Corp
CMB
Capital Markets Board
DUY
Balancing and Settlement System
EMRA
Energy Market Regulatory Agency
GPP
Geothermal power plant
GWh
Gigawatt hour
HPP
Hydropower plant
KWh
Kilowatt hour
MW
Megawatt
MWh
Megawatt hour
NG
Natural gas
NGPP
Natural gas power plant
NPP
Nuclear power plant
RES
Renewable energy sources
SDIF
Savings Deposit and Insurance Fund
TEDAS
Turkish Electricity Distribution Company
TEIAS
Turkish Electricity Transmission Company
TETAS
Turkish Electricity Wholesale Company
T-O-R
Transfer of operating rights
WPP
Wind power plant
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
Investment Case – Turkish Power Utilities We believe that the Turkish electricity market offers significant growth opportunities with an increasing profitability thanks to 1) strong demand growth (6%-8% CAGR in 2008-2015E); 2) tight supply; 3) rising electricity prices; 4) liberalization of distribution and generation; and 5) M&A and strategic partnerships. The highlights of our investment theme are as follows:
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Strong demand growth – 5% CAGR in 2010E-2015E: Electricity demand has increased at a CAGR of 8% in the past five years thanks to urbanization, industrialization and a large young population. In 2009, however, the slump in the major consumer of electricity, i.e. industry, due to the global slowdown is certain to take its toll on electricity demand, which leads us to estimate a 4% y-o-y decline in Turkey’s electricity demand vs. contracting GDP of 3.2%. With the pick-up in the economy, electricity demand should also be quick to recover with a strong 5% CAGR in 2010E-2015E vs. 2-3% growth in Emerging Europe.
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Tight supply still a risk – 40,000 MW capacity required by 2015: Despite strong demand growth, capacity build-up has been relatively slow (4% CAGR in the same period) due to low public investment and the reluctance of the private sector, threatening Turkey with power shortages. Although the crisis put a cap on the demand growth and gave time for supply to keep up with demand, we believe that investments especially those in the planning phase have been hit by the credit crunch and thus only extended the possibility of power cuts to beyond 2009. According to the Turkish Ministry of Energy, Turkey needs 40,000 MW additional capacity by 2015, translating into an investment requirement of USD 3-4bn per annum. We believe that the companies with know-how, viable projects and access to financing will benefit from the tight supply in the short to medium term.
■
Highly regulated sector but on its way to liberalization: The entire market (generation to distribution and transmission) is dominated by state companies (60% to 100%). Liberalization is underway with related laws in force and state distribution and generation assets in the privatization pipeline. An interim liberalized system called DUY has been in place since August 2006 and the automatic pricing mechanism, which takes costs into account while setting regulated prices (TEDAS), will be effective as of July 2008, resulting in more discernible prices. Tenders for four DisCos and one generation portfolio have already been held while three more DisCos are in the tender process.
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Trend is up for electricity prices after stagnating in 2009: If they are not bound by B-O or B-O-T contracts with the State, private GenCos can sell electricity to third parties at TEDAS prices and/or to the DUY market. Thanks to the supply-demand imbalance and increased costs, average electricity prices were up by 22% on the DUY market on average, and the average increase in TEDAS prices topped 22% in 2008. For this year, we expect electricity prices to remain almost flat y-o-y on average due to conflicting factors: 1) declining fuel costs (especially natural gas which accounts for almost 50% of production); 2) the slowdown in demand; and 3) end of the draught, which hit HPPs last year, will push down electricity prices, while a) capacity control by private GenCos; b) weaker TRY; and c) lag between change in fuel costs and electricity prices should put a cap on the decline. Despite falling natural gas prices, the YTD cut in TEDAS prices remained low (-1%), which we expect to reach 17% by year-end. Moreover, private GenCos sell at higher prices than averages on the DUY market as they can sell at peak times at low volumes. Due to capacity constraints and cost pressure, we expect the upward trend in electricity prices to resume after consecutive cuts in 2009. Despite this, we pencil in a conservative increase of 5% and 7% y-o-y for 2010E and 2011E, respectively. We expect the price correction on the Turkish electricity market to end in 2015 in expectation of a capacity build-up and full liberalization.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
■
Renewables cushion against drop in demand and prices: To boost diversification of fuel sources and react to environmental concerns, the government is encouraging renewable energy sources (RES) with a minimum price guarantee (plans are underway to raise to EUR 80/MWh from EUR 55/MWh). Despite heavy investment costs, HPPs offer low operating costs (USD 25/MWh vs. USD 100/MWh of NGPs). Ayen and Aksu already have active HPPs/WPPs in their portfolio (216MW and 13MW), enjoying EBITDA margins of 40% to 60% depending on the CUR whereas NGP operators such as Akenerji and Zoren could only achieve 16%-4% margins last year after consecutive losses due to high NG costs. Therefore, we expect Akenerji and Zoren, which are diversifying their fuel sources via HPPs and WPPs, to benefit and post better EBITDA even in a tough year like 2009.
■
Three more DisCos to be tendered in October 2009 with generation assets flagged up for 2010, possibly paving the way for a re-rating of listed GenCos: The government is intent on going ahead with electricity distribution tenders even in a year of crisis, with the application deadline set for 15 July for three regions: Coruh (Black Sea region, loss-theft: 12%, consumption 2,100 GWh); Osmangazi (Central Anatolia region, loss-theft: 6.3%, consumption 4,800 GWh); and Yesilirmak (Black Sea region, loss-theft: 9.1% consumption 3,830GWh). Having acquired Sakarya DisCo via a JV with CEZ (Buy) for USD 600mn, Akenerji is interested in distributing to regions within proximity of its power plants, such as Toroslar and Trakya as well as the perennial favourite Istanbul and its surrounding regions. Possible synergies with generation facilities, expectation of efficiency improvements and the ability to impose market prices after a transition period are likely to attract large players such as Sabanci Holding to these tenders too. As regards the privatization of generation assets, we expect the tender process to be clarified by the end of this year and the first tenders to be launched in 2010 to enable the completion of the roadmap and DisCo sales. Depending on their access to funding, Akenerji and Zoren are also likely to take part in these tenders. Given tight supply, competitive bidding in generation tenders is likely, leading to a re-rating of listed GenCos.
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Expect buyout of small distressed GenCos by larger companies; Zorlu Energy and Ayen Energy could be long-term M&A targets: We expect the credit crunch to force several small companies with no access to funding to sell their licences, and thus consolidation of small GenCos is probable. Although the first M&A wave has already resulted in lucrative partnerships such as Sabanci Holding-Verbund and Akenerji-CEZ, we do not rule out a second wave when the bull market returns given the attractiveness of the Turkish power market. Given their lack of international partners and financing needs for growth, Zoren and Ayen could well be targets. As a reminder, Enerjisa was valued at USD 0.60mn/MW in early 2007, Ankara Elektrik at USD 2mn/MW by Zoren, and Akenerji at USD 1mn /MW by the CEZ deal in 2008 on future capacity while Zoren and Ayen trade at USD 1.5mn/MW and USD 1.2mn/MW on installed and upcoming capacity by 2012.
■
Direct exposure to this buoyant sector on the ISE: Buy Akenerji (AKENR TI, TP TRY 12.70), Hold Zorlu Enerji (ZOREN TI, TP TRY 3.40) and Ayen Enerji (AYEN TI, TP TRY 2.25), Sell Aksu Energy (AKSU TI, TP TRY 2.55) In terms of current installed capacity, Enka Insaat (ENKAI TI, Buy) is the largest listed player on the electricity market with 3,850 MW capacity with a BO contract and 800MW underway. Of the other conglomerates, Sabanci Holding (SAHOL TI, not cov.) stands out with its around 5,000 MW target and Baskent DisCo now in its portfolio through Enerjisa - its JV with Verbund. Alarko Holding (ALARK TI, not cov.) is also worth mentioning with around 3,000MW underway and Meram DisCo in its portfolio. Since these companies have large exposure to other business segments unrelated to the electricity market such as contracting, finance and retail, we confine our electricity segment report to the four listed GenCos on the ISE: Akenerji, Zoren, Ayen and Aksu.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
Key Fundamentals and Valuation Metrics for Listed Gencos Active Capacity(MW)
Renewables % of Total
Capex (TRYmn)
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
440
396
554
589
0
4
35
39
212
367
163
55
Aksu Elektrik
13
13
13
13
100
100
100
100
0
0
0
0
Ayen Energy
235
257
257
257
83
84
84
84
65
8
2
2
Zorlu Energy
559
1,084
1,099
1,144
0
13
25
28
1,456
609
97
143 2011E
Akenerji
EV/MW
EV/EBITDA
P/E (x)
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
2008
2009E
2010E
Akenerji
2.42
2.69
1.93
1.81
11.1
10.2
6.9
6.3
6.33
82.95
9.04
8.57
Aksu Elektrik
1.41
1.41
1.41
1.41
63.7
11.3
13.4
30.3
46.95
6.01
7.32
18.68
Ayen Energy
2.13
1.95
1.95
1.95
9.9
7.4
7.1
6.2
6.36
4.90
5.89
4.10
Zorlu Energy
5.19
2.68
2.64
2.54
31.4
14.0
6.1
4.9
-0.76
-1.37
5.45
11.46
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
421
602
781
811
179
183
200
214
-172
-184
-181
-187
Aksu Elektrik
13
32
29
18
66
66
66
66
-77
-29
-34
-56
Ayen Energy
776
774
810
834
130
149
156
172
-69
-69
-75
-81
Zorlu Energy
0
0
0
0
160
140
86
93
-208
-301
-224
-239
Generation (MWh) Akenerji
Electricity Price (TRY/MWh)
Revenues (TRYmn) Generation-Only
COGS+OPEX (TRY/MWh)
EBITDA (TRYmn)
EBITDA Margin (%)
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
607
450
564
628
96
104
154
169
16%
23%
27%
27%
Aksu Elektrik
1
2
2
1
0
2
1
1
33%
76%
72%
51%
Ayen Energy
101
116
126
144
51
67
71
81
50%
58%
56%
56%
Zorlu Energy
477
663
994
1,186
88
190
455
585
19%
29%
46%
49%
Akenerji
Revenues (TRYmn) Consolidated
EBITDA (TRYmn)
Net Income (TRYmn)
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
2008
2009E
2010E
2011E
607.06
449.91
563.59
628.10
95.75
104.09
153.52
169.47
88.95
6.81
62.53
65.93
Aksu Elektrik
0.86
2.14
1.90
1.19
0.29
1.62
1.36
0.60
0.51
3.95
3.24
1.27
Ayen Energy
100.67
115.64
126.42
143.50
50.51
67.41
70.72
80.84
41.72
54.21
45.07
64.78
Zorlu Energy
667.03
873.63
1,349.56
1,625.88
92.44
206.73
472.47
595.45
-336.25
-186.25
46.77
22.24
Akenerji
Source: Company data, UniCredit Research estimates
Bayerische Hypo- und Vereinsbank AG
UniCredit CAIB Group
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21 May 2009
Equity Research
Turkish Utilities
Investment Case – Akenerji Established by one of Turkey’s large conglomerates, Akkok Group, back in 1989 as an automobile producer, Akenerji generates 2% of Turkish electricity with 496MW installed capacity and is the market leader with a 10% share among pure private GenCos as of 2008. We initiate our coverage of Akenerji with a Buy recommendation at a TP of TRY 12.70, offering 47% upside potential as we expect the company to capitalize on the attractive Turkish electricity market through 1) restructuring and diversification into renewables (388 MW under construction); 2) capacity growth (target 3,000 MW in 2013); 3) Akkok Group’s partnership with CEZ; and 4) vertical integration (SEDAS), with sustainable debt levels (1.5x EBITDA in 2008).
■
Restructuring and diversification into renewables to pay off with higher EBITDA margin: 27% in 2010 from 16% in 2008. With its aim at greater efficiency, cost-control and growth to capitalize on the lucrative Turkish electricity market, Akenerji has been restructuring its generation portfolio cutting down NGPPs (active capacity down to 358MW) and investing in renewables (388 MW under construction). Akenerji will almost double active capacity to 800MW by 2012 with RES, which will significantly reduce variable unit costs and hedge against significant drops in demand and prices given the price and purchase guarantees for RES.
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We expect transition to be fully completed in 2011E: We see 2009E as a year of contradictions with falling revenues due to lower generation, peaking EBITDA thanks to declining NG prices, but a drop in the bottom line on FX losses while 2010 should be a year of digestion with non-cost steam sales to almost zero, large-scale renewables at the beginning of the learning curve and rising NG prices. The year 2011 and beyond, however, paint a rosy picture: revenues up, sustainable EBITDA margin at +30% levels and profitability up with normalization in financial expenditures as major investments are completed.
■
Stake sale to CEZ implies USD 810mn for Akenerji, more than double the current MCAP: however. there will be no tender call and thus there will be a lag for the market price convergence to the implied price level, which also includes a control premium, we believe that Akenerji will benefit significantly from CEZ’ international experience, know-how in different fuel sources and distribution business as well as financial strength for growth.
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Capacity growth target is set at 3,000MW in 2013: Together with CEZ, Akenerji plans to reach 3,000 MW of installed capacity within five years with a USD 3bn investment. In addition to ongoing renewables investments of 388MW, Akenerji recently acquired a small GenCo holding licence for a 900MW NGPP and is also studying the feasibility of WPPs and geothermal opportunities. Akenerji has expressed interest in the privatization of generation assets, coal-fired power plants and nuclear power plant. Due to the lack of details regarding their financing and time schedule, we have not included such projects in our valuation, which poses an upside risk.
■
Generation business accounts for 95% of NAV with TRY 683mn according to our DCF model, with a significant contribution from renewables (60% of the valuation) for the segment.
■
Vertical integration with DisCo promises a captive market for generation with stable cash flow: Akenerji teamed up with CEZ in distribution tenders, acquiring the industrialized Sakarya region with a total bid of USD 600mn. Due to the lack of details, we have kept our assumptions at conservative levels and penciled in only a minor improvement in the EBITDA margin to 7% from 3% in 2009E.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
■
Despite strong growth, we believe Akenerji’s financial leverage is manageable as the new HPPs will soon start generating cash flow. We estimate Net Debt/EBITDA to rise from 1.5x levels in 2008 to 6x in 2009 due to the acquisition of SEDAS. Forecasting CAPEX at around USD 367mn for the new power plants during 2009-2011, we expect the generation business to start generating positive cash flows starting from 2011 with the new HPPs in operation.
■
Remote possibility of rights offering: Based on Akkok Group CEO Berkman’s comments that Akkok Group will channel the proceeds of the CEZ deal into the energy segment and the company’s aim to invest USD 3bn into energy, there is a possibility of a rights offering for Akenerji, which we see as remote at the moment as the company has already secured the financing of its major investments and the company targets 70% debt financing for its new projects. The second wave of big ticket investments (a new DisCo or 900MW NGPP investment), however, may trigger a rights offering, in our view.
■
First dividend payment in 2009 is not an act of extravagance but a sign of healthy balance sheet: The company distributed a cash dividend of TRY 0.27/share from 2008 earnings on 4 May 2009. We expect the company to maintain a 20% dividend payout ratio as long as the cash holdings permit, which we believe they will.
■
Vulnerability to natural gas prices is declining with renewables coming on stream: According to our analysis, for every 1% increase in average natural gas prices, our TP declines by 0.3% if the change is effective in 2009. But the impact of natural gas prices on operations will lessen further since the company’s renewables will gradually start to come on stream from 2010 onwards. We must also note that a rise in natural gas prices is likely to be reflected in electricity prices as well.
■
Akenerji vs international and domestic peers: Akenerji’s EV/EBITDA of 10.2x for 2009E and 6.9x for 2010E indicate a 5% and 1% discount to the domestic peers’ average of 10.8x and 7.0x for the same years. We attribute the premium on 2009E EV/EBITDA vis-à-vis EME utilities’ 5.9x to Akenerji’s strong growth prospects and recent big ticket acquisition of Sedas and ongoing capacity investments, which will be reflected increasingly in the years to come as can be seen by the convergence of Akenerji’s 2010E EV/EBITDA to EME utilities. The company looks expensive on a P/E basis since we expect the financial expenses and FX losses parallel to a weaker TRY to start showing in the income statement as of 2009 with the completion of two major projects and rising debt level with SEDAS acquisition.
■
Our estimates vs. consensus: Since some of the analyst estimates have not incorporated SEDAS into the financials due to lack of clarity regarding the type of consolidation and no details on 2008 realizations, we believe consensus figures are not reliable.
■
Major risks: Regulatory risks, rights offering, failure to run HPPs properly with in time schedule, adverse weather conditions, disruptions in natural gas flow, lengthening of transitory periods in DisCos, longer lag in pass-through of NG costs to electricity prices. The upside risk is the start of construction of the new 900 MW NG power plant and other potential new power plants as well as the rejection of the call exemption application by the CMB, which we see as very unlikely.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
AKENERJI: KEY MARKET DATA AND OPERATING METRICS Ticker
AKENR TI
Country
Turkey
MCAP (USDmn)
370
Daily Turnover (USDmn)
2.05
Current Price (TRY)
8.65
Target Price (TRY)
12.70
Upside Potential (%)
47
Recommendation
Buy
2009E EV/EBITDA (x)
10.2
2010E EV/EBITDA (x)
6.95
2009E P/E (x)
82.95
2010E P/E (x)
9.04
2009E Capacity (MW)
396
2012E Capacity (MW)
746
Any major participation?
Sakarya DisCo
Any major trigger?
Rise in DUY prices
Any major concern?
Rights offering Source: Akenerji, UniCredit Research estimates
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
Supply-Demand Dynamics for Utilities in Turkey ■
Strong consumption growth: 5% CAGR between 2011E-2021E after a short break
In conjunction with economic growth, urbanization and industrialization, gross electricity demand in Turkey has grown by 7% CAGR in the last 5 years (8% CAGR since 1978) to 199,000GWh in 2008. Despite this increase in consumption, Turkey’s electricity consumption per capita is still low at 1,935 KWh vs. world average of 2,659 and OECD average of 8,365 as of 2006. We estimate Turkey’s per capita consumption at more than 2,300 KWh in 2008, which indicates that there is still some way to go. The major consumer group is the industrial users with a 48% share followed by the residential users (24%), according to 2007 figures. However, it is the commercial users that posted the highest increase; doubling their consumption. Taking into account that residential demand is more or less inelastic it can be assumed that since industrial production was hit by the global financial crisis, residential demand’s market share is likely to increase in 2009 and remain flat in 2010. However, expecting 4-5% sustainable GDP growth for Turkey, we expect industrial demand to maintain its lead in electricity consumption. ELECTRICTIY DEMAND 1998-2008 AND CONSUMPTION BREAKDOWN BY USER (2007)
250,000
2,500
General Illumination 2.6%
Gross Demand (Gwhr) 200,000
2,000
Consumption (Kwhr / Capita
150,000
1,500
100,000
1,000
50,000
Other 6.9%
State Office 4.5%
Industry 47.6%
Residential 23.5%
500
0
Commercial 14.9%
0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Source: TEIAS, TEDAS, UniCredit Research
According to the State transmission agency TEIAS’ projections in May 2008, Turkey’s electricity demand is estimated to grow at a rate of 6.4% (bearish scenario) to 8.4% (bullish scenario), which we believe will be revised down to some extent this year on anticipated economic contraction. Our view is also supported by the 6% y-o-y fall in electricity production in 1Q09. Our CAGR expectation for electricity consumption is quite conservative with 5% CAGR for 2011E-2021E i.e. in line with average GDP growth after a 4% contraction in 2009E and a mere 2% recovery in 2010E. (Please see Supply-Demand Projections section for more detailed analysis of expectations.)
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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21 May 2009
Equity Research
Turkish Utilities
■
Supply is likely to remain tight as credit crunch will probably delay new investments
Turkey had around 42,000MW installed capacity in 2008, which is predominantly operated by the State or the State regulated actors. Given the stringent fiscal policy and privatization targets, the government reduced investments while the private sector was discouraged from sizable investments by stable electricity prices vs. rising costs until 2008. Accordingly, the installed capacity rose only 3.4% CAGR in 2003-2008 vs. 7% growth in demand. Meanwhile, electricity generation increased by 7% CAGR to ca 200,000 GWh in 2003-2008 period, which we attribute to efficiency improvements as well as capacity additions. International trade of electricity is at low levels currently with net export figures of some 1000 GWh. Bulgaria, Greece, Romania, Georgia, Azerbaijan, Iran and Iraq are among the trading partners of Turkey. Although boosting imports could be one of the options on the table for supply security, its implementation might prove more difficult since 1) Western neighbours like Greece and Bulgaria are in need of electricity themselves, 2) Relying on Iran or Russia might pose political obstacles and 3) Technical difficulties like the infrastructure requirement lower feasibility of further increase in imports. SUMMARY TABLE FOR SUPPLY-DEMAND DYNAMICS OF TURKISH POWER SECTOR GWh
Installed Capacity (MW)
Gross Generation
Net Generation
Imports
1984
8,462
30,614
28,723
2,653
31,376
1,577
1985
9,122
34,219
31,912
2,142
34,055
1,611
1986
10,115
39,695
36,880
777
37,656
1987
12,495
44,353
41,745
572
1988
14,521
48,049
45,649
1989
15,808
52,043
48,809
1990
16,318
57,543
1991
17,209
1992
Supplied to Transmission Distribution Network Losses Losses
Exports
Net Consumption
% Change
2,163
0
27,635
13.0
2,735
0
29,709
7.5
1,344
4,102
0
32,210
8.4
42,317
1,627
3,993
0
36,697
13.9
381
46,030
2,017
4,292
0
39,722
8.2
559
49,367
1,544
4,703
0
43,120
8.6
54,232
176
54,407
1,787
4,893
907
46,820
8.6
60,246
56,591
759
57,351
1,438
6,123
506
49,283
5.3
18,716
67,342
63,105
189
63,294
1,343
7,652
314
53,985
9.5
1993
20,338
73,808
69,864
213
70,077
1,635
8,617
589
59,237
9.7
1994
20,860
78,322
73,783
31
73,814
1,800
10,043
570
61,401
3.7
1995
20,954
86,247
81,859
0
81,859
2,035
11,734
696
67,394
9.8
1996
21,249
94,862
90,084
270
90,355
2,462
13,393
343
74,157
10.0
1997
21,892
103,296
98,246
2,492
100,738
2,936
15,646
271
81,885
10.4
1998
23,354
111,022
105,499
3,299
108,798
3,337
17,458
298
87,705
7.1
1999
26,119
116,440
110,702
2,330
113,032
2,985
18,560
285
91,202
4.0
2000
27,264
124,922
118,698
3,791
122,489
3,182
20,574
437
98,296
7.8
2001
28,332
122,725
116,252
4,579
120,832
3,374
19,954
433
97,070
-1.2
2002
31,846
129,400
123,727
3,588
127,315
3,441
20,491
435
102,948
6.1
2003
35,587
140,581
135,248
1,158
136,406
3,331
20,722
588
111,766
8.6
2004
36,824
150,698
145,066
464
145,529
3,423
19,820
1,144
121,142
8.4
2005
38,844
161,956
155,469
636
156,105
3,695
20,349
1,798
130,263
7.5
2006
40,565
176,300
169,543
573
170,116
4,544
19,245
2,236
144,091
10.6
2007
40,836
191,558
183,340
864
184,204
4,523
22,124
2,422
155,135
7.7
Source: TEIAS
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 15
21 May 2009
Equity Research
Turkish Utilities
■
Around 60% of the installed capacity belongs to the public enterprise EUAS (Electricity Production Company) and its affiliates. Private autoproducers, which produce only for their related companies, and private electricity GenCos have just a 17% stake in total. BOT and BO projects, which have been criticised for creating unfair competition due to their special contract terms and banned by the current legislation, account for the rest. In other words, the State is the major player in electricity production partly because of supply security concerns and partly because of the delay in liberalizing the market.
■
Another striking characteristic of electricity generation in Turkey is the dependence on thermal fuels (led by natural gas) as a major fuel. As can be seen from the pie-chart below, almost 70% of the power stations work on thermal power and more than half of it is NG fired while hydropower plants (HP) have a 33% stake. Lignite, coal and fuel oil account for the rest. Turkey does not currently have nuclear power, but the outcome of the 5,000MW tender is eagerly awaited.
INSTALLED CAPACITY BREAKDOWN BY GENERATOR AND FUEL (2007)
Wind & other renewables Other Thermal 0.5% 14.9%
B-O-T Other 1.0% Autoprod. 6.0% 8.9%
Hydro 32.8% Private 10.6% Lignite 20.2%
EUAS & related 58.6% B-O 15.0%
Natural Gas 31.6%
Source: EMRA 2007 Annual Report
■
However, when it comes to generation, natural gas has a significant dominance accounting for 50% of total generation as of 2007 and Turkey is highly dependent on imported fuel (59% in 2007). Because of the recent draught, the share of hydropower plants in generation declined to below 20% in 2007. State company EUAS is the leading generator with 59% stake while private and autoproducers generate only 20% of the total electricity as of 2007. 2008 figures, which have not been officially announced as yet, are highly likely to follow the same trend.
■
The heavy dependence on natural gas is a result of 1) Encouraging government policy given Turkey’s take-or-pay agreement with Russia, 2) faster investment and relatively less initial CAPEX requirement for NGPs (According to Akenerji, average CAPEX per MW is USD 0.75mn for NG vs USD 1-1.2mn for hydro, USD 1.3mn for lignite, USD 1.3-1.6mn for wind and USD 3-4mn for nuclear power plants), and 3) less seasonality and higher capacity utilization. NG plants can have an average capacity factor of 80% and can be reactivated without substantial cost if shut down. Their production is not dependent on weather or rain like HPPs (especially the river types whose capacity factor can decline to 35% levels).
■
We estimate growth in supply to lag behind demand growth with a CAGR of 3% in 20092017, as we expect several generation projects to be postponed or cancelled due to lack of financing, infeasibility and/or slow-down in demand in 2009-2010. (Please see SupplyDemand Projections section for more detailed analysis of expectations.)
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 16
21 May 2009
Equity Research
Turkish Utilities
GENERATION BREAKDOWN BY GENERATOR AND FUEL (2007)
Autoprod. 8.4%
Other Thermal 3.4%
B-O-T Other 7.5% 0.5%
Wind & other renewables 0.4% Hydro 18.7%
Lignite 27.9% Private 11.9%
EUAS & related 48.1%
B-O 23.5%
Natural Gas 49.6%
Source: EMRA 2007 Annual Report and TEIAS
Therefore, the Turkish power market has two major inter-related issues: supply security and fuel diversification.
■
In order to avoid blackouts and meet peak demand, projected generation capacity should be 35-40% above the total need while as of 2008 we estimate the reserve margin to be around 25% levels.
■
Second, fuel diversification and more reliance on domestic fuel sources is required. According to the TUSIAD study, Turkey utilizes 44% of its lignite, 32% of hard coal, 35% of hydro potential while use of wind, solar and geothermal power in electricity generation is either negligible or non-existent. Currently we see a shift to HPPs and other renewable energy resources since natural gas prices have increased considerably (almost doubled in the last 4 years) while the government kept electricity prices unchanged until 2008, driving NG power plant operators deep into the red. Moreover, due to conflicts between Russia and Ukraine as well as technical problems in the Iranian pipeline in harsh winter conditions, disruptions occur in natural gas flows from time to time, threatening electricity generation.
■
To address the first issue, the Ministry of Energy (MENR) projects that Turkey’s power generation capacity should be increased by 150% by 2020 with a CAPEX of USD 90bn in order to meet the expected annual demand growth of 6-8%. Because of the budget constraints and strategy to liberalize the sector, public investment is restrained and so it must be the private sector which should take at least USD 2-3bn investment per year.
■
Historically, the private sector has largely been hesitant to realize large green investments since 1) there is no well-established reliable guideline for liberalization, 2) the State, which currently dominates the sector, may still step in with new investments to guard supply security, 3) project financing is difficult because of the inability to foresee future electricity prices and the credit crunch and 4) red-tape and some idiosyncratic regulatory setbacks delay the projects.
■
Together with liberalization initiatives (especially the launch of the DUY (market balancing and settlement regulation) system and new automatic pricing mechanism) and higher project financing opportunities, the private sector’s investment appetite reached its peak during 2005-2008. According to EMRA, power plants in construction will have a total installed capacity of 30,000MW when finished while the applications for licences have reached a record level.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 17
21 May 2009
Equity Research
Turkish Utilities
■
Yet, the progress has been slow – only 15% have been completed as of end-2008, and we expect both applications for new licences and progress of ongoing investments to slow down during 2009-2010 due to the economic turmoil. Moreover, some of the licences with no progress in construction may be discarded. Especially applications for wind power have reached an amazing size with 83,000MW and conservative estimates indicate that only 1015% of it is expected to be realized due to 1) overlapping of some projects and 2) lack of sufficient infrastructure for transmission and distribution.
■
We expect the credit crunch to force several small companies with no access to funding to sell their licences and thus consolidation among small GenCos is likely. Akenerji, for example, acquired a 900MW licence holder at less than USD 1mn to save time for the licencing process.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 18
21 May 2009
Equity Research
Turkish Utilities
Supply-Demand Projections for Turkey State transmission agency TEIAS publishes official demand-capacity projections for Turkish market every year based on GDP projections and feasible licence applications. For 20082017, projections published in May 2008 foresee 7.5% CAGR in demand vs. 3.5% CAGR in installed capacity in the high growth scenario and 6.7% CAGR in demand vs. 2% CAGR in installed capacity in the low growth scenario. Even under low-growth scenarios of TEIAS, electricity demand may not be met by reliable production capacity by 2010 or by theoretical production capacity by 2015. In addition, according to one study from Boyabat GenCo (unlisted), the capacity constraint might curb effective consumption growth to 4.8% vs. real demand growth of 8% and in turn drag down Turkey’s economic growth to 3.5% levels from 5%. SUPPLY-DEMAND PROJECTION FOR 2008-2020 BY TEIAS
Generation-High
450,000
Generation-Low
Demand- High
Demand- Low
400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 08E
09E
10E
11E
12E
13E
14E
15E
16E
17E
Source: TEIAS
Bearing in mind the economic crisis, which affects both supply and demand side, we believe low growth scenario is now more plausible and TEIAS will make further downward revisions to its projections in 2009 taking into account both the economic slowdown and the Ministry of Energy’s Energy Efficiency Project, which foresees energy savings of up to 4% of consumption if all residential users were to change their electricity bulbs with energy saving ones. However, it must be noted that Turkey’s electricity demand has declined just once in the past two decades and only by 1.2% vs. GDP contraction of 5.7% in 2001.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 19
21 May 2009
Equity Research
Turkish Utilities
Based on TEIAS projections and our GDP growth estimates, we expect electricity demand to face a 4% contraction this year due to the poor performance of heavy-weight industrials, followed by 2% recovery in 2010, while our long term CAGR for 2010E-2015E stands at 5% in line with trend GDP for Turkey vs CAGR 8% in 2003-2008 and CAGR 6% in TEIAS’ low growth scenario. In the same manner, we believe new capacity additions will be delayed by 23 years, limiting supply growth to 3% CAGR in the same period, thus supply tightness is likely to continue at least for the next 5 years and the economic crisis and energy efficiency is likely to defer but not completely expel the probability of brownouts and blackouts in Turkey. SUPPLY-DEMAND PROJECTION FOR 2008-2015E BY UNICREDIT MW Installed Capacity
08*
09E
10E
11E
12E
13E
14E
15E
42,105
43,710
43,999
46,780
49,314
49,712
51,032
51,788
Thermal
27,480
27,657
27,596
28,109
29,702
29,634
29,731
29,867
Hydro
14,053
15,450
15,800
18,080
19,030
19,498
20,719
21,336
572
603
603
592
582
581
582
585
4,364
5,161
5,430
8,954
11,262
11,747
11,786
11,839
10
12
12
19
23
24
23
23
WPP + Renewables Private Generators % of total Gwh Theoretical Capacity
240,781
243,847
248,453
251,796
268,678
275,423
279,068
282,549
Reliable Generation
212,001
217,864
228,579
238,060
258,533
261,391
265,170
267,526
Electricity Demand
198,567
190,925
194,209
203,531
213,300
223,538
234,268
245,513
3.7
-3.8
1.7
4.8
4.8
4.8
4.8
4.8
YoY Change (%) * 2008 official data have not been released
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
Source: UniCredit Research Estimates
page 20
21 May 2009
Equity Research
Turkish Utilities
Regulatory Environment and Market Relationships ■
Turkish market - highly regulated but liberalization underway
As previously cited, Turkey’s electricity market is highly regulated with state players acting like monopolies. 60% of electricity generation, 100% of transmission and 75% of distribution is in the hands of State players. Yet, in line with the government’s policy of market liberalization and political stability, we expect the private sector to take over gradually. A summary of relationships between State and market players and Who is Who in state regulation can be found below. TURKISH ELECTRICITY MARKET
Source: PWC
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 21
21 May 2009
Equity Research
Turkish Utilities
STATE PLAYERS State Authority
Responsibility
Energy Ministry
Ministry in charge of energy and natural resources
EMRA
Electricity Market Regulatory Agency that regulates electricity, natural gas, oil and LPG markets. Issues licences and communiqués.
EUAS
State Electricity Generation Company that currently operates around 60% of Turkey's total installed capacity. Electricity Generation assets to be privatized
TEIAS
State Electricity Transmission Company. Monopoly and to remain in state hands even after electricity sector liberalization
TEDAS
State Electricity Distribution Company in the liberalization process
TETAS
State Wholesale Electricity Company that conducts energy sales and purchase agreements and bears the cost of BO, BOT and TOR projects.
BOTAS
State company in charge of natural gas and crude oil imports, acting like a trade company. Sets the natural gas prices.
DSI
State Water Authority that plans and manages use of Turkey's water resources as a part of Environment Ministry. HPP operators sign Water Usage Agreement with DSI.
TKI
Turkey Coal Administration, the state company that explores, operates and plans coal and the like. Working in coordination with private sector.
TAEK EIE
Turkey Atomic Energy Agency Electricity Works Study Center, which carries our feasibility studies for non-thermal resources for electricity generation as a part of Environment Ministry. Source: UniCredit Research
The EMRA, Electricity Market Regulatory Agency, is responsible for the smooth functioning of electricity, natural gas and LPG markets in line with the Electricity Market Law and electricity licences should be obtained from this agency to operate in the relevant area of the sector. While the Natural Gas Market Law is unwinding the monopoly power of the natural gas importer and distributor BOTAS, the Privatization Strategy set in 2004 foresees liberalization of the sector by 2012, which is likely to be delayed by a few years. Having passed the nuclear power bill, Turkey is also preparing for a 5,000MW nuclear power plant. The privatization strategy set in 2004 is planned to be revised in line with the current conditions and to take into account delays in the liberalization timetable this year. TURKEY – MAJOR REGULATIONS Regulations
Highlights
Electricity Market Law
Set up EMRA, foresees harmonization with EU legislation.
Natural Gas Market Law
Breaks monopoly power of BOTAS, foreseeing its market share at 20% by 2009 and unbundling as trading, transmission and storage after 2009
Renewables Energy Law
In line with EU legislation. Sets floor price for renewable energy at EURc5.5 and purchase guarantee for 10 years
Nuclear Power Law
Regulates construction and running of nuclear power plants, granting purchase agreement.
Electricity Sector Reform and Privatization Strategy
Sets the timeline for transition to open market
Electricity Distribution Tender Info Doc
Specifies the distribution regions to be privatized Source: UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 22
21 May 2009
Equity Research
Turkish Utilities
Pricing Electricity prices are now becoming more transparent and aligned with supply/demand dynamics Depending on their contracts and/or clients, Turkish electricity generators can sell electricity:
■
at previously contracted terms to TETAS if they have Build Operate (B-O)or Build-OperateTransfer (B-O-T) contracts
■
at a discount to regulated (TEDAS) price to direct clients
■
at a discount to TEDAS price to indirect clients who receive electricity from the generator via the national interconnection system (lower discount than direct clients),
■
at spot prices on DUY market where the prices are determined in free market conditions –
at monthly average price or
–
at any price level that meets demand
Clients for private electricity generators are defined as eligible users with more than 0.48mn GWh electricity consumption, coming down from 1.2mn GWh while current legislation forbids any further price fixes like in B-O and B-O-T since these agreements distort the competitive environment. Therefore, there are three major systems currently in effect that determine the prices sought by private generators:
■
DUY prices set by supply-demand dynamics: As a first step for liberalisation, DUY, an interim pricing regime similar to the UK model, has been in place as of August 2006, whereby electricity is sold at “imbalanced” prices in advance when the supply fails to meet demand. The size of the DUY market is currently small, rising to 17% in 2007 from 11% a year back, and is estimated to reach 21% in 2008. It has become more like a spot market, where the private sector sells to the state companies at higher than average prices. Akenerji and Zorlu Energy sell ca 70-80% of their generation to the DUY market i.e. 8% to 30% above the average DUY price.
■
TEDAS prices regulated by automatic pricing scheme: With the automatic pricing system in place as of July 2008, end-user electricity tariffs are now set by TEDAS and approved by the EMRA (energy regulator), instead of previous ad-hoc interventions by the government. Accordingly, the tariffs are now adjusted in line with changes in the cost of fuel, FX rates, inflation and cost of acquisition of electricity from the DUY market every quarter. Given the State’s domineering presence, the cost structure of the State will determine the direction and magnitude of price changes for the moment. The price adjustments take place every quarter.
■
BO-BOT prices: The contract price and escalation terms are different for each and every contract. The largest electricity generator, Enka Insaat, for instance is subject to USD¢ 4.2 per KWh on average, which is significantly below the current prices USD¢ 10. However, this price includes the cost of investment, natural gas, fixed operating costs, and variable operating costs and natural gas cost is a pass-through item. As for Ayen, the purchase price increases by 70% of US CPI every year. Aksu, on the other hand, is at a disadvantage and is still subject to TEDAS price set in 2003 due to lack of clarity in its contract terms.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 23
21 May 2009
Equity Research
Turkish Utilities
TEDAS (REGULATED) PRICE VS. DUY PRICES (PRICES AS OF MAY 2009)
Type of Market Mechanism Clients
TEDAS
DUY
Regulated
Clearing House System
Automatic pricing
Supply-Demand
All end-users
Eligible clients
% of Electricity Trading
80
20
Date of Initiation
Jul-08
Aug-06
Price Setter
EMRA
Market
Current Price (TRY MWhr) Household: 195
Daily: 146
Industrial: 169
Peak: 170 Night: 117 Source: TEDAS, TEIAS, UniCredit Research
Electricity prices rose by almost 50% during 2008 but declines are possible in 2009. Because of tight supply, the urgency to attract private investment and the need to balance the budget the government was forced to increase end-user tariffs for industrial usage by 10% and residential usage by 15% at the beginning of 2008, while electricity prices surged by another 33% in 2H08 with the start of automatic pricing. As of January 2009, TEDAS prices were raised by 1.18% for households while the industrial tariff was slightly reduced by around 0.5% to TRY 172/MWh. Further 1.6% and 1.7% cuts are in effect as of April 2009 for residentials and industrials to TRY195 and TRY 169 per MWh. TEDAS VS. DUY PRICES TEDAS-Industrial
TEDAS-Residential
DUY - Daytime Average
250
200
150
100
50
09 M ar .0 9 M ay .0 9
O ca .
Ey l.0 8 Ka s. 08
08 M ar .0 8 M ay .0 8 Te m .0 8
O ca .
Ey l.0 7 Ka s. 07
06
07 M ar .0 7 M ay .0 7 Te m .0 7
O ca .
Ey l.0 6
Ka s.
O ca .
06 M ar .0 6 M ay .0 6 Te m .0 6
0
Source: TEIAS, TEDAS, UniCredit Research
Given the possible contraction in Turkey’s industrial production and possible reduction in natural gas prices, we expect a decline in both TEDAS and DUY prices during the year. On cost basis, we estimate TEDAS prices will be cut by 17% and average at TRY 160/MWh in 2009, which would still imply 9% increase over the 2008 average.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 24
21 May 2009
Equity Research
Turkish Utilities
On the DUY market, on the other hand, electricity currently trades at TRY 146/MWh, 13% down compared to a year ago. In expectation of active capacity control by the private generators, we expect sales volume to decline and thus offset the fall in demand to some extent. In addition, we expect gradual recovery in demand in 2H09, leading average DUY prices to remain flat in 2009. As for 2010, in tandem with the expected recovery, we project an increase of 5% in TEDAS and 10% in DUY prices. We expect the upward trend in electricity prices to continue until the new capacity starts entering the system and the market is fully liberalized. Accordingly, in our models average electricity prices rise fast in the first two years and then slow down until 2015 to account for 1) tight supply as it will take time for the capacity build-up; and 2) the expected convergence of regulated prices with DUY prices. We reflect slight declines to mirror increasing competition afterwards. UNICREDIT PRICE ESTIMATES FOR REFERENCE PRICES Electricity Prices
2006
2007
2008
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
TETAS Disco TRY/MWhr
98
98
110
117
107
115
123
131
141
151
156
161
169
177
% Change
14
0
13
6
-8
7
7
7
7
7
3
3
5
5
TEDAS $/MWhr
69
75
85
72
68
69
72
76
79
82
82
82
83
82
115
115
146
160
168
179
195
213
228
244
269
256
256
256
0
0
27
9
5
7
9
9
7
7
10
-5
0
0
81
88
112
98
106
108
115
122
128
133
142
131
126
118
124
124
168
188
185
198
215
235
251
269
297
282
282
282
0
0
35
12
-2
7
9
9
7
7
10
-5
0
0
109
135
165
165
181
203
231
248
265
283
269
256
256
256
TEDAS Ind TRY/MWhr % Change TEDAS $/MWhr TEDAS RES TRY/MWhr % Change DUY TRY/MWhr % Change DUY $/MWhr
0
24
22
0
10
12
14
7
7
0
-5
-5
-5
0
76
103
127
101
115
122
136
142
148
154
142
131
126
118
Daytime
109
135
165
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Peaktime
119
135
175
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Nighttime
90
113
138
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Source: TEDAS, TEIAS, UniCredit Research estimates
However, our estimates remain quite conservative compared to the latest bid in electricity purchase tenders, which resulted in bids averaging TRY 225/MWh for the next few years. Moreover, the current prices enjoyed by Akenerji and Zorlu Energy are above the reference price at more than TRY 190/MWh in 1Q09 vs average TRY160/MWh on the DUY market.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 25
21 May 2009
Equity Research
Turkish Utilities
Major Private Players in Turkish Equity Market There are only four listed GenCos on the ISE, all relatively small but poised for growth As stated above, pure private electricity generators have a mere 20% stake in the Turkish market, while major private players have entered the electricity business through BuildOperate-Transfer (BOT), Build-Operate (BO), Transfer of Operating Rights (TOR) granted by Treasury and Greenfield investments based on licences. The private players sell 1) directly to the State’s wholesale agency TETAS (BOT, BO, TOR projects); 2) supply their group companies (automobile producers); or 3) have external clients and/or sell to the DUY market as well (producers). The trend is towards the latter and we consider only autoproducers and producers as genuine private generators. Yet, in terms of capacity the BO, BOT and TORs are the largest, followed by electricity producers by a wide margin. In this respect, Enka Holding (ENKAI TI, Buy) is the largest non-State electricity producer with 3,850MW installed capacity under the BO scheme while of the listed companies Zorlu Enerji (ZOREN.IS, Hold TP TRY 3.40), Akenerji (AKENR.IS, Buy TP TRY 12.70) and Enerjisa - Sabanci Holding’s JV with Verbund (SAHOL.IS, not cov.; Ver AV , Buy) make it into the top 10 with their current capacities. Aksu Enerji (AKSUE.IS, Sell TP TRY 2.55) and Ayen Enerji (AYEN.IS, Hold TP TRY 2.25), on the other hand, have very low capacities at just 13MW and 254MW. TOP PRIVATE ELECTRICITY UTILITIES IN TURKISH MARKET Company
Enka Insaat
Ticker
TP (LC)
Rating
ENKAI.IS
7.80
BUY
Sugozu - STEAG Birecik and Trakya Elektrik - Gama Baymina - Suez and Mimag Colakoglu Zorlu Enerji
ZOREN.IS
3.40
HOLD
Oymapinar- Eti Aluminium Unimar - Unit-Entes Consortium
Power Plant
Type
Installed Capacity (MW)
% of Total
NG
BO
3,850
9%
Coal
BO
1,320
3%
Hydro-NG
BOT
1171
3%
NG
BO
798
2%
Lignite
Autoproducer
572
1%
Hydro-NG
Generator
560
1%
Hydro
Autoproducer
540
1%
NG
BOT
504
1%
Akenerji
AKENR.IS
12.70
BUY
NG
Generator
496
1%
Enerjisa (Sabanci-Verbund JV)
SAHOL.IS
N.A.
Not Covered
NG
Generator
455
1%
Total- Top 10
10,266
24%
Total- Turkey (2008E)
42,105 Source: Bloomberg, UniCredit Research
Meanwhile, the attractiveness of the sector has triggered many investment plans, of which we have detected a total of 25,500MW for the next 5 to 10 years. Among these, Sabanci HoldingVerbund JV Enerjisa is the most aggressive with an additional 4,500MW followed by Zorlu Enerji with 3500MW and Akenerji with 2,500 MW. Although some of the projects below may be delayed or shelved altogether due to financing problems, uncertainty over pricing, ability to execute etc, it must also be noted that additional projects may arise especially for the smaller companies with M&A prospects.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 26
21 May 2009
Equity Research
Turkish Utilities
MAJOR UPCOMING PROJECTS ISE Companies Other Than Gencos
Ticker
TP
Rating
Sector
Generation Capacity (MW)
CAPEX
Current
Target
USD mn
Enka
ENKAI.IS
7.80
BUY
Conglomerate
3,854
5,454
2,080
Sabanci Holding
SAHOL.IS
N.A.
Not Covered
Conglomerate
455
5,000
6,500
Turcas
TRCAS.IS
N.A.
Not Covered
Energy
0
2,000
2,280
Alarko Holding
ALARK.IS
N.A.
Not Covered
Conglomerate
234
1,500
1,400
Global Yatirim Holding
GLYHO.IS
N.A.
Not Covered
Conglomerate
0
576
665
Koc Holding
KCHOL.IS
N.A.
Not Covered
Conglomerate
253
305
39
Unlisted Companies
Note
Gama-GE
13 HPP, 9WPP, 1 NGPP, 2 CPP
Target 2,455
CAPEX
Akfen Holding
11 HPP (400 MW), 1600 MW CPP, 800 MW NGPP
2,800
Iberdrola
WPP
Tasyapi
500MW WEP and 300MW Thermal Plant
800
1,200 1,000
Hema Elektrik
1,200 Submitted bid for NPP tender with Russians
1,220
Fiba Borusan
3,000 1,100
Harbin-Kazanci Holding Park Holding
3,000
350MW HPP, 300MW WPP, 250MW CPP, 200MW NGPP
1,000
1,800
1,100
1,500
Source: Company data, various local media, UniCredit Research
Growth and rising margins to boost operating profitability of listed GenCos Both organic growth and acquisitions as well as rising electricity prices are contributing to the topline growth of the listed GenCos, especially Akenerji and Zorlu Enerji. Moreover, we expect the heavy rainfall after the severe draught in 2007 and 2008 to help HPP operators like Ayen and Aksu too. We would like to highlight that Akenerji and Zorlu Energy sell more than 70% of its generation to the DUY market at higher prices than the average and exempt of several taxes while Aksu sells at the lowest price which was fixed in 2003 due to the BOT scheme. Declining fuel costs with lower NG costs and higher share of renewables in the generation portfolio is likely to contribute favourably to the margins in 2009. Moreover, it is no surprise that electricity generators with renewables in their portfolio enjoy the highest EBITDA margin – at +50%.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 27
21 May 2009
Equity Research
Turkish Utilities
Privatization of Generation and Distribution Assets Liberalization in progress with electricity distribution tenders, more to come in 2009 The urgent need for the liberalization of the electricity market to attract new investment and generate funding for the modernization of older assets triggered the privatization of the distribution regions, which will be followed by the sale of generation assets. After consecutive attempts that failed due to lack of regulatory backing, we now expect progress in liberalizing the market to be smoother but still with some hiccups resulting from legal barriers and also the negative effect of the global crisis. Turkey is divided into 21 distribution regions and currently 5 regions are operated by the private sector: Kayseri, Menderes, Gediz, Sakarya and Baskent. Meram will soon be handed over to its new private owner while the transfer of Aras to private ownership is pending due to a court injunction. Electricity Distribution Regions in Turkey
Source: PricewaterhouseCoopers
Kayseri region has been in private hands since the 1990s while Menderes and Gediz were transferred for USD 110mn to their private owners after a long legal battle, implying USD 79 and USD 55 per subscriber. Yet, we must note that these regions were not awarded via a tender but commissioned and the major focus of the electricity sector is now the privatization of the remaining regions. First tenders result in +USD 75/MWh multiple After several delays, the long awaited tenders for 4 regions took place in 2008 in two separate processes: Sakarya (SEDAS) and Baskent (BEDAS) in July 2008, Aras and Meram in September 2008.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 28
21 May 2009
Equity Research
Turkish Utilities
SEDAS: Sakarya region is in the industrialised Marmara region with industrial subscribers accounting for almost half of the 7,800 GWh consumption as of 2007. The region’s loss-theft ratio is also reasonable with 6.3% compared to Turkey’s average of 14.5%. SEDAS’ transfer to the Akenerji-CEZ consortium was completed in early 2009. BEDAS: Baskent region, which encompasses the capital city Ankara, has mostly residential consumers and electricity sales of around 10,000 GWh in 2007. Baskent also enjoys a lower theft-loss ratio compared to Turkey’s average with 9.6%. Meram: Located in Central Anatolia, the Meram region is relatively smaller with around 5,500GWh consumption as of 2007 and a loss/theft ratio of 7.9% Aras: Aras is located in Eastern Turkey and has the lowest consumption (around 1,500 GWh) but the highest loss/theft ratio (29%). Sabanci Holding-Verbund-Enerjisa was the highest bidder for Baskent DisCo with USD 1,225mn while Akcez (consortium of Akenerji (45%), CEZ (50%) and Akkok Holding (5%)) submitted the highest bid of USD 600mn in the Sakarya DisCo tender. The DisCo multiples correspond to USD 471/subscriber and USD 76/MWh for Sakarya region and USD 415/ subscriber and USD 123/MWh for Baskent based on 2007 TEDAS figures. The transfer of these DisCos was completed in early 2009. As for the other two regions, Alarko Holding’s subsidiary Alsim Alarko submitted the highest bid with USD 440mn for the Meram electricity distribution region, translating into a lower multiple of USD 91/MWh and is about to take over the DisCo. Turkish construction and retail group Kiler, on the other hand, faces legal obstacles in taking over Aras, for which it offered USD 128.5mn (USD 86mn/MWh). LATEST DISCO DEALS AND MULTIPLES Winner of Tender Baskent
Sabanci-Verbund
Sakarya
Akenerji-CEZ
Aras
Kiler
Meram
Alsim-Alarko (Alarko Holding)
Deal Price
Consumption
Implied
USDmn)
(Mwh)
USD/subscriber
$/MWhr
1225
9,965,603
415
123
600
7,889,941
471
76
128.5
1,494,925
182
86
440
5,426,290
297
81
Source: Company data, TEDAS, UniCredit Research
When we look at the deals that took place in CEE during 2002-2006, we see that the deal multiple ranges between EUR 217/subscriber and EUR 1,212/subscriber, averaging at EUR 360/subscriber (excluding the outlier) or around USD470.
DISCO DEALS IN EASTERN EUROPE Deal
Region
Year
RWE-VSE
Slovakia
2002
483
EdF - SSE
Slovakia
2002
515
E.ON-ZSE
Slovakia
2002
707
E.ON NE Gr
Bulgaria
2005
222
CEZ NW Gr
Bulgaria
2005
230 270
EVN SE Gr
EUR/Client
Bulgaria
2005
ENEL Banat, Dobrogea
Romania
2004
243
CEZ-Oltenia
Romania
2005
217
Romania
2006
1212
Enel Muntenia Sud
Average (excl. Outlier)
361 Source: UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 29
21 May 2009
Equity Research
Turkish Utilities
Three more regions to be tendered in October 2009, Yesilirmak seems to be the most attractive The Privatization Administration announced the privatixation tenders for the electricity distribution regions in Coruh, Osmangazi and Yesilirmak, which cover cities in the Black Sea region (including Trabzon, Artvin), Central Anatolia (including Eskisehir, Afyon) and the Black Sea region (including Samsun, Sinop, Corum), respectively. The deadline to apply for eligibility is set for 15 July and the bids to be received by 20 Oct 09. Considering that these regions are small, we expect major companies to save their appetite for high-growth areas like Istanbul, while Sabanci Holding has expressed interest in the relatively larger Yesilirmak. Due to the credit crunch, the number of eligible bidders may be limited and delays in tender are likely in our view. On the positive side, the tender announcement is a sign of the government’s willingness to go ahead with the liberalisation of electricity distribution. First generation asset tender resulted in exorbitant multiple – USD 3.6mn /MW Turkey’s privatisation of generation assets has also lagged the schedule set out in the strategy paper in 2004. So far only 141 MW capacity was tendered in March 2008 vs 15,500 MW in the pipeline. Despite this, the number of interested parties and the price tag confirms the attractiveness and growth prospects of the Turkish electricity market in our view. Consisting of 9 power plants with 141MW capacity, Ankara Dogal Elektrik Co attracted a record high offer of USD 510mn from Zorlu Enerji (ZOREN.IS), translating into an incredibly high multiple of USD 3.6mn/MW. However, when Zorlu Energy’s plans to invest an additional USD 150mn to raise generation by 130% is taken into account, the deal multiple comes down to USD 2mn/MW when adjusted for the planned improvement. The power plants of Ankara Dogal Elektrik are mainly hydro type with no fuel cost and low operational costs. Considering the average replacement cost of USD 1.4-1.5mn/MW for hydropower plants, we believe Zorlu Energy paid the premium for the expected supply shortage in the next two-three years that is projected to result in a hike in electricity prices. The government is currently updating the Strategy Paper for the Electricity Sector and the privatisation of the remaining generation assets will follow. We do not expect a prolonged delay in the privatisation process due to 1) start of distribution assets; 2) need for budget financing; 3) required investments in the plants to increase their efficiency and capacity to maintain supply security. As a reminder, the previous strategy foresaw the bundling of power plants with total capacity of 15,500MW into six different portfolios with a view to reduce EUAS’ stake in total energy generation to 20%. The remaining assets, predominantly large hydropower plants with strategic importance, will serve as a reserve margin. BUNDLES OF GENERATION ASSETS FOR PRIVATIZATION HPPs Portfolio 1 PPs Portfolio 2 PPs Portfolio 3 PPs Portfolio 4 PPs Portfolio 5 PPs Portfolio 6 PPs
Thermal
Total
#
MW
#
MW
#
MW
6
582
3
1,911
9
2,493
3
2,600
6
3,548
4
1,650
7
2,126
1,881
5
2,482
1,772
7
2,276
1,955
11
2,521
Adıguzel,Aslantas,Hirfanlı,Kesikkopru,Kapulukaya,Menzelet,Seyitomer,Catalagzı,Soma A-B 3
948
Altınkaya, Derbent, Karkamıs, Hopa, Afsin Elbistan A-B 3
476
Gokcekaya, Yenice, Sarıyar, Aliaga, Yenikoy, Yatagan, Kemerkoy 3
601
2
Hasan Ugurlu, Suat Ugurlu, Karacaoren, Ambarlı Dogalgaz, Ambarlı Fuel-oil 5
504
2
Kokluce, Almus, Catalan, ozluce, Kemer, Bursa Dogalgaz, Kangal 7
566
4
Demirkopru, Dogankent, Kurtun, Gezende, Kılıckaya, Camiıgoze, Tortum, Tuncbilek, Can, Orhaneli, Hamitabat Source: Demisar Privatization
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 30
21 May 2009
Equity Research
Turkish Utilities
Afsin-Elbistan coal-fired power plants to be re-tendered… Having faced legal challenges in previous Build-Operate and Build Operate Transfer tenders on grounds of unfair competition, the government has recently relied on the royalty model in the Afsin-Elbistan coal-fired power plant tenders in order to address the supply security problem and encourage private investment into energy. The government targets two power plants in the fields C and D with 1,200MW capacity each and plans a third round after the C and D power plants are commissioned. Despite numerous interested parties, only three bids were submitted for the Field C and Field D projects mainly due to the political uncertainty at the time (as a result of the AKP closure case) and the complicated nature of the investment. Park Teknik and Akfen were the only bidders with bids ranging between USD 150/MWh and USD 190/MWh for electricity to be sold and royalty fees between USD 14.7/MWh and USD 20/MWh. When compared with the current TEDAS prices (USD 103/MWh) and our expected highest TEDAS price (USD 142) over the next decade, the ask prices are quite high, which we attribute to the initial high CAPEX (estimated at USD 3bn each) and execution risks (possible legal barriers, dam construction requirement and 15-year purchase guarantee etc). Accordingly, EUAS cancelled the tender again and is planning to re-launch it with new specifications, which might attract previously interested parties like Akenerji, Koç Group, Sabanci Group, Zorlu Group from Turkey and international players like CEZ, RWE, AES, RAO and Edison. Nuclear power tender may face a similar fate as Afsin-Elbistan tender Turkey lacks nuclear power despite its attempts to build a NPP since the 1960s. Parallel to the strategy to diversify fuel resources while maintaining supply security, the current government is very intent on going ahead with the nuclear power plant initiative. The nuclear power plant will be built in Akkuyu-Mersin, on the southern coast of Turkey on a Build-Operate model. The capacity will be a minimum 3,000 MWs and maximum 5,000 MWs and the government targets 2015 as the first year of operation for the power plant. TETAS (State Wholesale Company) will buy the electricity generated by the nuclear power plant until the end of 2030 if the power plant becomes operative before 2020. Despite 12 eligible consortia/companies for the nuclear tender, there was only one bidder in the Akkuyu NPP tender: Atomstroyexport-Inter Rao-Park Teknik, which offered USc 21.16 per KWh, almost 170% above the average price TETAS paid last year. Considering the feasible price expectation hovered around the USc 8 to 10 levels, negotiations resulted in a reduction in the offer price to USc 15, which resulted in further outcries with regards to the breach of tender specifications. The Cabinet will have the final say and it will be a political decision as much as a policy choice in our view. Cancellation would delay Turkey’s plans for nuclear power for at least a year and thus weigh on the supply shortage while further dependence on Russia for energy at a high price might also bode ill for Turkey’s economy and energy dynamics. If the tender is cancelled, it might be renewed at a later date or PPP (Public-Private-Partnership) may come on the agenda as Plan B.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 31
21 May 2009
Equity Research
Turkish Utilities
Natural Gas Market ■
Turkey is almost entirely dependent on natural gas imports
Taking account of the huge dependence on natural gas in electricity generation, we would like to touch upon the major dynamics of the natural gas market. With domestic production accounting for only 3% of domestic demand, Turkey is largely dependent on Russia and Iran for natural gas, facing temporary shortages especially during winter times due to stoppages in imports from these countries and a reliance on spot purchases of liquefied natural gas (LNG) in the case of NG shortages. BOTAS, State Petroleum Pipeline Co, is the major authority for NG imports. Currently Turkey has long-term import contracts with 6 countries and only the one with Turkmenistan for 16 bcm/year is not effective as of now. NATURAL GAS IMPORT CONTRACTS BY BOTAS Agreements
Volume
Date Of
Duration
End of
(bcm/year)
Contract
(Years)
Contract
Status
Russia (Westward)
6
14 Feb 1986
25
2011
In operation
Algeria (LNG)
4
14 Apr 1988
20
2008
In operation
Nigeria (LNG)
1.2
9 Nov 1995
22
2017
In operation
Iran
10
8 Aug 1996
25
2021
In operation
Russia (Black Sea)
16
15 Dec 1997
25
2022
In operation
Russia (Westward)
8
18 Feb 1998
23
2021
In operation
Turkmenistan
16
21 May 1999
30
2029
-
Azerbaijan
6.6
12 Mar 2001
15
2016
In operation
Source: UniCredit Research
■
Natural gas market is fast growing too
As of 2008, domestic consumption reached 36,024 bcm with an 11% CAGR in the last 5 years while Turkey imported 32,200 bcm mainly from Russia and Iran. Russia accounts for +60% of imports, which are based on a take-or-pay agreement, and Iran follows suit with 17%. Turkey has also recently started NG exports to Greece, totaling 443mcum in 2008. BREAKDOWN OF NATURAL GAS IMPORTS
40,000 35,000 30,000 25,000 20,000
SPOT LNG NIGERIA AZERBAIJAN ALGERIA IRAN RUSSIA - BLUE STREAM RUSSIA - WEST Consumption
15,000 10,000 5,000 1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: BOTAS
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 32
21 May 2009
Equity Research
Turkish Utilities
Major consumer of NG is unsurprisingly electricity generators with more than a 50% stake in demand while industrial and residential consumers have around a 15%-20% stake each. Fertilizer companies’ demand, on the other hand, has fallen over the past few years. Of these consuming groups, the residential segment is the fastest growing with a CAGR of 20% in the last 5 years due to the state policy of shifting to NG to prevent pollution and to vacuum excess NG bought with take-or-pay agreement. As of end-2008, more than 50 cities out of 81 have access to NG. BREAKDOWN OF NG CONSUMPTION BY CONSUMER TYPE 2008
2003
INDUSTRY 14.4%
INDUSTRY 22.1%
RESIDENTIAL 18.8%
POWER 55.6% RESIDENTIAL 22.3%
POWER 64.5%
FERTILIZER 2.2%
FERTILIZER 0.1%
Source: UniCredit Research
Parallel to the rising penetration of NG usage by households, NG consumption has increased to 11% CAGR in the past 5 years and is expected to grow at a relatively slowing rate (at 8% CAGR during 2007-2010, 5% during CAGR 2010-2015, 3% CAGR during 2015-2020). As a result, under the current contract terms for imports and production capacity in Turkey, total supply is likely to fall short of demand after 2010. The government is aiming to diversify the NG sources given the heavy dependence on Russia and transfer the contracts to the private sector, which partially explains the lack of new contracts for 2011 and onwards to meet the surging demand. DEMAND PROJECTIONS VS. SUPPLY CONTRACTS
Russia
Iran
Azerbaijan
LNG
Total Demand
80 70
67
60
57
50 45
42
40 30 20 10 2009
2010
2015
2020
Source: BOTAS
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 33
21 May 2009
Equity Research
Turkish Utilities
■
Natural gas market is also being liberalized
The natural gas market is also being liberalized. In accordance with the Natural Gas Market Law, BOTAS is to transfer the contracts to the private players until its stake in the market falls below 20% and unbundle operations as trading, transmission and storage. So far, the process has been slow with only contracts for 4bcm NG imports transferred to the new players and there is a draft strategy report which is likely to let private players to directly seal import contracts. Natural gas prices follow oil prices with a 3-6 month lag: i.e. decline in 2009E but rising trend in 2010E Russian contracts for natural gas are pegged to oil prices but are reflected in BOTAS prices with a 3-6 month lag. Meanwhile, end-user natural gas prices are also subject to the automatic pricing regime and adjustments take place at least every three months (even monthly if need be). More importantly, the EMRA is the last authority rather than the Energy Ministry to approve the price level, smoothing populist concerns to a large extent. Parallel to oil prices, end-user tariffs for natural gas surged 86% during 2008 alone and due to the timing the average tariff increase remained at 29% y-o-y in 2008. However, a correction came in 1H09 with consecutive cuts of 17% in February and 25% in May. Depending on the exchange rates and oil prices, we expect a further 25% cut in 2H09, resulting in a 10% y-o-y decline in average prices for 2009. In expectation of rising oil prices with a pick-up in global economies, we pencil in 7% and 15% y-o-y increases in 2010E and 2011E. NATURAL GAS TARIFFS IN TURKEY
Industrial incl SCT
Residential incl SCT
800
700
600
500
400
300
200
100
E
E 10
09 E
12 20
20
9M
08
1Q 09
9M
1Q 08
07 9M
1Q 07
06 9M
1Q 06
05 9M
04
1Q 05
9M
1Q 04
03 9M
1Q 03
02 9M
1Q 02
0
Source: BOTAS, UniCredit Research estimates
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
page 34
Equity Research
Company Update
Utilities
Turkey
21 May 2009
Akenerji
Buy (Initiating Coverage )
Growing with sustainable debt and profitability
Price on 20 May 2009
Initiation of coverage: Founded by one of Turkey’s large conglomerates Akkok Group in 1989, Akenerji plans to capitalize on the attractive electricity market through 1) diversification into renewables, 2) capacity growth (814MW in 2012E from current 426MW vs target 3,000MW), 3) Akkok Group’s JV with CEZ (Buy, TP CZK 915), 4) vertical integration (SEDAS), and 5) sustainable net debt (2x EBITDA as of 2008). Thus, we initiate coverage of Akenerji with a Buy rating at a TP of TRY 12.70 and 47% upside. Restructuring
and growth through HPPs and WPPs key to profitability: The gradual rationalization of NGPPs and completion of renewable power plants (388 MW) will reduce both operational costs and vulnerability to changes in natural gas prices (1% hike in average NG prices reduces TP by 0.2% right now, which will be smoother with fuel diversification), offsetting possible electricity price cuts or lower generation. Thus, we see 30% EBITDA margin as sustainable for generation business. CEZ deal values Akenerji at USD 810mn (more than double the current Mcap) but convergence will take time as tender call is highly unlikely. Akenerji should be able to leverage CEZ’ know-how and financial strength. Vertically integrated: Despite low margins, we believe Sakarya DisCo will contribute to Akenerji with positive cash flow and a captive market for its generation business. The new electricity DisCos will be eyed by Akenerji. 2009-2010 will be challenging years as 1) reliable generation capacity will fall, 2) renewables and SEDAS will be at the beginning of a learning curve and 3) Weak TRY may result in non-cash FX losses. Premium to peers is well justified by growth at relatively sustainable debt levels: Akenerji trades at 2009E adj EV/EBITDA of 10.25 vs comparable domestic peers’ 10.8x and 5.7x of EME peers. Major risks are rights offering, NG prices, adverse weather conditions, regulatory risks and weak TRY, while progress in recently acquired 900MW NGPP is an upside risk. IFRS
2007
2008
2009E
2010E
2011E
452
607
450
564
628
-4
96
104
154
169
EBIT (TRYmn)
-55
64
53
85
93
Net income (TRYmn)
-40
89
7
63
66
-0.61
1.37
0.10
0.96
1.01
Sales (TRYmn) EBITDA (TRYmn)
EPS reported (TRY) DPS (TRY) ROE (%) P/E (x)
0
0
0.27
0.19
0.20
-10
21
1
13
12
-14.17
6.33
82.95
9.04
8.57
P/CF (x)
28.86
5.65
1.87
17.19
2.68
P/BV (x)
1.45
1.18
1.21
1.09
0.99
-265.99
11.14
10.25
6.95
6.29
18
41
102
135
116
0
0
3
2
2
Adj EV/EBITDA (x) Net debt/equity (%) Div. yield (%)
TRY 8.65
Target price
TRY 12.70
Upside to TP
46.8%
Cost of equity
17.9%
High/Low (12M)
11.80/4.26
INVESTMENT HIGHLIGHTS Diversification with renewables Capacity growth with CEZ: Target 3,000MW Vertical integration with SEDAS STOCK TRIGGERS Rise in electricity prices in semi-liberal market New acquisitions Decline in natural gas prices STOCK DATA Reuters/Bloomberg
AKENR.IS/AKENR TI
Average daily volumes ('000)
464.9
Free float (%)
25.3
Market capitalization (TRYmn)
565.2
No. of shares in issue (mn) 65.3 Shareholders Akkok 40.86%, Omer Dinckok 11.57%, Ali Raif Dinckok 11.57%, Emniyet Trade.& Industry Co, 10.38%, Emboy Yuntas Textile 0.34%. UPCOMING EVENTS 1H09 Earnings
Sep 09
12 10 8 6
4
2
1.20
2006
2007
AK ENJE.URIM.OPKT.GRUBU MSCI EM EUROPE U$ - PRICE INDEX
2008
2009
Source: Thomson Datastream
STOCK PERFORMANCE (% CHG.) absolute rel. to MSCI EME rel. to MSCI Turkey
1M
3M
6M
13.8
45.4
96.6
-18.8
-36.8
-29.0
-9.2
-1.8
33.1
Elvin Akbulut (UniCredit Menkul) Equity Analyst +90 212 385 9525
[email protected]
Source: Company data, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 35
See last pages for disclaimer.
21 May 2009
Equity Research
Akenerji
Investment case Company Brief: Shareholder Structure & Business Strategy Partnership with CEZ to enhance growth, fuel diversification and vertical integration Established by one of Turkey’s large conglomerates Akkok Group back in 1989 as an autoproducer, Akenerji generates 2% of Turkish electricity with 426 MW installed capacity and is the market leader with a ~10% share among pure private GenCos as of end-2008. In addition to Akenerji, Akkok Group has holdings in textile and real estate companies among others with USD 1.6bn turnover in 2007 (USD 1.8bn in 2008E), some of which are listed on the ISE: AKSA.IS (Not Covered), AKALT.IS (Not Covered), AKIPD.IS (Not Covered) and AKGMY.IS (Not Covered) with a total Mcap of ~USD 440mn. Targeting growth through fuel diversification in electricity generation and support for its operations with vertical expansion into electricity distribution, Akenerji recently joined forces with Emerging Europe’s largest corporation CEZ (Buy), whereby Akkok Group sold a 37% stake in Akenerji at USD 303mn to establish a 50/50 joint venture. CEZ is a state-owned Czech electricity producer with a leading position in Central European power markets. Vertically integrated from mining to generation, distribution and supply, the company owns power plants in Poland and Bulgaria with a total capacity of 14,392MW and is active in the distribution business in Bulgaria and Romania. CEZ aims to be the market leader in Central and Southeastern Europe. Even before the deal was closed, CEZ established a partnership with Akenerji and won the tender for Sakarya Distribution Company with the Akeneri and Akkok consortium. The 50-50 JV with CEZ has received regulatory permissions and approval by the General Assembly. Akkok Group and CEZ will seek a tender call exemption, which we believe will be granted as the partnership received enough affirmative votes to avoid a tender call exemption. The share transfer is expected to be completed in May 2009. SHAREHOLDER STRUCTURE BEFORE AND AFTER CEZ DEAL Pre-CEZ deal
Post-CEZ deal
Shareholder
Stake
Shareholder
Stake
Akkok (Parent)
41%
Akkok
37.5%
Dinckok Family
24%
CEZ
37.5%
Free Float
25%
Free Float
25.0%
Others
10% Source: Akenerji & UniCredit Research
Valuation Attractive 47% upside potential We have valued Akenerji using the Sum of the Parts (SOTP) methodology since electricity generation and distribution businesses have different dynamics but applied no discount since these businesses are closely interrelated. Accordingly, we have calculated a 12M target price of TRY 12.70 for Akenerji, offering 47% upside and thus we initiate our coverage with a Buy recommendation.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 36
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21 May 2009
Equity Research
Akenerji
SOTP SUMMARY
Generation
Stake
Valuation Method
Value (TRY mn)
Market Value (TRY mn)
100%
DCF
683
% of NAV
683
95
NGPPs
215
30
Renewables
457
63
Sale of 2 NGPPs
11
1
56
8
Dividend payment
-18
-2
Current NAV
721
Distribution
45%
12M Target Price
DCF
123
12.70
Current Price
8.65
Upside Potential (%)
47 Source: UniCredit Research Estimates
■
Generation business accounts for ~95% of our calculated NAV, mainly driven by our valuation for renewables. The basic assumptions underlying our valuation for the generation business are: – Electricity generation: We expect a 17% decline in Akenerji’s electricity sales in MWhs in 2009 as the capacity reduction in NGPPs (115MW or 25% of installed capacity) will not be fully offset by the start-up of Balikesir WPP (15MW) in 2H09 and we estimate that Uluabat and Akocak HPPs (181 MW) will start operating effectively in 2010. Coupled with a recovery in demand, we expect a 21% y-o-y increase in 2010E. The progress along the learning curve for these renewables and the completion of the remaining HPP projects will result in a significant surge in 2013 (13% y-o-y) after a slight increase in 2012 (4% y-o-y). In addition, to account for possible drought conditions disrupting sales, the capacity factor is kept intentionally low. We estimate renewables will account for 30% of revenues when the transition period is over. – Steam sales should dwindle from 10-15% of sales to 1% levels with the transfer of Yalova plants in April 2008 leaving only Bozuyuk and Cerkezkoy to sell steam, reducing average steam sales from 1.8bn cum to a mere 100,000 cum levels, according to our calculations. – Electricity prices: Taking into account that Akenerji sells more than 75% of its generation to DUY, which is likely to increase with the HPPs and enjoys prices 8-30% above the average DUY prices, we expect the company’s electricity prices to trend higher until 2015, when we expect low cost power plants and new capacity additions to drag down electricity prices parallel to rising competition. – EBITDA margin: The major impact of fuel differentiation will be seen in the blended EBITDA margin which we expect to stay above 30% levels starting from 2012 with the full entry of renewables vs 16% in 2008. Declining natural gas costs and rationing in natural gas power plants are likely to raise NGPP’s EBITDA margin to 22% levels in 2009E from 16% in 2008. After a decline in 2010 to 17% levels due to a slump in steam sales and the expected increase in natural gas prices parallel to global economic recovery, we expect the EBITDA margin to be no less than at 13% levels thereafter, as Akenerji is likely to pass-on costs to end-user prices. Renewables, on the other hand, will be a boost for the EBITDA margin considering their low operating costs (USD25/MWh vs USD 100/MWh of NGPs) and high investment costs (USD 1.5mn/MW vs USD 0.7mn/USD). We estimate the EBITDA margin of renewables to range between 70-80%, which we believe is attainable considering that the pure Hydro operator Aksu Energy posts a 60-70% EBITDA margin despite its low electricity prices under BoT.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 37
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21 May 2009
Equity Research
Akenerji
– CAPEX: Our CAPEX expectation for Akenerji’s generation business is USD 367mn for 2009-2011, peaking in 2009 at USD 229mn, mainly due to ongoing WPP and HPP investments. We assume only USD 7mn annual CAPEX for the existing NGPs and USD 1.3mn for the renewables. – WACC & terminal growth rate: We have a WACC of 18% for NGPPs and 13% for renewables under the assumption of no debt for the former and 70% debt to equity for the renewables. Our terminal growth rate is 5%, which is in line with the trend GDP growth and high electricity consumption growth rate in Turkey. – In April 2009, Akenerji completed the sale of its Yalova plants to its sister companies at TRY12.6mn. We estimate the sale proceeds PV as TRY 11mn. – Only the HPPs and WPP under construction are included in the valuation. The newly acquired license for 900MW NGPP or possible WPPs or geothermal plants are not incorporated into our model. Therefore, any progress in the financing/construction of this new NGPP is an upside risk to our valuation of the generation business. KEY OPERATING METRICS FOR GENERATION BUSINESS Major Assumptions
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
Electricty Sales -MWh
2,299
2,789
2,901
3,290
3,339
3,339
3,339
3,339
3,339
3,339
2,279
2,314
2,314
2,314
2,314
2,314
2,314
2,314
2,314
2,314
19
475
587
976
1,025
1,025
1,025
1,025
1,025
1,025
182.62
199.68
213.88
232.80
239.61
241.71
258.63
279.24
265.28
255.85
NGGs Renewables Avrg price (TRY/MWh) Steam Sales (mn m3)
600
112
112
112
112
112
112
112
112
112
Avrg price (TRY/mncum)
0.05
0.06
0.07
0.07
0.08
0.08
0.09
0.09
0.10
0.11
Revenues (TRY mn)
450
564
628
774
809
816
873
943
897
866
Electricity
420
557
620
766
800
807
864
932
886
854
416
462
495
539
554
559
598
646
614
592
4
95
126
227
246
248
265
286
272
262
Steam
30
7
8
8
9
9
10
10
11
12
EBIT
53
85
93
179
183
177
189
204
194
187
NGGs Renewables
NGGs Renewables EBIT margin (%) NGGs Renewables EBITDA NGGs Renewables EBITDA Margin (%) NGGs Renewables CAPEX NGGs Renewables NWC NGGs Renewables
78
58
48
63
56
51
55
59
56
55
-25
27
45
117
127
125
134
145
138
133
12
15
15
23
23
22
22
22
22
22
18
12
10
11
10
9
9
9
9
9
-723
29
35
51
52
51
51
51
51
51
104
154
169
257
261
256
273
295
281
271
100
80
70
84
78
72
77
83
79
76
4
74
99
172
184
183
196
211
201
194
23
27
27
33
32
31
31
31
31
31
22
17
14
15
14
13
13
13
13
13
107
78
79
76
75
74
74
74
74
74
367
163
55
15
16
18
19
20
22
23
12
11
12
13
14
15
16
17
18
20
354
152
43
2
3
3
3
3
3
4
17
17
19
21
24
24
26
28
27
26
16
14
15
15
17
17
18
20
19
18
0
3
4
6
7
7
8
9
8
8
Source: UniCredit Research Estimates
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 38
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21 May 2009
Equity Research
Akenerji
DCF MODEL FOR NGPPS FCF Model
09E
10E
11E
12E
13E
14E
15E
16E
17E
18E
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
EBITDA
100
80
70
84
78
72
77
83
79
76
Tax on EBIT
-16
-12
-10
-13
-11
-10
-11
-12
-11
-11
Capex
-12
-11
-12
-13
-14
-15
-16
-17
-18
-20
Chng. in NWC
-16
-14
-15
-15
-17
-17
-18
-20
-19
-18
Free Cash Flow
56
43
33
44
36
29
31
34
30
27
PV of FCF
37
32
21
24
17
12
11
10
7
6
Source: UniCredit Research
DCF MODEL FOR RENEWABLES FCF
09E
10E
11E
12E
13E
14E
15E
16E
17E
18E
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
EBITDA
4
74
99
172
184
183
196
211
201
194
Tax on EBIT
5
-5
-9
-23
-25
-25
-27
-29
-28
-27
-354
-152
-43
-2
-3
-3
-3
-3
-3
-4
0
-3
-4
-6
-7
-7
-8
-9
-8
-8
Free Cash Flow
-346
-87
44
141
148
148
158
171
162
156
PV of FCF
-236
-70
31
89
83
73
69
66
55
47
Model
Capex Chng. in NWC
Source: UniCredit Research
VALUATION SUMMARY OF GENERATION BUSINESS TRY mn
NGPPs
RES
Asset Sale
177
205
n.a.
38
537
n.a.
18
72
n.a.
215
742
11
0
-285
0
215
457
11
5
5
WACC (%)
18
13
18
RFR (%)
14
14
14
CoE (%)
18
18
18
PV of FCFs (2009-2018) PV of Terminal Value % of Terminal Value in Firm Value Estimated EV Estimated Net Debt Estimated Market Value
Terminal Growth Rate (%)
Source: UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 39
See last pages for disclaimer.
21 May 2009
Equity Research
Akenerji
■
The distribution business, on the other hand, accounts for only ~10% of the NAV with TRY 56mn as we value the Akcez – SVP jointly controlled with CEZ which was set up for the Sakarya DisCo acquisition – at TRY 123mn under conservative assumptions: – Limited data availability: Valuation is tricky due to the lack of historical data compatible with CMB regulations and is further complicated due to the transition period that foresees a transitory tariff with balancing fee payments to the state DisCo TEDAS and fixed operating margin of 2.23%. We base our assumptions conservatively on the available data, targets and requirements set by TEDAS and the achievements of an unlisted private DisCo, Kayseri DisCo in Central Anatolia. – Electricity consumption: The Sakarya region is highly industrialized with industrial consumption accounting for almost 50% of the consumption. Therefore, we expect the subscriber growth and consumption to be hit more than the Turkey average in 2009 and slump by 12% y-o-y in 2009 in expectation of large scale production halts. However, the pick-up should be steeper with 8% and 17% y-o-y in 2010E and 2011E parallel to recovery. Still, our 5 year CAGR of 6% for consumption for 2008-2013E is significantly below the 38% CAGR achieved in the period 2003-2008. – Loss & theft ratio: Akenerji plans to invest in infrastructure to reduce the loss/theft (L/T) ratio from the current 6.3% levels. Considering the OECD average of 6.2%, we reflect only a slight improvement in the L/T ratio to 6%. – TEDAS prices and balancing fee: We assume the transitory period, which fixes the operating margin at 2.23%, sets a national tariff and also foresees a balancing fee from profit making regions to subsidize regions with high L/T ratios, to prolong into 2012. We calculate a TRY 6.7/MWh balancing fee based on TEDAS financials for SEDAS in 2007 and raise it by inflation rate per year until 2012. – EBIT and EBITDA margin: Taking into account that Kayseri DisCo’s EBIT stood at 8% levels in 2008 and SEDAS enjoyed a 9% EBIT margin in 2005, we cap our EBIT margin at 7% levels, gradually increasing from 3% 2009E in line with gains from the lower L/T ratio than targeted, cost control and liberalization to come after the end of transitory period. Accordingly, our sustainable EBITDA margin stands at 6%. – CAPEX: Apart from the required investment of USD 11mn per year, we expect Akenerji to undertake additional infrastructure investments like TEDAS did in the previous two years. – WACC: Since Akcez is paying the acquisition price in installments at the moment, we assumed only 50% D/E ratio vs 70% target. Our WACC stands at 14% for the concession period (2009-2038).
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 40
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21 May 2009
Equity Research
Akenerji
KEY OPERATING DATA FOR SEDAS Key Operating Data Energy sold (GWhr) % Change % of Turkey # of subscribers (mn) % Change Consumption/Capita Energy sold (MWhr/Subscriber) Energy sold TRY/MWhr Energy purchased (GWhr)
08E
09E
10E
11E
12E
13E
14E
15E
16E
17E
18E
8,760
7,703
8,316
9,704
10,835
11,877
12,996
13,915
14,899
15,953
16,706
11
-12
8
17
12
10
9
7
7
7
5
5
5
5
6
6
6
6
7
7
7
7
1.31
1.31
1.33
1.40
1.47
1.50
1.53
1.56
1.59
1.62
1.66
3
0
2
5
5
2
2
2
2
2
2
5,411
4,899
5,446
6,543
7,522
8,490
9,565
10,545
11,625
12,817
13,820
7
6
6
7
7
8
8
9
9
10
10
153
170
173
185
202
220
235
251
277
263
263
9,349
8,211
8,855
10,322
11,526
12,634
13,824
14,801
15,848
16,970
17,770
L/T ratio (%)
6.3
6.2
6.1
6.0
6.0
6.0
6.0
6.0
6.0
6.0
6.0
L/T ratio target (%)
7.7
7.1
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
Energy purchased TRY/MWhr
120
128
125
138
154
168
180
193
192
192
198
Balancing fee TRY/MWhr
8.7
10.5
11.0
11.0
11.0
0.0
0.0
0.0
0.0
0.0
0.0
EBIT margin (%)
4
3
5
6
7
7
7
7
7
7
7
Guaranteed (%)
2
2
2
2
2
0
0
0
0
0
0
From lower loss/theft (%)
1
1
0
1
1
0
0
0
0
0
0
From efficiency/liberalization (%)
0
0
2
3
4
4
4
4
4
4
4
Source: SEDAS, Akenerji, UniCredit Research Estimates
DCF MODEL FOR SEDAS FCF Model EBITDA
08E
09E
10E
11E
12E
13E
14E
15E
16E
17E
18E
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
TRY mn
63
57
85
123
168
199
198
241
294
301
310
Tax on EBIT
-10
-8
-14
-21
-30
-36
-34
-39
-46
-46
-49
Capex
-28
-27
-26
-28
-29
-30
-30
-30
-29
-29
-29
Chng. in NWC
20
0
0
0
0
0
0
0
0
0
0
Free Cash Flow
46
21
45
73
109
134
134
173
218
225
233
Key Estimates Revenues
1,337
1,307
1,441
1,797
2,186
2,611
3,055
3,497
4,132
4,201
4,396
EBIT
50
42
69
106
150
180
169
193
229
232
243
EBITDA
63
57
85
123
168
199
198
241
294
301
310
Margins: EBIT (%)
4
3
5
6
7
7
6
6
6
6
6
EBITDA (%)
5
4
6
7
8
8
6
7
7
7
7
Y-o-y Changes Revenues (%)
46
-2
10
25
22
19
17
14
18
2
5
EBIT (%)
0
-16
63
53
42
19
-6
14
18
2
5
EBITDA (%)
0
-10
49
45
37
18
-1
22
22
2
3
-12
14
36
51
66
71
62
70
77
70
63
PV of FCF
Source: SEDAS, TEDAS, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 41
See last pages for disclaimer.
21 May 2009
Equity Research
Akenerji
VALUATION SUMMARY FOR SEDAS PV of FCFs (2009-2038)
1,089
Acquisiton Value
-966
Estimated Market Value
123
AKENR's share
56
WACC (%)
14
RFR (%)
14
CoE (%)
18 Source: UniCredit Research
Peer Analysis Trades at a discount to its domestic peers with EV/EBITDA of 10.25x despite growth prospects and relatively sustainable debt level We adjust Akenerji’s net debt to reflect borrowing from the Parent Akkok and sister companies for the acquisition of a stake in the distribution company which the company consolidated via the equity pick-up method in 1Q09. Considering the high growth and DisCo’s consolidation method, we believe Akenerji trades at reasonable multiples.
■
Akenerji’s EV/EBITDA of 10.25x for 2009E and 6.9x for 2010E indicate a slight discount to domestic peers’ 10.80x and 7.0x for the same years.
■
We attribute the premium on 2009E EV/EBITDA vis-à-vis EME utilities’ 5.8x to Akenerji’s strong growth prospects as well as consolidation of recent big ticket acquisition of Sedas and ongoing capacity investments that will reflect positively on the upcoming years.
■
The company looks expensive on a P/E basis since we expect the financial expenses and FX losses parallel to weaker TRY to start reflecting on the income statement as of 2009 with the completion of two major investments and the increasing debt level due to the SEDAS acquisition. However, on 2010E P/E of 9.0x, the company converges to its domestic peers and even offer a discount over EME utilities.
■
Akenerji trades at EV/MW of USD 1.7mn/MW at 2009E active capacity of 396MW. However, this does not account for the upcoming capacity of 388MW by 2012. When we compare it with the latest deal multiples, including what the CEZ acquisition implies, it indicates a discount with future EV/MW of USD0.9mn/MW. As a reminder, the CEZ acquisition valued Akenerji at USD 810mn (TRY 1bn), or at USD 1.1mn/MW on future active capacity (i.e. 746MW).
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 42
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21 May 2009
Equity Research
Akenerji
PEER MULTIPLES (DOMESTIC PEERS AS OF 20 MAY 2009, INTERNATIONAL PEERS AS OF 18 MAY 2009) Company
Rating
Target Price
EV/EBITDA(x)
TRY/Share
2008
2009E
2010E
P/E(x) 2008
2009E
2010E
Turkish Utilities Akenerji
Buy
12.70
11.1
10.2
6.9
6.3
83.0
9.0
Aksu Elektrik
Sell
2.55
63.7
11.3
13.4
46.9
6.0
7.3
Ayen Enerji
Hold
2.25
9.9
7.4
7.1
6.4
4.9
5.9
Zorlu Enerji
Hold
3.40
31.4
14.0
6.1
N.M
N.M
5.4
Turkish Utilities
21.3
10.8
7.0
6.4
6.0
6.6
EME Utilities
4.7
5.7
5.8
8.7
10.5
9.4
Russian Utilities
101.7
99.6
75.8
5.6
4.3
3.7
WE Stocks
6.0
6.3
5.9
12.7
10.9
10.0
Median
Source: Bloomberg, Company data, UniCredit Research
Sensitivity Analysis Vulnerability to natural gas prices is declining with liberalization and diversification Since the mark-ups in the distribution business are ongoing with profitability depending more on reducing the loss/theft ratio and operating costs and its relatively low 10% contribution to the NAV, we kept the value of the distribution business unchanged in our sensitivity analysis. According to our analysis, for a 1% increase in average natural gas prices, our TP declines by 0.3% if the change is effective in 2009, but the sensitivity is declining since the company’s renewables will start to be operative gradually from 2010 onwards, reducing the share of NGGs to 70% from 100% in 2008. We must also note that the rise in natural gas prices is likely to reflect on electricity prices since 1. cost pressure is to activate automatic pricing scheme 2. rise in natural gas prices can be a signal of a better economic environment and thus would affect electricity demand as well, enabling an increase in DUY prices. Meanwhile, our TP will rise by 0.4% if there is a 1pp increase in electricity prices in 2009 with all else being equal. However, the increase may come with a lag and may not be fully incorporated in the electricity prices for supply-demand dynamics and shift to renewables. Even in the case where natural gas prices are up by 5% while electricity prices are up by 1%, our TP is only down by 1%. SENSITIVITY OF TP TO ELECTRICITY PRICES AND NATURAL GAS PRICES 2009E Electricity Prices 2009E Natural Gas Prices
5% lower
1% lower
Base
1% higher
5% higher
5% lower
12.97
13.19
13.24
13.30
13.51
1% lower
12.80
13.01
13.07
13.12
13.34
Base
12.76
12.97
12.70
13.08
13.29
1% higher
12.71
12.93
12.98
13.03
13.25
5% higher
12.54
12.75
12.80
12.86
13.07
Source: UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 43
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21 May 2009
Equity Research
Akenerji
TP to increase by 29% in the case of a 1pp decline in WACC Our sensitivity analysis indicates that in the case of a 100bp point decrease in the WACC, Akenerji’s target price will increase by 29% to TP ceteris paribus. The valuation is also sensitive to the terminal growth rate with the TP up by 11% when the terminal growth rate increases by 100bp as the distribution business in particular will start to benefit from the liberalised pricing scheme and synergies with Akenerji’s generation business in later years. SENSITIVITY OF TARGET PRICE TO CHANGES IN WACC & TERMINAL GROWTH RATE WACC Terminal Growth Rate
-100bps
Base
+100bps
6%
18.55
14.15
10.69
Base: 5%
16.43
12.70
9.62
4%
14.84
11.52
8.76 Source: UniCredit Research
Consensus estimates do not fully capture SEDAS acquisition, so are not reliable Since some of the analyst estimates have not incorporated SEDAS into the financials due to the lack of clarity regarding the type of consolidation and no details on 2008 realizations and some analysts like us reflect the consolidation, we believe the consensus figures are not reliable. UNICREDIT ESTIMATES VS CONSENSUS AKENR
2009E
2010E Difference (%)
Consensus
UniCredit
Difference (%)
TRYmn
Consensus
UniCredit
EBITDA
86
104
20
184
154
-17
Net Income
32
7
-79
86
63
-28
Source: Bloomberg, UniCredit Research
Generation Business Doubling and diversifying capacity: 746 MW active capacity with 50% renewables by 2012 Currently, Akenerji has 8 natural gas (NG) power plants with an installed capacity of 426MW and steam capacity of 548 tons/hr in the fast growing Turkish electricity market while renewable power plants with 388 MW are currently under construction and a 900MW natural gas power plant is being planned. Restructuring for higher efficiency and cost-control, the company has shut down 6 power plants with a capacity of 69MW and sold 3 plants: Izmir Plant with 45MW capacity was transferred at USD 12.5mn to the direct client Baticim at the end 1Q08 and Yalova plants with 70MW was taken over by sister companies last month at TRY 12.6mn. Accordingly, the active capacity is currently down to 358MW from 541MW back in 2005.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 44
See last pages for disclaimer.
21 May 2009
Equity Research
Akenerji
However, the forthcoming new capacity will more than compensate for the rationalization of the natural gas power plants, which have been hit by rising natural gas tariffs. The company is almost doubling its active power generation capacity to 746MW (to 814MW if inactive is also considered) compared to end-2005 through renewables, diversifying its fuel mix at the same time. Accordingly, when all the renewables are operative, the share of NGPs in total active capacity will decline below 50% from 100% as of end-2008, which will enable flexibility in cost management. AKENERJI –GENERATION CAPACITY BREAKDOWN BY 2012 Thermic
900
Hydro
Wind
Inactive 69
800 15 69
700
600
69 92
85 15 69 69
500 0
0
181
0
400
15
15
373 216
0
300
200
449
456
440 381
358
358
358
10E
11E
12E
100
0 06A
07A
08A
09E
Source: Akenerji & UniCredit Research
Operating Performance of Generation Business After slight contraction in 2009-2010, top line will see double digit growth in 2011 and 2012 As stated above, Akenerji will almost double its installed capacity to 814MW by 2012 with investments in 9 hydropower plants of 373MW and 1 wind power plant of 15MW. Of the new power plants, we expect Uluabat HPP (completion rate 76%), Akocak HPP (completion rate 69%) and Balikesir WPP (completion rate 30%) to start operating in line with management guidance. For the remaining projects, we expect them to be fully operational by 2012. Akenerji recently acquired a local company (Egemer) holding a licence for a 900 MW NGPP in the southern city of Hatay at TRY 0.6mn and will inject TRY 133mn in equal instalments within 4 years in line with investment needs. Since feasibility studies are continuing and project financing is yet to be secured we have not included the investment into our valuation model.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 45
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21 May 2009
Equity Research
Akenerji
CURRENT AND UPCOMING GENERATION CAPACITY
Source: Akenerji
As we mentioned above, the company is closing down its inefficient plants while continuing its HPP investments. Since renewables have lower capacity factors (35% vs 85% of NGPPs) and are also very much dependent on climate, we assign low capacity utilization taking into account they will be at the beginning of the learning curve this year. Moreover, we expect the company to cut down capacity utilization of NGPPs when the DUY prices are not attractive. Thus, the generation capacity is declining for the moment, which naturally reflects negatively on the sales volume forecasts for 2009. In our model, the electricity sales volume is down 17% in 2009E, but bounces back 21% in 2010 thanks to the new wind power plant of 15MW capacity and the entry into full operation of the Uluabat and Akoacak power plants. Uluabat is a dam-type HPP in the portfolio accounting for one third of the HPP portfolio with 100MW and providing more reliability than the other HPPs. Thus, our capacity factor is 40% for Uluabat. Still, when it comes to actual production, we assumed capacity utilization to be 70% at the start and gradually rising to 95% to be on the conservative side in response to drought risk. Accordingly, non-thermal plants will account for 50% of the active capacity and we estimate total generation from non-thermal to reach around 30% by 2012E. However, we expect a steep decline in steam sales with the transfer of Yalova plants, the major supplier of steam. Accordingly, although the steam capacity will halve, commercial steam sales will fall to one tenth of 2008 according to our calculations unless the company starts to sell from the Izmir Kemalpasa plant which has 132 tons/hr steam capacity.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 46
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21 May 2009
Equity Research
Akenerji
GENERATION ANS SALES FORECASTS FOR AKENERJI MW*
2005A
2006A
2007A
2008A
2009E
2010E
2011E
Thermic Plants
541
449
456
440
381
358
358
2012E 358
Bozuyuk
132
132
132
132
132
132
132
132
Izmir-Kemalpasa
128
128
128
128
128
128
128
128
Cerkezkoy
98
98
98
98
98
98
98
98
Yalova
60
60
60
60
20
sold
sold
sold
Yalova-Akal
10
10
10
10
3
sold
sold
sold
Izmir-Baticim
45
inactive
23
11
sold
sold
sold
sold
Alapli
6
6
6
2
closed
closed
closed
closed
Bursa-Gursu
16
16
inactive
inactive
inactive
inactive
inactive
inactive
Usak
16
inactive
inactive
inactive
inactive
inactive
inactive
inactive
Denizli
16
inactive
inactive
inactive
inactive
inactive
inactive
inactive
Corlu
11
inactive
inactive
inactive
inactive
inactive
inactive
inactive
Orhangazi
5
inactive
inactive
inactive
inactive
inactive
inactive
inactive
Hydro Plants
0
0
0
0
0
181
216
373
Uluabat (Cinarcik)
100
100
100
Akocak -(Trabzon)
81
81
81
Feke 1 (Adana)
0
0
30
Feke 2 (Adana)
0
0
70
Burç (Adiyaman)
0
28
28
Himmetli (Adana)
0
0
24
Gökkaya (Adana)
0
0
30
Saimbeyli (Adana)
0
0
3
Bulam (Adiyaman)
0
7
7
15
15
15
Wind Plant (MW) Balikesir Active Capacity Total Steam (tons/hr)
0
0
0
0
15
0
0
0
0
15
15
15
15
541
449
456
440
396
554
589
746
1,107
1,107
1,107
1,040
1,040
548
548
548
Capacities in red are adjusted for the period they were active Sales Volume (MWh) Electricity Sales Yoy Change Thermic Plants
05A
06A
07A
08A
09E
10E
11E
12E
3,233
3,224
2,840
2,771
2,299
2,789
2,901
3,290
12%
0%
-12%
-2%
-17%
21%
4%
13%
3,233
3,224
2,840
2,771
2,279
2,314
2,314
2,314 930
Hydro Plants
0
0
0
0
0
434
543
Wind Plant
0
0
0
0
19
41
44
47
2,646
2,423
2,064
1,809
600
112
112
112 0%
Total Steam Sales ('000tons) Yoy Change
-7%
-8%
-15%
-12%
-67%
-81%
0%
Bozoyuk
n.a
n.a
n.a
27
32
32
32
32
Izmir-Kemalpasa
n.a
n.a
n.a
no sale
no sale
no sale
no sale
no sale
Cerkezkoy
n.a
n.a
n.a
77
80
80
80
80
Yalova-Aksa
n.a
n.a
n.a
1572
447
sold
sold
sold
Yalova-Akal
n.a
n.a
n.a
116
41
sold
sold
sold
Alapli
n.a
n.a
n.a
18
closed
closed
closed
closed
Source: Akenerji & UniCredit Research Estimates
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 47
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21 May 2009
Equity Research
Akenerji
Profitability Drivers Top line to grow in double digits after a contraction in 2009 with capacity growth and higher electricity prices The decline in electricity generation and lower steam sales is likely to pull down revenues in 2009, a year of flat electricity prices and low demand as well. However, in 2010we expect Akenerji to bank on capacity growth and also the favourable DUY market prices as supply becomes tighter with the economic recovery. Accordingly we expect Akenerji’s electricity prices to trend upwards. Akenerji sells at peak prices via the DUY system (8% to 30% over the average prices) and shifts its sales to the regulated market if there is a disadvantageous settlement price, thus enjoying higher electricity prices than what the DUY average implies. Since DUY prices have lost momentum in 2009 due to the economic slowdown and to be on the conservative side, we reflect 15% premium to average DUY prices. Meanwhile, direct clients enjoy 5% and indirect clients have a 2% discount to regulated industrial tariffs. The company sold 80% of its generation to the DUY market in 2008, which we expect to decline to 75% while indirect clients’ share rise to 10%. Direct clients, which also buy steam from the company, should decline to 15% from 20% due to the sale of Yalova plants. If DUY prices to remain below TEDAS prices, the company has the flexibility to choose between the DUY market and indirect clients. We believe that the company will increase the stake of the DUY market in 2010 in expectation of more favourable pricing with tight supply and a pick-up in the economy. Based on our estimates for average DUY and TEDAS prices, we expect Akenerji’s electricity price to be almost flat y-o-y in 2009 but start to rise in line with the anticipated economic recovery and post 9% y-o-y and 7% y-o-y growth in 2010 and 2011. PRICE BREAKDOWN BY CLIENT TYPE TRY/MWh
2007
2008
2009E
2010E
2011E
Average
125
179
183
200
214
% change
16%
44%
2%
9%
7%
Indirect
113
143
156
164
115
Direct
109
139
152
159
115
DUY
135
189
193
208
223
TEDAS average
115
146
160
168
115
Indirect
2%
2%
2%
2%
0%
Direct
5%
5%
5%
5%
0%
Source: TEIAS, TEDAS, Akenerji, UniCredit Research
Accordingly, the generation top line should contract 26% in 2009 mainly due to the sale of NGPPs but to see double-digit growth during 2010-2012 thanks to the new HPPs and higher electricity prices.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 48
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21 May 2009
Equity Research
Akenerji
Margins to rise to +30% thanks to restructuring, falling NG prices and low cost RES Bearing in mind that NGPPs still account for 100% (70% in 2012E) of generation, a decline in natural gas prices in 2009 and restructuring will compensate for much of the top line contraction. In expectation of a 10% y-o-y fall in average NG prices in 2009, our EBITDA stands at TRY 104mn for 2009, up by 9% y-o-y despite a 26% contraction on the top line. Therefore, in a crisis year we expect EBITDA margin to increase to 23% with the help of restructuring, falling NG prices and start of new WPP. Thanks to 17% decline in NG prices in February 2009 vs stable electricity prices, Akenerji’s EBITDA margin shot up to 16% in 1Q09 from a mere 3% in 4Q09. Please note that there was another 25% cut in May 2009 for natural gas prices while TEDAS prices are down by only 2% in the same period. However, the real boost to EBITDA and EBITDA margin should come with the entry of renewables that have low operating costs of USD 25/MWh vs USD 100/MWhr of NGPPs. We estimate the EBITDA margin of renewables to range between 70-80%, which we believe is attainable considering that the pure hydro operator Aksu Energy has a 60-70% EBITDA margin despite its low electricity prices under BoT. Therefore, the rising share of renewables in the total generation should raise EBITDA to TRY 154mn in 2010E with a 47% increase and the EBITDA margin is likely to continue rising but we expect the real boost in 2012 when all the HPPs will be fully operational and EBITDA should increase to TRY 257mn and EBITDA margin will be at 33% levels. KEY FINANCIALS FOR GENERATION SEGMENT TRY mn
08A
09E
10E
11E
12E
Net Sales
607
450
564
628
774
% Change
34
-26
25
11
23
Gross Profit
100
87
127
140
237
% Change
636
-13
47
10
69
16
19
23
22
31
Gross Margin (%) EBIT
64
53
85
93
179
n.m.
-18
61
9
93
EBIT Margin (%)
11
12
15
15
23
EBITDA
96
104
154
169
257 51
% Change
% Change
n.m.
9
47
10
EBITDA Margin (%)
16
23
27
27
33
Net Income
89
7
63
66
147
n.m.
-92
818
5
124
15
2
11
10
19
% Change Net Profit Margin (%)
Source: Akenerji & UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 49
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21 May 2009
Equity Research
Akenerji
Distribution Business Now vertically integrated with Sakarya Distribution Company Akenerji is now vertically integrated with the Sakarya electricity distribution region (SEDAS), which it acquired at USD 600mn as part of the Akcez consortium with Akenerji holding a 45% stake together with CEZ (50%) and Akkok Holding (5%). The concession agreement has been signed for 30 years and USD 300mn has been paid in cash while the remaining 50% will be paid in two years at Libor+2.5%. Sakarya region is in the heavily populated and industrialized Marmara region, ranking 7 among Turkish DisCos in terms of consumption with 7,900 GWh (5% of Turkey) and industrial subscribers account for more than half of the consumption, which renders it susceptible to industrial activities. The region’s loss-theft ratio is also low at 6.2% compared to Turkey’s average of 14.5% while the collection average is relatively high at 96%. The Sakarya DisCo multiple corresponds to USD 470/subscriber and USD 76/MWh based on 2007 TEDAS figures vs. USD 415/subscriber and USD 123/MWh for the Baskent Disco, which was tendered at the same time. The pricing also looks favourable with average CEE deal multiples of EUR 326/subscriber (USD 505/subscriber) and EUR 78/MWh (USD 121/MWhr). We find both the price tag and the location favourable for Akenerji given that it has NG power plants located in the Marmara region where Sakarya is, heralding possible synergies. SEDAS DEAL MULTIPLES (2007 DATA) Total
% Residential
Subscribers #
1,275,360
84%
0%
Consumption (MWh)
7,876,423
19%
54%
$/Subscriber
% Industrial
470
$/MWh
76
Loss/Theft ratio
6.20% Source: SEDAS, Privatization Administration, UniCredit Research
Revenue and Profitability Drivers Profitability to improve with efficiency gains and liberalisation of mark-ups Since historical financial data compatible with CMB regulations and major operating data are lacking, our analysis largely depends on conservative assumptions cross-checked with another private DisCo – Kayseri’s operating performance. We expect that strong consumption growth, efficiency gains after privatization and end of the national tariff in 2012 will be the major drivers of bottom line growth and profitability.
■
Consumption growth CAGR at a conservative 6%: Sedas experienced 42% CAGR in electricity consumption during 2003-2008, quadrupling the growth rate of Turkey’s consumption mainly thanks to the heavy weight of industrials and the growing population. Industrials shifted to the DisCo from DUY market to avoid soaring electricity prices in the DUY market in 2007-2008. In expectation of large scale production halts, consumption is likely to be hit severely in 2009 with a 12% contraction despite this the recovery should also be quicker, we estimate at 8% and 17% y-o-y in 2010E and 2011E respectively. Still, our 5 year CAGR of 6% is quite conservative considering the past years’ tremendous growth.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 50
See last pages for disclaimer.
21 May 2009
Equity Research
Akenerji
■
Minimum improvement foreseen in loss & theft (L/T) ratio: The windfall gains for DisCos is the control over loss&theft ratios and Akcez plans to invest in infrastructure to reduce the loss/theft (L/T) ratio from the current 6.3% levels. Considering the OECD average of 6.2%, we reflect only a slight improvement in the L/T ratio to 6%.
SEDAS – ELECTRICITY CONSUMPTION & LOSS/THEFT RATIO
14,000
Energy Bought
Energy Sold
Loss/Theft Ratio
18.0% 16.0%
12,000
14.0% 10,000
12.0%
8,000
10.0%
6,000
8.0% 6.0%
4,000
4.0% 2,000
2.0%
0
0.0% 2003 2004 2005 2006 2007 2008 2009E2010E2011E2012E
* 2008 figures not officially disclosed as yet
Source: SEDAS, UniCredit Research
■
We assume the transition period will extend into 2012: The transition period for DisCos is set as 2006-2011. To be on the safe side, we assume a further one year delay in liberalisation of the market and our model reflects the requirements of the transition to be valid in 2012 as well: i.e. national tariff will be applied, a balancing fee will be paid to TEDAS, DisCos are required to buy at least 85% of their electricity requirements from state GenCos and operating margin is fixed at 2.23%.
■
DisCo tariffs rise in line with increase in energy wholesale reference prices: Since there is a pass through system, we reflect increases in the wholesale prices to the distribution tariffs. The tariff applicable to SEDAS provides only the base for the DisCo. Based on the implied prices for 2006 and 2007, we calculate the price of energy sold and bought taking into account the client mix.
TRANSITION TARIFF VS OUR CALCULATED TARIFF TRY/MWh
06E
07E
08E
09E
10E
11E
Reference
120
116
119
120
120
120
12E 120
Industrial
116
116
115
115
114
114
114
Commercial
148
145
1412
139
136
136
136
Residential
124
124
126
129
131
131
131
Other
116
116
116
116
116
116
116
Energy sold
120
116
153
170
173
185
202
98
98
120
128
125
138
154
Energy bought
Source: TEDAS, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 51
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21 May 2009
Equity Research
Akenerji
■
Double-digit revenue growth between 2010-2012 after a slight contraction in 2009: After tripling in 2003-2008 according to our projections, we expect a slight contraction of 2% in 2009 revenues mainly due to lower electricity sales. However, we expect a quick recovery with double-digit growth to follow, mainly driven by higher electricity consumption and rising electricity prices.
■
TEDAS prices and balancing fee: The national tariff also foresees a balancing fee from profit making regions to subsidize regions with high L/T ratios until the regional tariff begins (i.e. after 2012 according to our assumption). We calculate a TRY 6.7/MWh balancing fee based on TEDAS financials for SEDAS for 2007, which indicates a balancing fee payment of TRY 55mn for 2007 (6% of electricity distribution revenues) to TEDAS.
■
Profitability drivers: Operating margin is fixed at 2.23% until the end of the transition period. However, Akcez (SPV for SEDAS) can retain gains from 1) lower loss/theft than targeted 2) procuring energy at a lower cost 3) operational efficiency 4) vertical integration after the transition period to produce electricity and sell excess production in an open market.
■
EBIT and EBITDA margin: Taking into account that the EBIT margin of another private DisCo (Kayseri DisCo) was at 8% levels in 2008 and SEDAS posted a 9% EBIT margin in 2005 according to a presentation by the Privatization Administration, we cap our EBIT margin at 7% levels, gradually increasing from 3% 2009E parallel to gains from the lower L/T ratio than targeted, cost control and liberalisation to come after the end of transitory period. Accordingly, our sustainable EBITDA margin stands at 6%.
■
CAPEX: Apart from the required investment of USD 11mn per year, we expect Akenerji to undertake additional infrastructure investments similar to TEDAS to raise efficiency.
SEDAS OPERATING OUTLOOK Net Sales
2,500
% Change
46%
40%
2,000
1,500
50% 2,186
1,797 1,337
1,307
1,441
30% 25%
22%
20%
1,000 10%
10%
500
0%
-2%
-10%
0 08E
09E
10E
11E
EBITDA
180
EBITDA Margin
9%
168
8%
160 140
7%
123
6%
120 100 80
5%
85 63
60
4% 57
3%
40
2%
20
1% 0%
0 08E
12E
09E
10E
11E
12E
Source: SEDAS, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 52
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21 May 2009
Equity Research
Akenerji
Financing the Growth CAPEX to peak in 2009, positive cashflow likely in 2011 Based on the average prices, we calculate the total cost of the power plant projects under construction as ~USD600mn. The company targets 70% debt financing in these investments. Taking into consideration the capital spending until 2009, we estimate that the company’s investment budget for power plants excluding Hatay NGPP of 900MW will be USD 367mn for 2009-2011, majority of which will be spent in 2009 (USD 229mn) to complete the Uluabat, Akcakoca and Balikesir power plants. Therefore, we expect negative cashflow for 2009 and 2010 as well. However, project financing of these power plants with grace periods have already been secured and the company’s cash position (TRY 101mn as of end-2008) is sufficient to continue with these investments. As for the other HPPs in the pipeline, we believe that as the large HPPs come on stream and electricity prices are likely to increase in 2010 and 2011, the company’s generation segment will start generating more than enough cashflow to finance these smaller projects. As for the large acquisition of SEDAS (USD 600mn), the company already paid its share of the first installment (USD 135mn) and will pay the rest in two installments (USD 67.5mn) each in 2010 and 2011 at Libor+ 2.5. We expect the company to secure project financing or borrow from its parent Akkok, which will see a cashflow of USD 303mn thanks to the deal with CEZ if need be. Akenerji already secured short-term financing from Akkok and sister companies for TRY 181.5mn in 1Q09 before the take-over of Sedas, which we classify as short term finance and include in our adjusted net debt calculation. All in all, we expect the company’s free cashflow to return to the black in 2011 and double in 2012 thanks to the full operation at the RES, surging operating margins and lower CAPEX requirement. AKENERJI’S CAPEX REQUIREMENT VS FREE CASH FLOW TRY mn
09E
10E
11E
12E
13E
14E
15E
16E
17E
18E
CAPEX
-379
-175
-68
-29
-30
-31
-32
-33
-35
-36
Acquisition cash outflow
-435
FCF Before CAPEX & Acquisitions
-659
-198
42
205
214
206
235
270
258
252
155
-24
110
234
244
237
267
303
293
288
Free Cash Flow
Source: UniCredit Research
Debt to EBITDA to rise to 6x in 2009 due to SEDAS acquisition and then slowly decline Heavy CAPEX requirement and SEDAS acquisition should raise D/E to 1.4x levels and DEBT to EBITDA to 6x levels in 2009E from mere 0.4x and 2x levels, respectively, in 2008. However, with the rising CF and higher EBITDA thanks to new RES as well as operational efficiencies in SEDAS, we expect these ratios to improve and revert back to 2008 levels by 2013.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 53
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21 May 2009
Equity Research
Akenerji
DEBT DYNAMICS 08A
09E
10E
11E
12E
Financial debt
295
516
756
786
814
13E 696
Adj financial debt
295
690
756
786
814
696
Adj net debt
194
649
699
660
628
494
Net Debt to EBITDA
2.0
6.2
4.6
3.9
2.4
1.9
Net debt to equity
0.4
1.4
1.4
1.2
0.9
0.6
Source: Akenerji, UniCredit Research
Targeting 3000MW capacity by 2013 The Akkok and CEZ partnership aims to increase Akenerji’s generation to 3,000MW from the current and upcoming capacity of 814MW. To achieve this, Akenerji acquired Egemer Elektrik, a local company holding a licence for a 900MW NG power plant to be constructed in Hatay, a southern city in Turkey. The licence cost TR Y0.6mn to Akenerji, which plans to inject a further TRY 133mn in equal instalments in 4 years parallel to investment needs. Considering CEZ’ expertise, we expect the company to be interested in coal-fired and NG power plants as well to raise its capacity to 3,000 MW. In this respect, we would expect Akenerji to be interested in the tender of Afsin-Elbistan coal-fired plants when it is retendered. New distribution tenders We expect the Akenerji-Cez consortium to be interested in large distribution regions with relatively lower loss-theft ratios and to take their time before bidding aggressively in a tender until the SEDAS acquisition is digested to a large extent. Therefore, we do not expect the company to be an aggressive bidder in the newly opened tenders for Yesilirmak, Osmangazi or Coruh distribution regions, for which deadline for eligibility is set as 15 July 2009. We see Toroslar in the south, regions in Marmara (especially Thrace and Istanbul DisCos) to offer more synergies with its generation portfolio. Rights offering likely when second large wave of investments is triggered Considering that the company’s cash generation is enough to finance the short-term debt obligations and the start of the new RES will provide a breathing space for Akenerji, we do not expect a rights offering in 2009. However, we believe that if the second wave of acquisitions/investments starts before the ongoing investments become fully operative, a rights offering might come on the agenda. The company targets a minimum 20% dividend payout ratio and was able to distribute a TRY 0.27/share (TRY 17.5mn) dividend from 2008 earnings. Estimating positive bottomline as rising operating profitability should more than compensate for rising financial expenses paralle to higher short FX position and financial debt, we expect the company to continue distributing dividends. The heavy investment schedule, on the other hand, will put a cap on the payout ratio in our view.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
page 54
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21 May 2009
Equity Research
Akenerji
Akenerji reported TRY 9mn net profit for 1Q09, above expectations Akenerji reported TRY 9mn net profit for 1Q09, which is down by 54% q-o-q and 74% y-o-y, mainly due to net financial expenses with the acquisition of Sakarya Distribution Co (SEDAS). However, the bottom line is better than CNBC-e consensus of TRY 2mn. The company consolidated its 45% stake in AkCez, the SPV that owns SEDAS, via equity pick-up and thus the consensus figures for the operating performance are not comparable with the CNBC-e consensus. Top line growth of 9% was driven by rising electricity prices during the period since electricity generation fell by 21% y-o-y on the sale of the Baticim plant and lower capacity utilization while steam sales were down 31%. The y-o-y increase in natural gas prices and operating expenses related to new investments such as counselling expenses are the major culprit for the 700bps decline in the EBITDA margin to 16% in 1Q09. However, there was a 13pps improvement over 4Q08 as natural gas prices fell in 1Q09. Akenerji posted a TRY 2mn loss from Akcez but did not disclose the financials or operating metrics for Sedas. The larger debt position (TRY 320mn as of end 1Q09 vs TRY 96mn as of end 2008) and short FX position (TRY 436mn as of end 1Q09 vs TRY 194mn as of end 4Q08) led to a net financial loss of TRY 5mn compared to financial gains of TRY 7mn in 1Q08 and TRY 22mn in 4Q08. We would like to highlight that the company has also capitalized a TRY 25mn financial expense for the ongoing RES investments. We believe that the strong top line despite falling DUY prices indicate that Akenerji continues to sell at a higher price than the DUY market. Following the closure of the CEZ acquisition possibly this month, we might see a full consolidation of SEDAS in 1H09 financials. SUMMARY QUARTERLY FINANCIALS FOR AKENERJI TRYmn Net Sales COGS
1Q 09
4Q 08
Ch q-o-q %
1Q 08
165
158
4
151
Ch y-o-y % 9
-136
-150
-9
-119
14
237
33
-9
Gross profit
30
9
Gross margin %
18
6
-11
-11
-2
-6
92
18
-3
n.m.
27
-31
Operating Expenses Operating profit Other Income/(Expense) net
21
0
3
-99
3
-99
EBIT
18
-3
n.m.
27
-31
EBIT margin %
11
-2
Net financials
-5
22
n.m.
7
Pre-tax profit
11
22
-49
37
-70
Taxation
-5
-2
124
-6
-22
9
21
-58
34
-74
Net profit/loss Depreciation
18 n.m.
7
8
-4
8
-8
EBITDA
26
5
415
35
-26
EBITDA margin
16
3
Net Debt Net FX position
23
320
194
65
82
288
-436
-155
181
-101
332 Source: Akenerji
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
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Akenerji
Financials –Akenerji CONSOLIDATED INCOME STATEMENT (IFRS) In TRY mn, IFRS
2007
2008
2009E
2010E
2011E
Total revenues
452
607
450
564
628
COGS
439
507
363
436
488
Gross profit
14
100
87
127
140
Opex
69
35
34
42
47
EBITDA
-4
96
104
154
169 76
Depreciation
51
32
51
68
Operating income
-55
64
53
85
93
Financial Expense
-1
-32
49
24
22
Net other exp/inc.
0
3
3
3
4
Pre-tax income
-54
99
7
65
75
Tax
-15
10
2
16
16
0
0
-2
-14
-8
-40
89
7
63
66
2007
2008
2009E
2010E
2011E
4
34
-26
25
11
EBITDA Growth
n.m.
n.m.
9
47
10
Net Profit Growth
n.m.
n.m.
-92
818
5
3
16
19
23
22
EBITDA Margin
-1
16
23
27
27
Net Profit Margin
-9
15
2
11
10
Minority interest/other Net income
Ratios (%) Sales Growth
Gross Profit Margin
Source: Akenerji, UniCredit Research
CONSOLIDATED BALANCE SHEET In TRY mn Cash and liquid assets Inventories Accounts receivable
2007
2008
2009E
2010E
2011E
88
101
40
56
126
7
6
4
4
5
56
106
135
158
157
Other current assets
45
26
6
22
38
Total current assets
196
238
185
241
326
Fixed assets
284
466
739
804
759
0
0
221
252
269
Other non-current assets
116
157
111
84
92
Total non-current assets
400
623
1,071
1,140
1,121
Total assets
596
861
1,256
1,381
1,446
8
35
58
82
119
41
66
76
83
63
7
11
185
12
13
57
111
319
177
196 666
Intangible assets
Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt
147
260
458
674
Other non-current liabilities
1
10
10
11
12
Total non-current liabilities
149
270
468
685
678
Minority interest
1
1
2
2
2
Total shareholders' equity
389
478
467
517
570
Total liabilities and equity
596
861
1,256
1,381
1,446
Source: Akenerji, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
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Equity Research
Akenerji
CASH FLOW STATEMENT In TRY mn
2007
2008
2009E
2010E
Net income
-40
89
7
63
66
Depreciation
51
32
51
68
76
Changes in working capital
14
23
17
17
19
Other
-6
-44
232
-124
42
Operating cash flow Capex Other Investing cash flow Change in debt Dividends Other Financing cash flow
2011E
20
100
307
24
204
-85
-212
-367
-163
-55
0
-14
-203
-73
-97
-85
-226
-570
-236
-151
13
139
221
240
30
0
0
-18
-12
-13
0
0
0
0
0
13
139
203
228
17
Source: Akenerji, UniCredit Research
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş
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Turkish Utilities
Disclaimer Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve the right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice. This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any financial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribe for any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not be suitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments. Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investment instrument or security under discussion are not explained in their entirety. This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their own determination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal, fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact their bank's investment advisor for individual explanations and advice. Neither Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd. and UniCredit Securities and and UniCredit Menkul Değerler A.Ş. nor any of their respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on this publication, and may not be redistributed, reproduced or published in whole or in part for any purpose. Responsibility for the content of this publication lies with: a) Bayerische Hypo- und Vereinsbank AG, Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to UniCredit Group. Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. b) Bayerische Hypo- und Vereinsbank AG Milan Branch, Via Tommaso Grossi, 10, 20121 Milan, Italy, duly authorized by the Bank of Italy to provide investment services. Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. The UniCredit CAIB Group, consisting of c) UniCredit CAIB AG, Julius Tandler-Platz 3, 1090 Vienna, Austria Regulatory authority: Finanzmarktaufsichtsbehörde (FMA), Praterstrasse 23, 1020 Vienna, Austria d) UniCredit CAIB Securities UK Ltd., Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom Regulatory authority: Financial Services Authority (FSA), 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom e) UniCredit Securities, Boulevard Ring Office Building, 17/1 Chistoprudni Boulevard, Moscow 101000, Russia Regulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia f) UniCredit Menkul Değerler A.Ş., Büyükdere Cad. No. 195, Büyükdere Plaza Kat. 5, 34394 Levent, Istanbul, Turkey Regulatory authority: Sermaye Piyasası Kurulu – Capital Markets Board of Turkey, Eskişehir Yolu 8.Km No:156, 06530 Ankara, Turkey This report may contain excerpts sourced from UniCredit Bank Russia, a member of the UniCredit group. If so, the piece and the content have not been materially altered. POTENTIAL CONFLICTS OF INTERESTS A&D Pharma Holdings N.V. 4; Agora 4; AmRest 3, 4; Asseco Poland 2, 4; Asseco Slovakia 2, 3; Bank Handlowy 3; Bioton S.A. 3, 4; Bulgarian American Credit Bank 4; CA Immo International 3; Central Cooperative Bank 1a; CEZ 3, 4; Cinema City International 3; Cyfrowy Polsat SA 2, 3; ECM 3; Empik 3; Erste Bank 2, 3; Eurocash 4; Getin Holding 4; GTC 3; Immoeast 3; ING Bank Slaski SA 2; KGHM SA 3; Komercni Banka 3; LC Corp. 3; Lotos 3; New World Resources N.V. 2, 3, 4; Noble Bank SA 3; OMV 3; Orco Property Group 3; PBG S.A. 2; Pegas Nonwovens S.A. 3; Philip Morris CR 3; PKN 3; PKO BP 3; Polskie Górnictwo Naftowe 3; Raiffeisen International 2, 3; Ronson Europe N.V. 3; Sava Re 2, 4; Strabag SE 2, 3; Telefonica O2 CR 3; Telekomunikacja Polska SA 3; Tofas Fabrika 4; TVN 3, 4; Unipetrol 3; Vienna Insurance Group 3; Warimpex 3; Wienerberger 3; Zakladny Azotowe Pulawy 3; Zaklady Metali Lekkich Kety SA 1a Aareal Bank 2, 3; adidas 4; ADLER Real Estate 3; Air Liquide 3; Alcatel-Lucent 3; Allgeier Holding 3, 4; Allianz 1b, 3, 6a; AMB Generali Holding 3; Aragon 3; BASF SE 2; BBVA 3; Bertrandt 3; BMW 2, 3; BNP Paribas 2, 3; Carrefour 3; Commerzbank 2; Crédit Agricole 2, 3; Credit Suisse 2; Daimler 2, 3, 4; DEPFA BANK plc 2, 3; Deutsche Bank 3; Deutsche Telekom 2, 3; DIC Asset 3; E.ON 2, 3; EADS 3; ENEL 3, 6a, 7; Escada 2; FJA 4; France Telecom 2, 3; Fresenius SE 2; Grammer 3; Graphit Kropfmühl 3; hotel.de 1a, 3; Hypo Real Estate Group 2, 3; IDS Scheer 3; itelligence 3; Koenig & Bauer 2, 3, 4, 6a; LEONI 4; MPC Capital 2, 4; Nokia 3; Nordex AG 1a; Novartis 2; POLIS Immobilien 3; Postbank 2, 3, 4; Premiere 2, 4; PROCON MultiMedia AG 3, 5; Rhön-Klinikum 3; Roche 2; RWE 2; Santander 2, 3, 4; SGL Group 6a; Sixt 3; Société Générale 2, 3; SoftM 3; STMicroelectronics 3; Telefonica 2; Teles 3; ThyssenKrupp 2; TUI 4; UBS 2, 4; Vizrt 3; Volkswagen 1a, 2, 3; WashTec 4 A2A 3; Acotel 3, 5; ACTELIOS 3, 5, 7; Aicon 7; ALLEANZA 1a, 3; Ansaldo STS 7; Astaldi 3, 5; Autogrill 7; BANCA GENERALI 1a; Banca Monte dei Paschi di Siena 3; Banco Popolare 3; Bialetti 5, 7; BREMBO 7; BULGARI 3; CAD IT 3, 5; Cairo Communication 1a; Damiani 3, 5; De' Longhi 7; Digital Multimedia Technologies 3, 5; EDISON 7; ELICA 7; ENEL 3, 6a, 7; ENI 2, 3; Erg 3, 4, 7; ERG Renew 3, 4, 7; EXOR S.P.A. 6a; Fastweb 7; Fiat 3, 7; Finmeccanica 2, 3, 7; Generali 1a, 3; GEOX 3; Hera 4, 7; IFIL 6a; IMA 3, 5; Indesit Company 7; Intesa Sanpaolo 3; IT HOLDING 7; ITALCEMENTI 3, 6a; LOTTOMATICA 3, 7; LUXOTTICA GROUP 3; Mediaset 3; MEDIOLANUM 3; Pirelli 3, 6a, 7; Poltrona Frau 1a, 3, 5, 7; Prima Industrie 2, 7; Prysmian 3; REPLY 3, 5; Safilo Group 7; SAIPEM 3; SARAS 7; Seat Pagine Gialle 3; Snam Rete Gas 3; SOGEFI 3, 5; STEFANEL 7; STMicroelectronics 3; Telecom Italia 3, 6a; TELECOM ITALIA MEDIA 6a; TENARIS 3; Terna 3; TISCALI 3; UBI Banca 3; UNIPOL 3 A-TEC Industries 4; Andritz 3; AT&S 2; Austrian Airlines 3; Bwin 3; BWT 3; CA Immo 1a, 3, 4; CA Immo International 3; Century Casinos 3; conwert 3; CWT 3; DO & CO 3; Erste Bank 2, 3; EVN 2, 3; Immoeast 3; Mayr-Melnhof 3; OMV 3; Österreichische Post 3; Palfinger 3; Polytec Holding 3; Raiffeisen International 2, 3; RHI 3; SBO 2, 3; Semperit 3; Strabag SE 2, 3; Telekom Austria 2, 3; Verbund 3, 4; Vienna Insurance Group 3; Vienna Int. Airport 3; voestalpine 2, 3; Warimpex 3; Wienerberger 3; Wolford 3; Zumtobel 3 Acron 4; Caspian Services 1a; Lukoil 3; Norilsk Nickel 3; Rambler 3; RBC 1a; ShalkiyaZinc 1a; Steppe Cement 3; SurgutNG 3; Tatneft 3; TGK 12 (Kuzbassenergo) 2; TGK 14 2; UES Basket 1a; Urals Energy 3, 4; Vimpelcom 2; Yensei TGK (TGK 13) 2 Tofas Fabrika 4
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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Turkish Utilities
Key 1a: Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated with it (pursuant to relevant domestic law) owns at least 2% of the capital stock of the company. Key 1b: The analyzed company owns at least 2% of the capital stock of Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated with it (pursuant to relevant domestic law). Key 2: Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated with it (pursuant to relevant domestic law) belonged to a syndicate that has acquired securities or any related derivatives of the analyzed company within the twelve months preceding publication, in connection with any publicly disclosed offer of securities of the analyzed company, or in any related derivatives. Key 3: Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated (pursuant to relevant domestic law) administers the securities issued by the analyzed company on the stock exchange or on the market by quoting bid and ask prices (i.e. acts as a market maker or liquidity provider in the securities of the analyzed company or in any related derivatives) Key 4: The analyzed company and Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated (pursuant to relevant domestic law) concluded an agreement on services in connection with investment banking transactions in the last 12 months, in return for which the Bank received a consideration or promise of consideration. Key 5: The analyzed company and Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. and/or a company affiliated (pursuant to relevant domestic law) have concluded an agreement on the preparation of analyses. Key 6a: Employees of Bayerische Hypo- und Vereinsbank AG Milan Branch and/or members of the Board of Directors of UniCredit (pursuant to relevant domestic law) are members of the Board of Directors of the Issuer. Members of the Board of Directors of the Issuer hold office in the Board of Directors of UniCredit (pursuant to relevant domestic law). Key 6b: The analyst is on the supervisory/management board of the company they cover. Key 7: Bayerische Hypo- und Vereinsbank AG Milan Branch and/or other Italian banks belonging to the UniCredit Group (pursuant to relevant domestic law) extended significant amounts of credit facilities to the Issuer.
RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY Overview of our ratings You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings on our websites hvbmarkets.de and http://www.mib-unicredit.com/research-disclaimer under the heading “Disclaimer.” The history of recommendations is not provided for HVB Milan and UniCredit CAIB AG. Note on what the evaluation of equities is based: We currently use a three-tier recommendation system for the stocks in our formal coverage: Buy, Hold, or Sell (see definitions below): A Buy is applied when the expected total return over the next twelve months is higher than the stock's cost of equity. A Hold is applied when the expected total return over the next twelve months is lower than its cost of equity but higher than zero. A Sell is applied when the stock's expected total return over the next twelve months is negative. We employ three further categorizations for stocks in our coverage: Restricted: A rating and/or financial forecasts and/or target price is not disclosed owing to compliance or other regulatory considerations such as blackout period or conflict of interest. Coverage in transition: Due to changes in the research team, the disclosure of a stock's rating and/or target price and/or financial information are temporarily suspended. The stock remains in the research universe and disclosures of relevant information will be resumed in due course. Not rated: Suspension of coverage. Company valuations are based on the following valuation methods: Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, historical valuation approaches, discount models (DCF, DVMA, DDM), break-up value approaches or asset-based evaluation methods. Furthermore, recommendations are also based on the Economic profit approach. Valuation models are dependent on macroeconomic factors, such as interest rates, exchange rates, raw materials, and on assumptions about the economy. Furthermore, market sentiment affects the valuation of companies. The valuation is also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Our recommendations and target prices derived from the models might therefore change accordingly. The investment ratings generally relate to a 12-month horizon. They are, however, also subject to market conditions and can only represent a snapshot. The ratings may in fact be achieved more quickly or slowly than expected, or need to be revised upward or downward. Note on the bases of evaluation for interest-bearing securities: Our investment ratings are in principle judgments relative to an index as a benchmark. Issuer level: Marketweight: We recommend having the same portfolio exposure in the name as the respective reference index (the iBoxx index universe for high-grade names and the ML EUR HY index for sub-investment grade names). Overweight: We recommend having a higher portfolio exposure in the name as the respective reference index (the iBoxx index universe for high-grade names and the ML EUR HY index for sub-investment grade names). Underweight: We recommend having a lower portfolio exposure in the name as the respective reference index (the iBoxx index universe for high-grade names and the ML EUR HY index for sub-investment grade names). Instrument level: Core hold: We recommend holding the respective instrument for investors who already have exposure. Sell: We recommend selling the respective instrument for investors who already have exposure. Buy: We recommend buying the respective instrument for investors who already have exposure. Trading recommendations for fixed-interest securities mostly focus on the credit spread (yield difference between the fixed-interest security and the relevant government bond or swap rate) and on the rating views and methodologies of recognized agencies (S&P, Moody’s, Fitch). Depending on the type of investor, investment ratings may refer to a short period or to a 6 to 9-month horizon. Please note that the provision of securities services may be subject to restrictions in certain jurisdictions. You are required to acquaint yourself with local laws and restrictions on the usage and the availability of any services described herein. The information is not intended for distribution to or use by any person or entity in any jurisdiction where such distribution would be contrary to the applicable law or provisions. The prices used in the analysis are the closing prices of the appropriate local trading system or the closing prices on the relevant local stock exchanges. In the case of unlisted stocks, the average market prices based on various major broker sources (OTC market) are used.
Bayerische Hypo- und Vereinsbank AG UniCredit CAIB Group UniCredit Menkul Değerler A.Ş.
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SIGNIFICANT FINANCIAL INTEREST: Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities, UniCredit Menkul Değerler A.Ş. and/or a company affiliated (pursuant to relevant national German, Italian, Austrian, UK, Russian and Turkish law) with them regularly trade shares of the analyzed company. Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit CAIB Securities UK Ltd., UniCredit Securities and UniCredit Menkul Değerler A.Ş. may hold significant open derivative positions on the stocks of the company which are not delta-neutral. Analyses may refer to one or several companies and to the securities issued by them. In some cases, the analyzed issuers have actively supplied information for this analysis. ANALYST DECLARATION The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly. ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST To prevent or remedy conflicts of interest, Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, UniCredit CAIB Securities UK Ltd., Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit Securities and UniCredit Menkul Değerler A.Ş. have established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interest arising are managed by legal and physical and non-physical barriers (collectively referred to as “Chinese Walls”) designed to restrict the flow of information between one area/department of Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, UniCredit CAIB Securities UK Ltd., Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit Securities and UniCredit Menkul Değerler A.Ş. and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department. In the case of equities execution by Bayerische Hypo- und Vereinsbank AG Milan Branch, other than as a matter of client facilitation or delta hedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interests is made in the research. Analysts are supervised and managed on a day-to-day basis by line managers who do not have responsibility for Investment Banking activities, including corporate finance activities, or other activities other than the sale of securities to clients.
ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED Notice to Austrian investors This document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, in whole or part, for any purpose. Notice to Czech investors This report is intended for clients of Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, UniCredit CAIB Securities UK Ltd., Bayerische Hypo- und Vereinsbank AG Milan Branch, UniCredit Securities and UniCredit Menkul Değerler A.Ş. in the Czech Republic and may not be used or relied upon by any other person for any purpose. Notice to Italian investors This document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007. In the case of a short note, we invite the investors to read the related company report that can be found on UniCredit Global Research website www.globalresearch.unicreditmib.eu. Notice to Russian investors As far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation “On the Securities Market” dated April 22, 1996, as amended, and are not being offered, sold, delivered or advertised in the Russian Federation. Notice to Turkish investors Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided in accordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and the clients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not suit your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequences that meet your expectations. Notice to Investors in Japan This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to UK investors This communication is directed only at clients of Bayerische Hypo- und Vereinsbank AG, UniCredit CAIB AG, UniCredit CAIB Securities UK Ltd. or Bayerische Hypo- und Vereinsbank AG Milan Branch who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Notice to U.S. investors This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or
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Equity Research
Turkish Utilities
issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of UniCredit Capital Markets, Inc. (“UCI Capital Markets”). Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UCI Capital Markets. The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and reporting standards as U.S. issuers. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UCI Capital Markets is not registered or licensed to trade in securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. The information in this publication is based on carefully selected sources believed to be reliable, but UCI Capital Markets does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author’s judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice. UCI Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance. UCI Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company’s actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement This document may not be distributed in Canada or Australia.
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UniCredit Research* Thorsten Weinelt, CFA Global Head of Research & Chief Strategist +49 89 378-15110
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Equity Research Mark Robinson, Head +44 20 7826 7960 Tomasz Bardziłowski, CFA, Deputy Head, Head of EME Research +48 22 586 2979
EME Sector Analysts Banks Gyorgy Olah +44 20 7826 7968 Adriana Marin +40 21 206 4698 Radena Georgieva +44 20 7826 7959 Rustam Botashev, CFA +7 495 777 8877 ext. 3129 Iza Rokicka +48 22 586 2387 Ercan Uysal +90 212 3859538 Consumer/Retail Anna Kochkina +7 495 777 8877 ext. 3120 Michal Potyra +48-22-5862972 Insurance Radena Georgieva +44 20 7826 7959 IT Przemysław Sawała-Uryasz +48 22 586 2960 Nadezhda Golubeva, CFA +7 495 777 8834 Infrastructure/Small caps Patrick Basiewicz +44 20 7826 7957 Elvin Akbulut +90 212 3859525 Ozgur Goker +90 212 3859528 Canan Yilmaz +90 212 3859527 Media Anna Kurbatova +7 495 777 8829 Przemysław Sawała-Uryasz + 48 22 586 2960 Metals & Mining Marat Gabitov +7 495 777 8877 ext. 3138 George Buzhenitsa +7 495 777 8877 ext. 3131 Oil & Gas Artem Konchin +7 495 777 8838 Róbert Réthy, CFA +36 1 374 7934 Ilya Balabanovsky +7 495 777 8877 ext. 3119 Pavel Sorokin +7 495 777 8877 ext. 3123
Ben Carey, MBA, Co-Head, Russia/CIS Research +44 20 7826 7951 Julia Bushueva, Co-Head, Russia/CIS Research +7 495 777 8877 ext. 3124
Regional Research Pharmaceuticals Anna Kochkina +7 495 777 8877 ext. 3120 Adriana Marin +40 21 206 4698 Real Estate Alexander Hodosi +43 50505 82359 Rafał Ałasa +48 22 586 2985 Telecoms Anna Bossong, CFA +44 20 7826 7954 Nadezhda Golubeva, CFA +7 495 777 8834 Anna Kurbatova +7 495 777 8829 Utilities Dmytro Konovalov +7 495 777 8877 ext. 3117 Dan Karpisek, CFA +420 22 111 2570
Strategists Equity Mark Robinson +44 20 7826 7960 Roger Monson, CFA +44 20 7826 7963 Julia Bushueva +7 495 777 8877 ext. 3124 Patrick Basiewicz +44 20 7826 7957 Durukal Gun +90 212 3859526 Economics, Fixed Income & FX Martin Blum +43 50505 82363 +43 664 313 46 02 Dmitry Gourov +43 50505 82364 Vladimir Osakovsky + 7 495 258 7258 ext. 7558 Goran Šaravanja +385 1 6006 678 Pavel Sobisek +420 22115 2504 Gyula Toth +43 50505 82362
Bulgaria Radena Georgieva +44 20 7826 7959 Croatia Goran Šaravanja +385 1 6006 678
Turkey Ercan Uysal Head of Research +90 212 3859538 Elvin Akbulut +90 212 3859525 Ozgur Goker +90 212 3859528 Durukal Gun +90 212 3859526 Evren Gezer +90 212 3859529 Canan Yilmaz +90 212 3859527 Gyula Toth +43 50505 82362
Czech Republic Dan Karpisek, CFA +420 22 111 2570 Pavel Sobíšek +420 22 111 2504 Hungary Róbert Réthy, CFA +36 1 374 7934 Gyula Toth +43 50505 82362 Poland Tomasz Bardziłowski, CFA +48 22 586 2979 Przemysław Sawała-Uryasz + 48 22 586 2960 Iza Rokicka +48 22 586 2387 Marcin Gatarz +48 22 586 2964 Michał Potyra +48 22 586 2972 Rafał Ałasa +48 22 586 2985 Maria Szymańska +48 22 586 2967 Romania Adriana Marin Head of Research +40 21 206 4698 Carmen Arsene, CFA +40 21 206 4697 Anca Stoicescu +40 21 206 4684 Serbia Goran Šaravanja +385 1 6006 678 Slovenia Goran Šaravanja +385 1 6006 678 Patrick Basiewicz +44 20 7826 7957
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Russia and FSU Strategy Julia Bushueva +7 495 777 8877 ext. 3124 Economics Vladimir Osakovsky + 7 495 258 7258 ext. 7558 Banks Rustam Botashev, CFA +7 495 777 8877 ext. 3129 Media Anna Kurbatova +7 495 777 8829 Metals & Mining Marat Gabitov +7 495 777 8877 ext. 3138 George Buzhenitsa +7 495 777 8877 ext. 3131
Heads of Equity Research Germany Andreas Heine/Georg Stürzer +49 89 378 16921/18252 Italy Roberto Odierna +39 02 88628912 Austria Peter Bauernfried +43 50505 82368 Equity Strategy Gerhard Schwarz +49 89 378 12421 ESG Research Patrick Berger, CFA +44 20 7826 7952
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* UniCredit Research is the joint research department of Bayerische Hypo- und Vereinsbank AG (HVB), UniCredit CAIB Group (UniCredit CAIB), UniCredit Securities (UniCredit Securities) and UniCredit Menkul Değerler A.Ş. (UniCredit Menkul)
