TURKEY
[email protected] +90 212 317 2727 January 7, 2015
TOP PICKS Our Top Picks list has outperformed the BIST-100 Total Return Index† by 0.9% since December 1, 2014, when our last update was issued. The
PORTFOLIO UPDATE Top Picks
model portfolio has generated a 34% return in 2014. Ticker
With this first update of the year, we undertake a major overhaul of our
Recom.*
Stock
Top Picks list: Bagfas, Dogus Otomotiv, Soda Sanayi, THY and
L/T
TSKB replace Akcansa, Enka Insaat, Ford Otosan, Halkbank and Tekfen Holding. As for our Least Preferred Stocks list, Anadolu Cam, Anadolu Efes and Arcelik are added, while Tofas is dropped.
Share Price (TRL)
Target Price (TRL)
12M Target Upside
S/T
THYAO
THY
B
OP
10.20
12.00
18%
AKSEN
Aksa E.
B
OP
2.94
4.00
36%
TUPRS
Tupras
B
OP
56.60
65.42
16%
Thanks to its low CoR and robust NIM, we expect TSKB to attain 17%
ISCTR
Isbank
B
OP
6.41
7.90
23%
ROE in 2015, the highest among the banks in our coverage and way
PGSUS
Pegasus
B
OP
34.70
42.00
21%
above the 13% sector average. On the other hand, Halkbank, a stock
BAGFS
Bagfas
B
OP
14.30
16.84
18%
we discard from our model portfolio, should continue to reel from the
SODA
Soda
B
OP
4.49
5.30
18%
rights issue announcement in the short term.
TSKB
TSKB
B
OP
2.05
2.50
22%
We replace Ford Otosan with Dogus Otomotiv, following a 14%
DOAS
Dogus O.
B
OP
12.30
14.00
14%
VAKBN
Vakifbank
H
OP
5.05
5.90
17%
outperformance of the former against the BIST-100 since its inclusion in our Top Picks list in May’14. We continue to like Ford Otosan and reckon a strong year lies ahead for the Company, yet expect Dogus to perform
Banks’ Weight
better in the near term, given a positive passenger car demand outlook,
* Please refer to p.10 for abbreviations.
Previous
New
29%
28%
thanks to low interest rates and a flattish EUR vs. TRL. Low jet fuel prices should reflect positively on THY’s margins in the near term, which is expected to offset any demand driven negative impact
Portfolio Adjustments
from yield pressure in the seasonally weak first quarter. Moreover,
IN
valuation multiples are well below those of peers. Bagfas’s net profit increased from TRL0.4mn in 9M13 to TRL17.2mn in
Top Picks
Least Preferred
BAGFS, DOAS, SODA, THYAO, TSKB AKCNS, ENKAI, FROTO, HALKB, TKFEN
OUT
9M14, on lower raw material costs and a weaker TRL vs. the US$. We
ANACM, AEFES, ARCLK TOASO
expect the recovery to have been sustained through the rest of the year, and the FY14 results to mark a significant yoy improvement. The new 660k tonne AN/CAN fertiliser plant will come on stream by Mar’15.
BIST -100† 0.3%
Relative† 0.9%
12m 39.0% Please refer to p.10 of this report.
33.5%
4.1%
Since Last Update
We consider Soda Sanayi a defensive stock in the face of TRL weakness, thanks to its FX-denominated and export-driven revenues
Top Picks 1.3%
†
versus only c.20% of its CoGS being in FX terms. As a result of an upward adjustment to our US$/TRL forecast and reduction in risk free rate to 9.25%, we raise our target price by 16% to TRL5.3/share, and
Least Preferred Stocks **
upgrade our ratings to BUY (L/T) and OUTPERFORM (S/T).
S/T
Share Price (TRL)
Target Price (TRL)
12M Target Upside
UP
1.29
1.10
-15%
UP
2.02
2.30
14%
H
UP
21.95
25.00
14%
H
UP
15.10
16.50
9%
Emlak R.
H
UP
2.82
3.20
13%
Gubre Fab.
S
UP
5.28
4.92
-7%
Recom.*
Ticker
Stock
L/T
outperformance since entry in Aug’14, as well as a key short term
AKENR
Akenerji
H
catalyst; i.e. TANAP contract, having been realised. Likewise, we drop
ANACM
Anadolu C.
H
AEFES
A. Efes
ARCLK
Arcelik
EKGYO GUBRF
We remove Tekfen Holding from our model portfolio in view of its 13%
Akcansa from our Top Picks list, given a 6% outperformance since we included the stock as of Nov’14. As for Enka Insaat, although the stock still offers value even after incorporating conservative assumptions for its real estate assets in Russia, the dependence of Contracting revenues on oil rich countries’ prospects, and the scope for further devaluation of the RUB - amid dwindling oil prices and persisting trade sanctions - compel us to drop ENKAI from our Top Picks list.
* Please refer to p.10 for abbreviations. ** S/T ratings of all Least Preferred Stocks are Underperform.
Ticker
Stock
Weight %
Share Price (TRL)
Target 12M Market 3-mth Price Target Cap ADV (TRL) Upside (US$bn) (mn USD)
P/ E
Key Multiple *
14E 15E 16E 14E 15E 16E
Relative Performance 1m
YTD
Top Picks THYAO
Turkish Airlines
12.0
10.20
12.00
18%
6.01
134.8
7.4
8.7
10.8
7.1
5.8
5.6
6%
5%
AKSEN
Aksa Enerji
11.4
2.94
4.00
36%
0.77
5.5
23.0
11.6
9.6
10.1
7.9
6.2
-5%
-1%
TUPRS
Tupras
11.2
56.60
65.42
16%
6.05
26.0
7.8
11.4
11.5
13.3
6.8
6.8
10%
1%
ISCTR
Isbank
11.0
6.41
7.90
23%
12.32
100.0
8.9
7.9
6.9
1.1
1.0
0.9
6%
-6%
PGSUS
Pegasus
10.7
34.70
42.00
21%
1.52
32.6
19.4
13.1
10.2
9.0
7.6
6.4
4%
4%
BAGFS
Bagfas
9.5
14.30
16.84
18%
0.27
6.9
36.1
12.4
9.7
25.2
9.6
7.2
-1%
4%
SODA
Soda
8.9
4.49
5.30
18%
0.96
0.9
5.9
7.1
6.5
5.8
5.1
4.7
-2%
4%
TSKB
TSKB
8.7
2.05
2.50
22%
1.31
2.3
8.0
7.5
6.7
1.4
1.2
1.1
3%
1%
DOAS
Dogus Otomotiv
8.7
12.30
14.00
14%
1.16
2.7
11.6
10.1
8.7
11.4
8.6
7.2
0%
2%
VAKBN
Vakifbank
8.1
5.05
5.90
17%
5.39
108.5
8.2
7.0
6.1
0.9
0.8
0.7
-1%
3%
*
E V /E BITDA for non-financials, P /B for financials, E V /E BITDA R for P G S U S & THYA O ; all prices are as of Jan 5, 2015
Historic Performance (TRL) Since Entry Ticker
Since Last Update (Nov 28, 2014)
Status
Entry Date
Abs
Rel
Abs
Rel
FROTO
Out
13-May-14
31%
14%
9%
9%
ENKAI
Out
31-Oct-14
-2%
-9%
-9%
-9%
ISCTR
Contin.
17-Sep-13
23%
4%
4%
4%
AKSEN
Contin.
6-Nov-14
5%
-6%
-5%
-5%
PGSUS
Contin.
12-Aug-14
34%
20%
7%
7%
AKCNS
Out
28-Nov-14
6%
6%
6%
6%
TUPRS
Contin.
20-Aug-14
16%
6%
13%
13%
HALKB
Out
28-Nov-14
-11%
-11%
-11%
-11%
TKFEN
Out
12-Aug-14
26%
13%
-1%
-1%
VAKBN
Contin.
11-Sep-14
5%
-4%
-1%
-1%
1.3%
0.9%
2
Portfolio Update
TOP PICKS Turk Hava Yollari: The Company is estimated to have sustained its
Share Capitalization Data (TRLmn)
strong performance of the past two quarters in 4Q14, driven by an
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
improvement in yields and ebbing jet fuel prices. For 2015, we forecast 14% passenger growth and 80% load factor that would be 1pp higher yoy. The Company is set to increase its capacity (ASK) by 16% in 2015. Low jet fuel prices should reflect positively on THY’s margins in the near term, which is expected to offset any demand driven negative impact from yield pressure in the seasonally weak Z
first quarter. The Company hedged c.37% of its expected fuel consumption for 2015, while fuel surcharges cover c.60% of fuel expenses, based on our calculations. The coverage is higher in longhaul destinations, where THY has a competitive advantage over its peers, especially for transit traffic, as it flies to more countries than any other airline. A delay in the opening of Istanbul’s new airport is
THYAO TI BUY / OP TRL10.20 / $4.36 14,076 / 6,013 TRL12.00
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
18% 1,380 mn 305 / 135
Financials & Multiples (TRLmn) Sales EBITDAR Net Earnings P/E EV/EBITDAR
2014E
2015E
2016E
24,249 4,037 1,898 7.4 7.1
27,922 4,949 1,610 8.7 5.8
32,983 5,411 1,304 10.8 5.6
9
150
the main risk to both volume growth and yields, though the expansion of the parking space at Istanbul Ataturk Airport and the second runway at Sabiha Gokcen Airport are slated for completion by YE16. The stock is trading at attractive multiples that are well below those of global and local peers.
6 100 3 0 Feb-11
50 Aug-11
Feb-12
Aug-12
Close-TRL (LHS)
Aksa Enerji: Aksa remains among our top picks with attractive EBITDA and net earnings growth forecasts for 2015. The longawaited Bolu lignite fired power plant is due to come on stream in 2Q15 and make an addition of at least TRL100mn to Aksa’s EBITDA in 2015, and a further TRL180mn in 2016. Furthermore, the plant will serve to reduce the portfolio’s dependence on natural gas, mitigating supply and natural gas tariff risks, which have dented sentiment for the stock in recent years. Additionally, we think the Company’s strategy to cut back on future hydro investments is positive, as it will lead to a significant increase in free cash flow as of 2015, bringing down net debt to more manageable levels - a key concern held by investors. We think the EBITDA guidance is rather conservative, since Aksa could easily surpass the TRL450mn level in 2015, in our view, based on 2014E EBITDA of TRL360mn and Company guidance of an additional TRL100mn contribution from Bolu Goynuk plant. Even the conservative management guidance implies at least 25% EBITDA growth, which is quite appealing. We maintain our positive stance on the shares and think Aksa can outperform this guidance in 2015. While FX volatility and fluctuations in spot market electricity prices are predominant risk factors in the short term, we expect AKSEN to stand out as one of the most attractive re-rating stories of 2015.
Feb-13
Rel. Price (RHS)†
Share Capitalization Data (TRLmn) Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
AKSEN TI BUY / OP TRL2.94 / $1.26 1,803 / 770 TRL4.00
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
36% 613 mn 12 / 5
Financials & Multiples (TRLmn) Sales EBITDA Net Earnings P/E EV/EBITDA
2014E
2015E
2016E
1,988 362 79 23.0 10.1
2,217 451 156 11.6 7.9
2,518 547 188 9.6 6.2
6
300
4
200
2
100
0 Dec-11
0 Jul-12
Feb-13
Close-TRL (LHS)
Sep-13
Apr-14
Nov-14
Rel. Price (RHS)†
3
Portfolio Update
Tupras: Benchmark Mediterranean complex refining margins have jumped from US$0.3/bbl in 4Q13 to US$3.7/bbl in 4Q14, which, together with higher US$/TRL rates, presage strong refining margins for Tupras, although inventory losses might have some negative impact. Tupras recently completed its residuum upgrade project, which will transform low-profit and excess black products into highprofit and scarce white products (mainly diesel and jet fuel). Thanks to the residuum upgrade unit, we expect the EBITDA to double in 2015, to which there is an upside risk, we believe, due to possible
Share Capitalization Data (TRLmn) Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
estimates, (from 2014E adj. 20.6x and 13.3x). Note that the P/E is
60
The ongoing tax investigations at Tupras’s facilities, together with
50
continuing difficulties in crude supply (from Iraq and Iran) and a
40
EV/EBITDA are estimated to fall to 11.4x and 6.8x on our 2015
possible government intervention are among major risks. In addition, introduction of STAR refinery by 2018 is a long term threat. On the other hand, scrapping of sanctions against Iran, which remains a possibility, would be a major catalyst for Tupras shares.
16% 250 mn 59 / 26
Financials & Multiples (TRLmn)
below global peer average, while the EV/EBITDA is slightly above.
unit. With the projected boost to operating profitability, P/E and
BUY / OP TRL56.60 / $24.18 14,174 / 6,054 TRL65.42
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
Sales EBITDA Net Earnings P/E EV/EBITDA
inventory gains and a higher contribution from the aforementioned
TUPRS TI
2014E
2015E
2016E
41,309 1,308 1,827 7.8 13.3
37,200 2,649 1,239 11.4 6.8
39,092 2,605 1,235 11.5 6.8 150
100
30 20 Dec-11
50 Jul-12
Feb-13
Sep-13
Close-TRL (LHS)
Apr-14
Rel. Price (RHS)†
Isbank: Isbank delivered the highest qoq NIM improvement among
Share Capitalization Data (TRLmn)
large cap banks in 3Q14, while attaining above average loan growth.
commands one of the best asset quality metrics in the sector with the
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
NPL ratio at 1.6%, and its conservative lending policies should help
Financials & Multiples (TRLmn)
The Bank has the widest branch network among private banks and a strong retail base, enabling it to collect deposits at a more favourable rate compared to peers. We believe its strong deposit franchise will continue to benefit Isbank in a tighter liquidity environment. Isbank
the Bank to maintain its strong asset quality. We expect Isbank’s
Nov-14
ISCTR TI
BUY / OP TRL6.41 / $2.74 28,845 / 12,321 TRL7.90 23% 4,500 mn 226 / 100
2014E
2015E
2016E
158,491 134,448 3,236 26,209 8.9 1.1
182,466 152,263 3,640 29,281 7.9 1.0
210,403 177,310 4,183 32,736 6.9 0.9
Isbank’s ROE is now at par with the sector average despite large non-
Loans Deposits Net Earnings Sh. Equity P/E P/BV
core assets in the balance sheet, and there is further room for
12
150
trades at a mere 1.0x 2015E BV, at an 11% discount to peers,
8
125
despite strong core ROE. We think Isbank’s multiples should gradually
4
100
2015E CoR of 1.1% to remain below the sector average (1.4%). We have observed sale of non-core assets over the past few quarters. Isbank might continue to divest non-core assets in the coming quarters, which would increase the Bank’s free capital and ROE.
improvement as these non-core assets are offloaded. The stock
converge to peers’ average.
0 Dec/11
75 Jul/12
Feb/13
Sep/13
Close-TRL (LHS)
Apr/14
Nov/14
Rel. Price (RHS)†
4
Portfolio Update
Pegasus: We expect 4Q14 financials to prove similar to the prior
Share Capitalization Data (TRLmn)
two quarters, where strong passenger growth and improving yields
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
boosted revenues, while rising load factor and ebbing fuel prices had a beneficial effect on margins. Robust growth looks set to be sustained in 2015 as well, with new and maturing international
BUY / OP TRL34.70 / $14.82 3,549 / 1,516 TRL42.00
15% in 2015, which should translate into a comparable passenger
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
growth. Jet fuel prices remain subdued, which should reflect
Financials & Multiples (TRLmn)
destinations. The Company is set to increase its capacity (ASK) by
positively on margins in the near term. Domestically, the Company has been continuously gaining market share over the past three years from local peers, while its strong load factors should enable margin accretion over the medium term. Rising ancillary revenues, fuel hedging, and continuous cost control mechanisms are seen supportive of long term earnings growth. Despite a strong performance in recent months, the stock is still trading well below its all-time high of TRL44.0.
PGSUS TI
21% 102 mn 74 / 33
2014E
2015E
2016E
3,225 611 183 19.4 9.0
3,727 718 270 13.1 7.6
4,288 861 346 10.2 6.4
Sales EBITDAR Net Earnings P/E EV/EBITDAR 50.0
200
45.0 40.0 35.0
100
30.0 25.0 20.0 Sep-13
0 Dec-13
Mar-14
Jun-14
Close-TRL (LHS)
Sep-14
Rel. Price (RHS)†
Bagfas: Bagfas’s net profit increased from TRL0.4mn in 9M13 to
Share Capitalization Data (TRLmn)
TRL17.2mn in 9M14, on lower raw material costs and a weaker TRL
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
against the US$. We expect the recovery to have been sustained through the rest of the year, and the Company’s FY14 results to mark a significant yoy improvement. The new 660k tonne AN/CAN fertiliser plant will come on stream by March 2015. We expect the Company to post 72% CAGR in EBITDA over the next two years, assuming 60% capacity utilisation for CAN production in 2015, rising to 100% in 2016. 370k tonnes/annum of CAN sales had already
Dec-14
BAGFS TI BUY / OP TRL14.30 / $6.11 644 / 275 TRL16.84
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
18% 45 mn 15 / 7
Financials & Multiples (TRLmn) 2014E
2015E
2016E
347 35 18 36.1 25.2
797 86 52 12.4 9.6
1,039 102 66 9.7 7.2
tonnes/annum and currently met solely by imports. On our back-of-
Sales EBITDA Net Earnings P/E EV/EBITDA
the-envelope calculations, such a capacity expansion would raise our
20
200
15
150
10
100
been secured for 2015-2017 through export orders from Europe. Bagfas plans to raise the capacity of its 660k-tonne AN/CAN plant by 80-90% to meet domestic demand, estimated to be around 1.8mn
target price by 10% to TRL18.5. Bagfas’s sales are 100% in US$, while the respective percentage for its costs is around 80%. Therefore, operationally, a higher US$/TRL rate is beneficial for the Company. On the other hand, it has a EUR102mn net short FX position, which renders its bottom line vulnerable to fluctuations in EUR/TRL.
5 Feb-11
50 Aug-11
Feb-12
Close-TRL (LHS)
Aug-12
Feb-13
Rel. Price (RHS)†
5
Portfolio Update
Soda Sanayi: We consider Soda Sanayi as a defensive stock in the
Share Capitalization Data (TRLmn)
face of TRL weakness, thanks to its FX-denominated and export-
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
driven revenues versus only c.20% of its CoGS being in FX terms. Though the natural gas price hike of 9% as of Oct’14 should prevent margin expansion in 2015, the depreciation we forecast for the TRL should pave the way for EBITDA growth and FX gains. The stock trades at around 2015E 7x P/E and 5x EV/EBITDA, featuring among stocks with the lowest multiples in our coverage. As a result of an upward adjustment to our US$/TRL forecast and reduction in the
SODA TI BUY / OP TRL4.49 / $1.92 2,258 / 965 TRL5.30
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
18% 503 mn 2/1
Financials & Multiples (TRLmn) 2014E
2015E
2016E
1,615 368 385 5.9 5.8
1,790 406 318 7.1 5.1
1,884 423 346 6.5 4.7
announced their intention to sell a 26% aggregate stake in Soda
Sales EBITDA Net Earnings P/E EV/EBITDA
Sanayi in the near term, which should eventually prompt an increase
20
200
15
150
10
100
risk free rate to 9.25%, we raise our target price by 16% to TRL5.3/share,
and upgrade
our
ratings to
BUY (L/T)
and
OUTPERFORM (S/T). Note that Trakya Cam and Anadolu Cam
in free float from the current 10% level. While this share disposal could weigh on SODA shares in the short term, it bodes well for trading volumes in the long term. Furthermore, we view a potential upward trend in global soda prices as an upside risk.
5 Feb-11
50 Aug-11
Feb-12
Aug-12
Close-TRL (LHS)
Feb-13
Rel. Price (RHS)†
TSKB: TSKB has a lower risk profile compared to other banks,
Share Capitalization Data (TRLmn)
TSKB TI
considering its low duration and currency mismatch. Rates in
banks in our coverage. Thanks to its low CoR and robust NIM, we
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
TRL2.50 22% 1,500 mn 5/2
expect TSKB to attain 17% ROE in 2015, the highest among the
Financials & Multiples (TRLmn)
project finance loans remain strong, which should support the Bank’s NIM. A lengthier and more profound loan assessment process helps keep the Bank’s cost of risk at the lowest end of the sector, and its NPL ratio (0.3% in 3Q14) is the least among the
banks in our coverage and way above 13% average for the sector. As around 70% of the Bank’s interest income is in FX, the rise in average TRL/US$ rate should help to bring about a higher net income in TRL terms. We estimate loan growth reaching 19% and 18% in 2014 and 2015, respectively, exceeding the sector growth, thanks to strong demand in FX project finance loans. Despite such advantages, the stock is currently trading at 1.2x 2015E P/BV, at
Loans Deposits Net Earnings Sh. Equity P/E P/BV
BUY / OP TRL2.05 / $0.88 3,075 / 1,313
2014E
2015E
2016E
10,872 0 386 2,247 8.0 1.4
12,804 0 409 2,532 7.5 1.2
14,736 0 456 2,837 6.7 1.1
3
200
ROE, compared to the sector average of 15%. We, therefore,
2
150
believe it deserves a higher P/BV multiple. The Bank’s 2015E P/E
1
100
only a slight premium to the sector average, with 18% long term
(7.5x) is also way below the sector average (9.2x).
0 Dec/11
50 Jul/12
Feb/13
Sep/13
Close-TRL (LHS)
Apr/14
Nov/14
Rel. Price (RHS)†
6
Portfolio Update
Dogus Otomotiv: The pace of contraction in the domestic PC
Share Capitalization Data (TRLmn)
market has abated in recent months, and swung to growth in
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price
October, following 19% contraction within 9 months. Low interest rates and a less volatile currency, setting the stage for an improvement in consumer sentiment, should underpin 2015 sales, while 1H15 should be particularly robust given a low base. We forecast 6% volume growth for the light vehicle market (770k units) for the full year and 10% for 1H15. Despite 3% yoy lower PC sales, Dogus Otomotiv gained 3pp market share in 11M14 compared to a
DOAS TI BUY / OP TRL12.30 / $5.25 2,706 / 1,156 TRL14.00
Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
14% 220 mn 6/3
Financials & Multiples (TRLmn) 2014E
2015E
2016E
7,071 338 232 11.6 11.4
7,995 410 268 10.1 8.6
8,633 479 312 8.7 7.2
revised our forecasts given a positive outlook for the sector this
Sales EBITDA Net Earnings P/E EV/EBITDA
year and believe that consensus estimates are too low and poised
12
200
8
150
4
100
year ago and extended its lead over Renault. We expect the Company to at least maintain a 22% market share in the segment, which implies 10% yoy higher PC sales for 2015. We have recently
for upgrades: our revenue and EBITDA forecasts for the year are 8% and 12% higher than Bloomberg consensus, respectively. We like automotive sector’s prospects for 1H15 and view Dogus Otomotiv as the principal beneficiary, given a strong PC demand outlook, supported by low interest rates and a relatively stable currency.
0 Feb-11
50 Aug-11
Feb-12
Aug-12
Close-TRL (LHS)
Feb-13
Rel. Price (RHS)†
Vakifbank: Vakifbank’s TRL-heavy balance sheet (72% of deposits
Share Capitalization Data (TRLmn)
and 71% of loans in TRL) renders it more sensitive to volatility in
increases in NPL inflows in the sector in 3Q14, Vakifbank’s NPL
Recommendation (LT / ST) Close Price Current MCap. (TRL/US$ mn) Target Price Upside (Downside) Number of Shares 3M Avg. Daily Turnover (TRL/US$ mn)
inflows remained below its average for the last four quarters
Financials & Multiples (TRLmn)
TRL funding costs. Thus, while it suffered from higher rates in 1H14 and saw the widest yoy NIM contraction among large cap banks, Vakifbank should be one of the key beneficiaries of the easing in TRL rates expected in the coming months. While we have observed
(TRL334mn in 3Q14 vs. TRL353mn average). Though the Bank still has above average CoR, there has been an improving trend since 2Q13, and the collection performance in 9M14 was noteworthy. The Bank’s 94% coverage ratio is way above the 76% sector average, inflating provision expenses. A change to the provisioning policy may bring down provision expenses. The Bank recently sold shares in MasterCard and Visa. We calculate it may record around TRL300mn gain from the sale of these shares, which will support its bottom line
Loans Deposits Net Earnings Sh. Equity P/E P/BV
VAKBN TI
HOLD / OP TRL5.05 / $2.16 12,625 / 5,393 TRL5.90 17% 2,500 mn 245 / 109
2014E
2015E
2016E
102,037 93,847 1,540 14,151 8.2 0.9
118,488 107,366 1,796 15,849 7.0 0.8
136,578 119,541 2,084 17,820 6.1 0.7
8
and free capital. While the government is considering an SPO of
6
Vakifbank shares, we believe it would not opt for an SPO below book
4
value; as such, at these price levels, this is not an imminent threat.
2 0 Dec/11
200 150 100 50 Jul/12
Feb/13
Sep/13
Close-TRL (LHS)
Apr/14
Nov/14
Rel. Price (RHS)†
7
Portfolio Update
Least Preferred Stocks** Akenerji [AKENR TI] (L/T: HOLD, S/T: UP, Close: TRL1.29/US$0.55, Mcap: US$402mn, 3-mth ADV: US$9.09mn, TPrice:
TRL1.10) – Despite higher sales volumes on the back of 904MW Erzin NGPP coming on line; unfavourable input cost-sales price dynamics, high interest expenses, and FX losses on a weaker TRL are expected to eat into operating profits in 4Q14 and through 2015. The suspension of generation at the Erzin plant on technical reasons, along with lower generation yoy at hydro plants due to drought conditions, may also dinge 4Q14 and 1Q15 operating figures. Consequently, the odds of Akenerji recording a positive net profit in 2015 seem quite slim, in our view. Anadolu Cam [ANACM TI] (L/T: HOLD, S/T: UP, Close: TRL2.02/US$0.86, Mcap: US$383mn, 3-mth ADV: US$1.78mn,
TPrice: TRL2.30) – Given the economic slowdown in Russia, coupled with the devaluation of the Rouble, we project c.25% contraction in consolidated EBITDA and 400bp margin contraction for 2015. Following the currency adjustment in our model, we cut our target price by 11% to TRL2.3/share and downgrade our rating to HOLD. We believe the expected one-off gain associated with the sale of the Pasabahce stake to the EBRD in 4Q14 has been priced in. Anadolu Efes [AEFES TI] (L/T: HOLD, S/T: UP, Close: TRL21.95/US$9.38, Mcap: US$5,552mn, 3-mth ADV: US$2.86mn,
TPrice: TRL25.00) – We forecast mid-single-digit contraction in Anadolu Efes’s international and low-to-mid-single-digit contraction in Turkish beer volumes for 2015. Given a softening Rouble and Anadolu Efes’s FX-denominated costs, we project considerable margin contraction for the Company’s international operations. For Turkish operations, we expect the softening in beer sales to persist, due to the recently disclosed special consumption tax (SCT) hike of 10% in Turkey. Moreover, further TRL and Rouble weakness should dampen profitability, in view of Anadolu Efes’s US$-denominated borrowings. Arcelik [ARCLK TI] (L/T: HOLD, S/T: UP, Close: TRL15.10/US$6.45, Mcap: US$4,358mn, 3-mth ADV: US$9.01mn, TPrice:
TRL16.50) – The domestic white goods sector is expected to post solid growth in 1H15, supported by a relatively stable currency and low interest rates. On the other hand, a weak EUR could be a risk to exporters. The investment plan in Thailand should have no major impact in the near term. The stock’s valuation appears stretched both historically and compared to global peers. Emlak Konut REIT [EKGYO TI] (L/T: HOLD, S/T: UP, Close: TRL2.82/US$1.20, Mcap: US$4,577mn, 3-mth ADV:
US$56.05mn, TPrice: TRL3.20) – We think interest in real estate stocks should be muted particularly in 1H15, ahead of the general elections. Monthly rates hover at around 0.9%, and we do not anticipate a move below 0.85%, as expectations of higher rates, particularly in 2H15, might warrant caution on the part of banks. Although the valuation is not too demanding, we think the stock could offer more attractive entry points in the medium term, given expectations of a weak new unit sales performance; i.e. a decline of around 10-15% yoy, in 1H15. Gubre Fabrikalari [GUBRF TI] (L/T: SELL, S/T: UP, Close: TRL5.28/US$2.26, Mcap: US$753mn, 3-mth ADV: US$3.87mn,
TPrice: TRL4.92) – Following the peak in November, the price of ammonium - Razi’s major product - has retreated by 19% since then. Yet, Gubretas shares have fallen by only 3% within the same period. Assuming that fertiliser prices do not change significantly from current levels, we think the current stock price offers a good exit opportunity. The shares might lack a catalyst and Gubretas’s Razi operations might remain under pressure due to continuing sanctions, as well as the recent increase in natural gas prices in Iran. On the other hand, any removal of sanctions and/or a major upward movement in fertiliser prices would be major catalysts for the shares.
8
Portfolio Update
Methodology “Top Picks” comprises a monthly updated portfolio recommendation of our analysts. Through meetings, analysts try to convince each other on their picks. A stock that does not receive a vote from at least two analysts does not make it to the portfolio. The contribution of each stock and each analyst to the overall performance is closely monitored and used in the performance appraisal of the team members. Each analyst chooses a weight of 0, 5%, 7.5% or 10% for each stock from our recommendation list (an exception being high market cap and high liquidity stocks that could be accorded a weight of 15%), and the stocks that receive the highest ten scores enter the “Top Picks” portfolio. We provide our picks, the changes, as well as our performance through a monthly report. Our picks are limited to our coverage of 69 stocks, or c.81% of the entire market. Since our list covers 95% of the BIST-100, and stocks that are under coverage but not part of the BIST-100 constitute only 2% of our coverage, we use the BIST-100 as our benchmark. For a stock to be eligible for inclusion in the Top Picks portfolio, it should be accorded a “BUY” (L/T) or an “OUTPERFORM” (S/T) rating. To make things more realistic: 1) We include at most three stocks that we classify as “small cap/illiquid” to our model portfolio, however with a maximum total weight of 15%. We define a stock as small cap or illiquid if its market cap and average daily trading volume are below US$600mn and US$2mn, respectively. 2) Trade executions take place at the average price of the first session following our portfolio announcement. For this reason, we provide our recommendations and performance report before the session opening, based on the prior day closing prices, but correct them the following month in line with the executions.
† Relatives are against the BIST-100 Total Return Index, which is calculated with the assumption of “reinvested dividends”, rather than the BIST-100 Price Index, which is calculated in effect with the assumption of “wasted dividends”. We have decided to use the BIST-100 Total Return Index as the benchmark in April 2012, instead of the BIST-100 Price Index, effective January 1, 2008. As long as one or more of the constituent stocks for the BIST-100 pay dividends, it is more difficult for a portfolio of stocks to outperform the BIST-100 Total Return Index than the BIST-100 Price Index due to the latter’s assumption of “wasted dividends”. The BIST-100 Total Return Index has outperformed the BIST-100 Price Index by 2.4% per annum from 2008 through 2011.
9
Portfolio Update
Burgan Securities - Equity Rating System 12-month Rating: Our 12-month rating system comprises the following designations: BUY (B), HOLD (H), SELL (S). The absolute upside to target value implied by the current market capitalisation is the main determinant of our rating system. Valuation tools employed most frequently are Discounted Cash Flow (DCF) and international peer group comparison, though other metrics such as historical relative valuation, price to book, return on equity, replacement value are also used wherever appropriate. Our analysts set the fair/target values with a 12-month investment horizon. Comparing the upside in a specific stock with the market’s upside (determined through the aggregate upside of our coverage based on free float Mcaps), in addition to taking other yardsticks into consideration, analysts recommend BUY (B), HOLD (H), SELL (S) based on their 12-month total return views.
Sector Rating Our investment horizon for industry ratings is again 12 months. This rating gives an indication as to how the analyst sees that particular industry for the next 12-month period in terms of growth, profitability, pricing power, competitive dynamics etc. The rating in this category thus reflects our analyst’s assessment of the conjunctural outlook for the industry, without involving any specific benchmarks. The ratings employed are Overweight (OW), Neutral (N), Underweight (UW). Overweight (OW): Due to improving sector related fundamentals and/or attractive valuations, the sector index is expected to perform better than the BIST-100 in the next 12-months Neutral (N): The sector index is expected to perform in line with the BIST-100 in the next 12-months Underweight (UW): Due to worsening sector related fundamentals and/or expensive valuations, the sector index is expected to perform worse than the BIST-100 in the next 12-months
Short-term Rating: Our short-term rating system comprises the following designations: OUTPERFORM (OP), MARKETPERFORM (MP), UNDERPERFORM (UP). Considering possible triggers, catalysts, and/or company, sector & market views, we rate the stocks as: Outperform (OP): If 3-month total return is expected to exceed the BIST-100 (sector index if specified) by more than 10%
S/T Stock Rating Summary
Relative Return
Outperform (OP)
>=10%
Marketperform (MP)
-10%
Underperform (UP)