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28 JANUARY 2015

EQUITIES RESEARCH

TURKEY STRATEGY

A little love goes a long way


We stick to our expectation of two opposite phases for 2015 divided into two
unequal parts an initial upbeat quarter followed by a down-cycle. Despite
accelerated outperformance of the BIST100 over MSCI EM since October 2014,
primarily on the back of the oil price downswing, the market is still not out of juice.
Ceteris paribus, we are in anticipation of the BIST100 index reaching our 96.1k
target the level where we recommend investors start taking profits in the next
couple of months, predominantly as an indirect consequence of fixed-income
inflows.
Ex-post annual CPI is to contract 170bp m-m to 6.5% in January and then to as low
as 5% levels mid-year on the back of lower commodity costs, less FX pass-through
and high food price base getting out of time series. As there has hardly been a high
real interest on top of backward looking inflation, we expect the benchmark bond
yield to slide down in tandem with contracting CPI. Low rates improve consumer
confidence, increase consumption and contribute to growth, and for the banks, they
magnify spreads, improve asset quality, boost bond mark-to-market gains and
contribute to volume expansion. Last but not least, low rates pull down CoEs
pushing up price objectives. We are running models with 7.75% Rf, which provides
a comfortable buffer over a 7% 10-year TRY bond yield.
We are looking for a downbeat turnaround as we draw closer to mid-year as the
Fed rate-hike pricing takes its toll, paving the way for unwinding of the pro-Turkey
trade that has been continuing since 2008. Turkeys general elections will also take
place concurrently with this tightening cycle in June 2015. Utility price hikes,
regulatory burdens, possible tax increases and all other potential voter unfriendly
moves are likely to set off afterwards. We will also be closely monitoring the
political will of the next administration in delivering the 1,350-article structural
reform package. Crude oil prices are likely to stabilise and start inching up as a
stronger USD may eventually lead China and India to level up their commodity
demand as US import appetite rises on the back of a stronger USD, eventually
contributing to the expected downswing in TRY asset prices.
Our equity investment strategy is to continue with overweight positioning in banks
and interest-rate sensitive cyclical names for now, and to switch into defensive
plays as we tap our Index target. We like companies that offer growth and
turnaround stories accompanied by appealing valuations. Halkbank (HALKB TI),
Turkcell (TCELL TI), Aselsan (ASELS TI), Tofas (TOASO TI), BIM (BIMAS TI) and
Coca Cola Icecek (CCOLA TI) are our preferences for 2015. On the negative side
of the trade we recommend avoiding Erdemir (EREGL TI), Turk Telekom (TTKOM
TI)) and Akbank (AKBNK TI).
Mete Yuksel
mete.yuksel@teb.com.tr
+90 216 6364536

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for
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APPENDIX ON PAGE 32

Turkey Strategy

Mete Yuksel

Top-down strategy outlook Isik Okte


Investment themes
Led by the oil dividend, Turkey has one of the best investment stories of the last
decade among emerging market countries. The question we should be asking
ourselves is how much of this story is priced into BIST100, Turkeys main equity
index, currently at 91.2k and only 2% from its all-time high.
We see the following eight positives as pillars of the Turkish equity story:
1 Inflows to Turkish fixed income instruments continuing after the sovereign bond
buying programme announced by the ECB;
2 Disinflationary pressures with the supply overhang in oil markets;
3 Improvement in current account deficit at a time when the Fed is getting ready to
start rate hikes;
4 Macro problems in Russia and Central Europe make Turkey look relatively
attractive among CEEMEA;
5 CBRT rate-cut cycle under way as disinflationary pressures and growth dynamics
(consumer confidence hits five-year lows, business confidence hits five-month
lows) dominate;
6 Fiscal discipline;
7 Political uncertainty out of the way until June 2015 elections;
8 Governments Kurdish Peace Process and structural reform packages aimed at
stability and growth.
While most of these positives are intertwined and well-known by the investing public,
Turkeys re-rating from a market standpoint is still under way. Since 2014, MSCI
Turkey has gained 23% and has outperformed the MSCI EM index by 24%. In 2015
year-to-date, the positive divergence is even more striking. MSCI Turkey is gaining
5% and is the second-best performing MSCI EM component, after India. With this
outperformance, MSCI Turkeys 12-month forward P/E discount to MSCI EM now
stands at 5%. Since Lehman, this discount averaged 16% on an annual basis until
2014 year-end.

EXHIBIT 1: Turkey vs. EM


1.4
1.3
1.2
1.1
1.0
`Turkey outperformance
accelerating`

0.9
0.8
Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Sources: Bloomberg; TEB Investment/BNP Paribas

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

In order for the BIST re-rating to continue at current levels, we need more macro
drivers. Here are three BIST-friendly scenarios that we believe are not being priced
in at the moment:

One possible driver may be rating outlook upgrades. Among the three major
credit rating agencies, Moodys and S&P have Turkeys rating outlook at negative,
whereas Fitch has a stable outlook for Turkey. We believe that with the ECB
delivering on the quantitative easing front and the current account deficit
continuing to improve on oil supply dynamics, all three agencies may raise Turkey
to a neutral or a positive outlook.
S&P rates Turkey one notch below investment grade so we believe that a ratings
outlook upgrade by S&P in their 8 May review is more of a possibility than one by
Moodys (10 April) or Fitch (20 March). We do not expect an outright rating
upgrade as all three agencies might want to see the effect of the Fed rate hike
cycle on global liquidity conditions before making such a move.

Another possibility for continued Turkish equity re-rating is a delay of a Fed lift-off
in rates. MSCI Turkey has outperformed MSCI EM by 38% since the launch of
the first quantitative easing programme by the Fed on 26 November, 2008.
Turkeys equity sensitivity to global liquidity conditions remains high and any
delay in Fed rate-hike action should be considered a positive.

EXHIBIT 2: MSCI TR vs. MSCI EM


MSCI TR

MSCI EM

350
300
250
200
150
100
50
Nov-08

38% Outperformance of
Turkey

First QE announcement by
the Fed
Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Sources: Bloomberg; TEB Investment/BNP Paribas

In our base-case scenario, we see the first rate hike in June 2015. But,
dependent on macro data out of the US, the Fed tightening cycle may be
postponed to 3Q15 or beyond. There is a growing voice among economists that
says a strong USD will hamper US growth. If this theory holds true, and US
macro data deteriorates, BIST interest-rate sensitive names may be the major
beneficiaries.

The extension of ambitious reform packages and success in their


implementation could anchor Turkeys re-rating story after the elections.
Turkeys politicians have been handed a once-in-a-lifetime opportunity by oil
supply dynamics to implement structural reforms. We know that the Turkish
government, although slow to react, is reform-minded and using every
opportunity to spur growth and lessen dependence on foreign energy. After the
June 2015 elections, we will enter a new era for these reforms, as well as for the
Kurdish Peace process.
Many market participants view Turkey as a liquidity story and to an extent, they
are right. But if these reforms were to change Turkeys growth trajectory to
upward momentum at a time when the Fed is hiking rates, this would be another
reason to own Turkish equities. We believe it is too early to talk about this
possible scenario, as we have to wait six months for the elections.

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

Risk factors
Downside risks to our positive call for Turkish equities include:
1 The Fed rate-hike cycle starting earlier than expected or the Fed rate hike cycle
being conducted at an accelerating pace as US growth picks up momentum
despite the strong USD;
2 The ECB failing to end low European growth or inflation, and markets losing faith
in ECB effectiveness and starting to sell European periphery fixed income;
3 EM contagion risks through Russia/Ukraine or Chinese shadow -banking
practices leading to higher risk premiums and higher EM FX volatility;
4 A rally in energy commodity markets;
5 Geopolitical risk through the rise of Islamic State.
These are all well-documented risks and we see no point in going over each one of
them. However, we want to highlight two risks (one macro-economic, one political)
that have the potential to be the Achilles heel.
We see rising risks to Turkeys tourism industry through lower oil prices. The
potential loss of Russian and Middle Eastern revenues is one key negative. For
exporters, a rising USD/falling EUR creates balance sheet risk if unhedged. Although
we view global FX and commodity market dynamics as positives in Turkeys
investment story, these two may come to hurt us down the road in 2015.
Another risk factor is changes in key economic posts or the CBRT laws after the
elections. If pro-growth structural reforms continue under the leadership of a viable
economy-czar after the elections, this risk factor has the potential to become a
strength. Otherwise, markets may get jittery. We are also alarmed by the growing
voice in the government that wants to change the CBRT laws to include growth and
employment targets. This might be perceived as a negative in terms of CBRT
independence.

Trading strategy
We have a bottom up target for BIST100 of 96.1k, representing 5% upside. We
prefer to remain long BIST equities despite low upside potential.
We would like to wait for a test of all-time highs at 93.4k. As with most technical alltime high prints, we expect a 2-3% overshoot to our 96.1k Index target as long as
TRY volatility remains in check and the 10-year U.S Treasury yield remains below
2%.
In 1H15, we would like to use any opportunities above our bottom-up target of 96.1k
as profit-taking opportunities and wait for better entry points around 85k.

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

Valuations not stretched


While market multiples are higher than the historical average for the Turkish market
they cannot be deemed demanding compared to historical valuation
discount/premiums of peers. The 11.2x 12-month forward looking P/E of MSCI TR
points to a 5% discount to MSCI EM, as compared to the 9% average discount for
the last five years. Due to discrepancies in the weighting of banks in different stock
markets, we prefer to use bank multiples in valuation comparisons. Banks are always
trading with lower multiples than non-financials, which might lead to the
misperception of the Turkish market always trading at a discount to peer countries
due to the heavy 36% banking sector weighting in the BIST100 index. As can be
seen in Exhibit 22, the banks in our coverage are trading at 10.4x 2015E P/E, at par
with the MSCI EM bank average. While average Turkey bank P/BV of 1.2x implies a
discount to the 1.4x EM EMEA average, this is justifiable through the ROE
differential. Instead of following a P/BV vs ROE scatter, tracking the P/E is a more
straightforward way (P/B/ROE=P/E). In all, rather than an across-the-board discount
for the whole banking sector, we are recommending exposure in select names
offering valuation discounts as well as catalysts.

EXHIBIT 3: 12-month forward looking P/E of MSCI Indices


(x)

MSCI TR

MSCI World

MSCI EM

MSCI EMEA

16
14
12
10
8
6
4
Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Sources: Bloomberg; TEB Investment/BNP Paribas

EXHIBIT 4: 12 Month forward looking P/E of MSCI Indices

Today
1Y average

MSCI TR

MSCI World

MSCI EM

MSCI EMEA

(x)

(x)

(x)

(x)

11.2

16.0

11.6

10.2

9.9

15.0

10.8

9.1

3Y average

9.8

13.1

10.4

8.4

5Y average

9.6

12.9

10.5

8.4

Sources: Bloomberg & TEB Investment/BNP Paribas

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 5: Historical discount/premium of MSCI Turkey


(%)

MSCI World

MSCI EM

MSCI EMEA

50
40
30
20
10
0
(10)
(20)
(30)
(40)
(50)
Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Sources: Bloomberg; TEB Investment/BNP Paribas

EXHIBIT 6: Historical discount/premium of MSCI Turkey


MSCI World

MSCI EM

MSCI EMEA

(%)

(%)

(%)

Today

(30)

(5)

1Y average

(34)

(8)

10

3Y average

(27)

(6)

18

5Y average

(25)

(9)

15

Sources: Bloomberg & TEB Investment/BNP Paribas

Another gauge we are tracking to identify the relative discount of the market is
economic value add of the earnings yield over benchmark bond, which is essentially
the difference between earnings yield (inverted P/E) and benchmark bond. Due to
the fast yield drop of the benchmark bond, investors can make 225bp more return
investing in stocks than bonds as compared to a five-year average incremental
return of 194bp, or a mere 100bp return in the last one year. So going long equities
hedged by a short position in bonds offers alpha.

EXHIBIT 7: 12 Month forward looking earnings yield vs. benchmark yield


(%)
14

(%)
6

12

10

0
Jan-10

Earnings yield (LHS)

Benchmark yield (LHS)

Spread (RHS)

(1)
Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Sources: Bloomberg; TEB Investment/BNP Paribas

EXHIBIT 8: Spreads
Spread
Current

2.20

1Y

1.00

3Y

1.72

5Y

1.94

Sources: Bloomberg; TEB Investment/BNP Paribas

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

Macro forecasts
EXHIBIT 9: Macro forecasts
-------------- Current forecasts -------------2012

2013

2014E

2015E

-------------------- Previous -------------------2013

2014E

2015E

Real sector
Real GDP (y-y %)

2.1

4.1

3.1

3.0

4.1

3.1

3.0

Nominal GDP (TRY b)

1,416.8

1,561.5

1,752.7

1,908.6

1,561.5

1,753.5

1,921.9

Nominal GDP (USD b)

787.8

820.9

800.1

793.9

820.9

802.5

817.3

CPI (y-y %)

6.2

7.4

8.2

6.2

7.4

8.7

6.7

CPI (avg %)

8.9

7.5

8.9

5.8

7.5

8.9

6.4

EUR/TRY (eop)

2.35

2.93

2.83

2.75

2.93

2.76

2.81

EUR/TRY (avg)

2.30

2.56

2.89

2.71

2.56

2.89

2.77

USD/TRY (eop)

1.78

2.13

2.33

2.50

2.13

2.26

2.44

USD/TRY (avg)

1.78

1.93

2.19

2.40

1.93

2.18

2.35

EUR/USD (eop)

1.32

1.38

1.22

1.10

1.38

1.22

1.15

EUR/USD (avg)

1.29

1.33

1.32

1.13

1.33

1.32

1.18

EUR/USD basket (eop)

2.06

2.53

2.58

2.63

2.53

2.51

2.62

Exchange rate and interest rates

Real effective exchange rate (y-y %)

2.5

(3.5)

(4.7)

4.6

(3.5)

(4.7)

4.6

Policy interest rate (eop %) *

5.57

7.75

8.25

7.25

7.75

8.25

8.25

Benchmark bond yield (eop %)

6.18

10.10

8.02

9.00

10.10

8.50

9.70

Benchmark bond yield (avg %)

8.15

7.63

9.19

7.89

7.63

9.23

9.23

(2.0)

(1.2)

(1.4)

(1.1)

(1.2)

(1.6)

(1.9)

1.4

2.0

1.4

1.7

2.0

1.2

0.9

Fiscal Sector, % of GDP


Central government balance
Central government primary balance
Central government primary balance (IMF definition)

(0.1)

1.0

0.9

1.3

1.0

0.7

0.5

Net public debt

17.0

14.1

12.2

10.3

14.1

12.5

11.5

Central government gross debt

37.5

37.5

36.2

33.7

37.5

36.4

34.8

(48.5)

(65.0)

(44.4)

(32.6)

(65.0)

(43.2)

(33.8)

(6.2)

(7.9)

(5.6)

(4.1)

(7.9)

(5.4)

(4.1)

External sector (USD b)


Current account
% of GDP

As of 14-Jan-15

As of 16-Dec-14

* The CBRT's weighted average cost of funding starting from 2011


Source: TEB Investment/BNP Paribas estimates

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

Key sectors for 2015


Banks will be the centre of attention for the whole year, firstly as the key beneficiaries
of sliding rates early in the year through such means as spread enhancement, asset
quality revival and volume expansion, and then on the opposite side of the trade as
the rate trajectory moves upwards with the Fed rate hike kicking in. For the year as a
whole, we recommend staying with selective non-cyclical names in telecoms,
beverage, food retailing and defense. For autos we have mixed feelings depending
on company-specific issues. Recent sizeable declines in product prices on slowing
global demand growth and surplus production capacity in steel prompt us to avoid
Erdemir. While we do not have any aviation stock among our preferences for 2015,
the lower oil price story should keep investor interest high.

Banking
(Fatih Topac, +90 216 636 4508, fatih.topac@tebyatirim.com.tr)
Since end-3Q14, the benchmark bond rate has come down by a significant 330bp.
However, given the CBRTs tightening stance, coupled with banks window-dressing
efforts, TRY deposit costs did not follow the benchmark. While sliding rates should
result in a surge in the trading lines of most banks, as they have been trading their
in-the-money available-for-sale securities YTD, q-q spread accretion is unlikely for
1Q15 due to inflated TRY deposit costs predominantly on the portfolios raised
towards the end of 2014. Due to the tight liquidity stance of the CBRT as well as a
stretched LTD of 118% for the system, deposit prices are set to make a lighter
downward move compared to bond yields, the spread impact for which can be
observed not earlier than 2Q15.

EXHIBIT 10: Tight monetary policy led to higher deposit


costs
(%)

EXHIBIT 11: NIM evolution


(NIM)

Average deposit rate


benchmark bond rate
Weighted average cost of CBRT Funding

14

4.0

3.89

3.8

12

3.66

3.61
3.6

10

3.58

3.58

2017E

2018E

3.50

3.4
8
3.2

Sources: CBRT; TEB Investment/BNP Paribas

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

6
3.0
2013

2014E

2015E

2016E

Sources: Company financials; TEB Investment/BNP Paribas estimates

This time around, in January 2015, the CBRT has shifted to a more dovish stance
and cut the policy rate by 50bp. As we see further easing of the weighted average
cost of funding, we think deposit costs have 100-150bp room to decline. This will
help the L/D spread to improve to some extent, in our view. Yet, given the expected
Fed rate hikes, the pressure on deposit costs and spreads will come back in 2Q15, in
our view. Moreover, an already stretched loan-to-deposit ratio of 118% in the sector
will be another factor that could limit downside to deposit costs.

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 12: L/D Spread evolution

EXHIBIT 13: Sector loans to deposits


(%)

(%)
4.50

4.37

4.43

120
118
116

3.99
4.00

3.90

3.85

118

3.85

3.86

3.69

114
112
110

3.50

108

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

3Q14 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E

Apr-14

2Q14

Mar-14

1Q14

Sources: Company financials; TEB Investment/BNP Paribas estimates

Feb-14

3.00

Jan-14

Dec-13

106

Sources: BRSA; TEB Investment/BNP Paribas

Lower CPI linker yields will also weigh on margins throughout the year. The banks
that benefited the most on CPI-linked bond exposure in 2014 (from an unexpected
spike in inflation, triggered initially by drought, then by floods on unprocessed food
prices, utility price hikes and finally by a TRY depreciation pass-through) should put
additional efforts into compensating for NII pressure in 2015 as seen in the charts
below. With moderation in weather conditions, a high base and continued decline in
soft commodity prices globally, inflation is set to ease in 2015. For 2015, our macro
team expects Oct-Oct CPI to come down by 391bp y-y, which is the base for CPIlinked bonds. All in all, the banks that enjoyed high CPI linker yields back in 2014
should face a harder time compensating for the lost portion this year.

EXHIBIT 14: NIM impact of lower CPI (2015E)

EXHIBIT 15: NII impact of lower CPI (2015E)

(bp)

(TRY m)

(40)
(35)

(800)

(34)

(719)

(700)
(28)

(30)

(610)

(600)

(25)

(21)

(22)
(18)

(20)

(486)

(500)

(15)

(400)

(349)
(288)

(300)
(10)

(10)

(174)

(200)

(5)

(100)
0

0
AKBNK

GARAN

YKBNK

Source: TEB Investment/BNP Paribas estimates

ISCTR

HALKB

AKBNK

VAKBN

GARAN

YKBNK

ISCTR

HALKB

VAKBN

Source: TEB Investment/BNP Paribas estimates

Ahead of 4Q14 financial results, banks started to announce their 2015 budgets.
Almost all banks are expecting loan growth to be in the 15-18% range in 2015 under
the assumption of 3.5-4% GDP growth. Sector players are expecting consumer
demand to pick up next year. Our expectation of 14.8% loan growth (13.5% FXadjusted) for this year stands a tad below the lower end of the guidance range as we
are less optimistic on GDP growth at 3%. On top of the capital increase decision of
Halkbank to finance the establishment of the participation bank, we may see further
rights issue decisions from the banks with sector-topping LTDs and ambitious growth
plans. The BRSA may relieve the sectors capitalization problems on the Tier-1 side
of the story by full implementation of Basel III with advanced methods as well as
reversing some of the macro-prudential measures taken in the past couple of years,
such as having RWAs up to 250% levels for some consumer loans.

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 16: Momentum justifies up to 15% loan growth


(%)

EXHIBIT 17: Sector capitalization is resilient 3Q14


CAR (%)

Loan growth y-y


13-w annualized loan growth
Consumer loan growth 13-annual

40

18

35

16

30

14.97

14.71

15.28

14.95

14

25

13.56

13.87

HALKB

VAKBN

12

20
14.3
13.9
12.6

15
10

10
8

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

4
AKBNK

Sources: BRSA; TEB Investment/BNP Paribas

GARAN

YKBNK

ISCTR

Source: Company financials

In this environment, asset quality is another concern of ours that we think is being
overlooked by the market. Although asset quality was better than the market feared
in 2014 except for a couple of large ticket items, we are dubious regarding 2015
prospects. Unemployment keeps increasing for the fourth consecutive year since
the 8.5% trough at the end of 2011. Given the Feds expected rate hike cycle,
interest rates will increase and TRY will lose value against hard currencies. Both of
these factors will weigh on consumer confidence leading to ultimately deteriorating
asset quality in the second half of the year. Lower consumer confidence not only
increases delinquencies but also pulls down NPL recoveries. All of these suggest
that risks are to the upside on our 5bp estimated increase in specific CoR.

EXHIBIT 18: NPL ratio of the banking sector

EXHIBIT 19: Seasonally-adjusted unemployment


(%)

(%)
3.0

(%)

Seasonally-adj unemployment rate (LHS)


Specific CoR (RHS)

14

12.0 11.9
2.9

11
2.9

9.7

8.9

10.6

10.0

9.2

8.5

8.8

9.1

Source: BRSA

Oct-14

(1)

2013

2.5

2012

2011

2010

2.6

2009

2008

2007

2.7

2006

2005

Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

2.8

Sources: TurkStat; BRSA; TEB Investment/BNP Paribas

Most banks have announced their 2015 budgets. Banks managements are working
with 3-4% GDP growth and 6-7% CPI consensus in their budgets. Turkish banks are
more optimistic than BNPP for 2015 with flat-to-improving NIMs versus our
expectation of an 11bp contraction, and flat asset quality versus our expectation of a
slight contraction, as discussed above, and 15-18% loan growth that is 20-320bp
above our forecast. The most aggressive in its budget so far has been Halkbank, not
only on the expected TRY1.3b net profit contribution from the likely sale of insurance
subsidiaries but on operational grounds as well.

10

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 20: Banks 2015 guidance


2015
Latest update

AKBNK

GARAN

ISCTR

HALKB

TSKB

8-Jan-15

16-Jan-15

15-Jan-15

19-Jan-15

16-Jan-15

3.5-4

3.7

3.5

4.0

3.0

7.0

6.1

6.5-7

6.

6.5

4.5

<5

5.0

31.8

<33

Macro assumptions (%)


GDP Growth
CPI
Policy Rate

Benchmark

Current Account/GDP
Public Debt/GDP
Budget Deficit/GDP

<2

USD/TRY

2.40

2.33

Sector outlook (%)


Assets

12-14

Loans

14-16

Deposits

12-14

2015 Targets
Balance sheet (%)
Assets

13-15

13-15

Loans

15-17

15

TL

15-17

15

16-18

FX

11-13

14-16

Deposit

15-17

13

TL

16-18

11

FX

9-11

16-17

16-17

16-18

15(fx adj)

13-15

Loans/assets

72

Securities/assets

17

16

P&L (%)
NII
Fee g
Opex g

13-15
5-7

flat to slightly down

7-8

10

10

13

4-5 (one-off adj 11-12)

11-13

15-20

3.6 (flattish)

+8bps

3.7-3.9 (flat to slightly up)

4.2-4.4 (~+20bps)

20-22

16-17 (flattish)

1.4-1.6

2.4-2.6

2.5

+20-30bps

3.2-3.4

90bps (net) - flat yoy

+85-95bps(gross)

KPIs (%)
NIM
ROE

13-14

ROA

1.6

EPS

mid teen

NPL ratio
Total COR
Specific COR

105bps (gross),65bps (net)

Cost/Income

41

Leverage (x)

8.8

70-80bps (-20bps)
35-37

LDR
CAR

<100%
14

>15

16

40-45

40-50

Dividend payout
Branch openings

15-16

18

20
15-20

Source: Banks' Public Disclosures

We like Halkbank in terms of valuation, continued high profitability and from a


potential catalyst point of view, primarily the proposed sale of insurance subsidiaries.
Halkbanks aggressive 2015 budget is also putting the stock in the spotlight.
We keep our BUY call on Vakifbank, due mainly to the coming turnaround story on
the way to the SPO, widely expected for 2016. Long-awaited upbeat operational
earnings momentum should continue following the sector-topping 3Q14 performance

11

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

in NIM and fee income growth. Trading at a mere 9.3x 2015E earnings and 0.94x
book, the stock offers a good entry point, in our view.
With the widest branch network among its listed peers and a relatively high portion of
these branches in rural areas, Isbank has more room to limit NIM erosion when
interest rates go up, thanks to its less interest-rate-sensitive deposit customers. We
keep our positive view on Isbank, taking into consideration the potential divestment
of its remaining Avea (non-listed) stake due to the share sale option between TTNet
(TTKOM TI) and Isbank, better margin evolution and 2015E P/B and P/E multiples
that are the lowest among private peers. Increasing transparency, more investor
support and questioning what they can do to improve corporate governance should
help reduce the historical valuation discount of the bank to its peer group mean. We
maintain our BUY recommendation.
We like Yapi Kredi Bank fundamentally: we believe in the ambitious growth strategy
there and expect the above-sector growth to continue. Although we maintain our
BUY call, we acknowledge there are also some drawbacks. Despite managements
successful margin management, during aggressive growth periods it is inevitable that
margins get suppressed, cost growth accelerates and thus ROE generation slows.
Another hurdle might be Yapi Kredis 10.9% Tier-1 ratio, which is the lowest among
the big six banks. We think the likelihood of the bank going for a rights issue is
increasing should it stick to the ambitious growth plan.
Akbank is trading at a premium to peers that we consider unjustified. Its CAR is no
longer the largest among our coverage, but fourth. The bank has the highest bond
share in its assets; being predominantly in CPI linkers, which is set to hamper
earnings momentum, as we are looking for a 391bp decline in October-October
inflation y-y for 2015. Asset quality issues have been hurting the P/L for two quarters
in a row. We maintain our HOLD recommendation on Akbank.
Although we like Garanti fundamentally, and we credit managements realistic 2015
budget, Garanti Bank is by far the most overvalued name in our coverage universe,
with 1.7x 2015E P/B and 12.6x P/E multiples. We have 2% downside to our target
price and maintain our HOLD recommendation.
We think TSKB is the most defensive name among the banks in our coverage thanks
to its unique business model. Its sustained long-term financing from supranational
institutions at relatively low costs affords the bank an important competitive edge.
Moreover, the bank does not collect any deposits and, thus, is immune to the cost
problems from which other banks suffer. We believe that management can achieve
its 16-17% ROE target in 2015, which is in line with our estimates. We maintain our
BUY recommendation on TSKB.
Its unique business model of participation banking (Islamic banking based on
profit/loss sharing principles) sets Albaraka apart. After lagging the other three
participation banks in organic growth for almost a decade, Albaraka management
has now put an aggressive growth plan into action. We think profitable growth is
achievable by the banks agile management, while Albarakas 13.8% CAR is also at
quite a supportive level for further growth. We maintain our BUY recommendation.

12

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 21: Turkish banks


3Q14 (TRY m)

AKBNK

GARAN

26/1/15

Fundamental

HALKB

VAKBN

ALBRK

TSKB

19,123

13,883

9,822

8,750

6,277

674

1,372

Target Mcap (USD m)

14,962

18,748

15,089

10,525

10,340

6,809

1,034

1,698

9.40

10.70

7.25

5.31

16.45

5.90

1.76

2.15

4,000

4,200

4,500

4,347

1,250

2,500

900

1,500

37,600

44,940

32,625

23,083

20,563

14,750

1,584

3,225

Daily Return (%)

4.4

0.9

1.3

1.0

1.9

1.9

1.2

0.5

W-W Return (%)

56.8

7.0

7.7

5.6

10.0

4.1

2.9

2.9

Y-Y Return (%)

56.8

69.3

70.4

56.5

36.5

59.0

26.7

44.9

42

50

31

18

49

25

19

40

Mcap

Float (%)
Major shareholder

SAB 49

BB/D 25

PF 42

KC/UC 42

PA 50

FOU 59

ABG 57

IS 50

Number of branches

998

995

1,348

978

891

879

176

Number of personnel

16,416

19,201

24,112

17,734

15,070

14,721

3,212

327

8.79

10.49

7.88

5.69

19.44

6.40

2.70

2.66

(6)

(2)

18

53

24

Target price (TRY)


Upside (%)
Rating
Type of financials
2013 P/BV -solo

Valuation

2.3500

16,000

Number of shares

Profitability

YKBNK

Mcap (USD m)

Price (TRY)

Hold

Hold

Buy

Buy

Buy

Buy

Buy

Buy

B.Only

B.Only

B.Only

B.Only

B.Only

B.Only

B.Only

B.Only

1.76

1.99

1.38

1.33

1.45

1.17

1.06

1.71

2014E P/BV -solo

1.50

1.87

1.15

1.20

1.25

1.04

0.91

1.45

2015E P/BV-solo

1.35

1.67

1.04

1.08

1.09

0.94

0.79

1.27

2013 P/E -solo

12.78

14.95

10.31

7.21

7.47

9.30

6.56

9.89

2014E P/E-solo

12.21

13.51

9.66

12.27

8.66

9.64

6.00

8.71

2015E P/E-solo

11.75

12.58

9.20

11.19

8.20

9.27

5.33

8.33

2013 Book

21,339

22,585

23,579

17,309

14,146

12,616

1,497

1,885

2014E Book

25,065

24,020

28,467

19,237

16,493

14,141

1,739

2,228

2015E Book

27,849

26,832

31,314

21,334

18,951

15,667

2,014

2,538

2013 Net profit

2,942

3,006

3,163

3,203

2,751

1,586

241

326

2014E Net profit

3,080

3,328

3,378

1,881

2,373

1,530

264

370

2015E Net profit

3,199

3,571

3,547

2,062

2,508

1,591

297

387

2013 Reported NIM (%)

3.8

3.7

3.7

3.7

4.2

4.2

4.5

4.4

2014E Reported NIM (%)

3.6

3.7

3.7

3.7

3.6

3.4

3.7

4.1

2015E Reported NIM (%)

3.5

3.6

3.6

3.6

3.5

3.3

3.6

4.2

2013 ROA (%)

1.7

1.7

1.6

2.4

2.3

1.3

1.7

2.8

2014E ROA (%)

1.6

1.6

1.5

1.2

1.6

1.1

1.4

2.7

2015E ROA (%)

1.5

1.5

1.4

1.1

1.5

1.0

1.3

2.4

2013 ROE (%)

13.8

13.7

13.7

18.7

21.1

13.0

18.1

18.1

2014E ROE (%)

13.3

13.9

13.4

10.4

15.6

11.5

16.4

18.1

2015E ROE (%)

12.2

14.1

12.5

10.2

14.2

10.7

15.9

16.5

123,813

130,953

150,855

112,621

96,111

97,637

14,198

10,542

Securities

48,544

42,857

39,395

23,439

27,728

22,963

1,339

3,161

Deposits

Loans

Financials

ISCTR
TRY/USD:

113,112

113,886

130,461

100,012

101,462

89,197

15,399

Sh. Eq.

23,897

25,106

26,536

18,408

15,648

13,682

1,660

2,149

Assets

202,044

214,891

230,439

168,713

149,809

147,266

21,721

14,671

2,863

2,907

3,193

1,734

2,505

1,495

273

369

Net profit

Sources: Company Financials; TEB Investment/BNP Paribas estimates

13

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 22: Global peer comparison: Banking


Mcap
Current

Target Upside

------ P/BV (USD) ------

------- P/E (USD) ------- ------- ROE (USD) ------- ---------- EPS growth (%) ---------

2013 2014E 2015E

2013 2014E 2015E

2013 2014E 2015E 2014E 2015E 2014E 2015E

(USD m)

(USD m)

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%) (USD) (USD)

75,263

74,008

(2)

1.55

1.35

1.21

8.49

11.23

10.01

17.9

11.6

12.8

(28.9)

(LC)

(LC)

12.1

(7.2)

12.1

Country
Turkey
Argentina

2,991

2,987

(0)

1.04

2.97

2.64

3.50

9.06

8.24

46.0

28.0

33.9

(17.7)

10.0

56.1

10.0

151,760

187,370

23

1.70

1.55

1.38

7.45

8.46

7.55

25.0

18.2

19.3

(20.8)

12.0

5.1

12.0

Chile

28,703

35,208

23

3.05

2.11

1.93

12.74

10.35

10.43

25.4

21.5

19.3

(4.4)

(0.7)

22.7

(0.7)

Colombia

22,279

25,643

15

2.25

1.58

1.47

14.88

13.23

11.40

16.4

13.3

13.4

(0.2)

16.1

32.6

16.1

Peru

15,439

18,485

20

2.42

2.52

2.20

6.76

5.45

4.55

37.7

50.7

51.7

56.6

19.9

48.6

20.6

Mexico

33,693

36,333

2.37

2.30

2.16

15.10

16.53

14.50

17.1

14.0

15.3

(10.0)

14.0

(0.1)

14.0

Czech Republic

7,492

7,733

1.64

1.86

1.83

12.21

14.62

14.39

15.1

11.6

12.8

(20.0)

1.6

0.8

1.6

Hungary

3,866

4,661

21

0.73

0.77

0.72

19.94

11.10

8.50

4.6

5.4

8.7

22.1

30.5

49.9

30.5

Poland

43,448

48,297

11

1.77

1.79

1.71

14.95

15.31

14.67

14.0

11.0

11.9

(11.8)

4.4

1.4

4.4

Russia

19,864

30,402

53

1.41

0.62

0.56

5.72

4.24

4.78

28.6

11.7

12.4

(60.8)

(11.3)

(16.3)

(11.3)

9,954

11,610

17

0.69

0.70

0.66

9.08

8.04

7.70

9.6

8.3

8.8

5.4

4.4

9.1

4.4

56,300

55,768

(1)

1.88

2.13

1.94

9.81

13.13

11.49

18.0

16.5

17.7

(12.6)

14.2

21.8

14.2

6,706

6,444

(4)

1.87

3.53

3.01

6.44

14.19

11.23

32.1

26.2

28.9

(4.6)

26.3

16.9

26.3

7,624

7,383

(3)

2.29

2.10

1.95

15.85

16.69

15.08

15.9

13.1

13.4

(4.7)

10.7

6.0

10.7

1,123,290 1,231,844

10

1.20

0.84

0.74

6.92

6.52

6.13

20.8

15.3

12.8

8.5

6.4

7.6

6.4

Brazil

Israel
South Africa
Egypt
Morocco
China
Indonesia

83,000

85,728

2.90

2.84

2.43

10.55

14.14

12.41

30.1

21.3

21.1

(17.6)

14.0

9.7

14.0

India

39,793

39,991

1.40

1.52

1.36

6.84

13.59

10.88

21.3

13.8

13.2

(12.6)

24.9

0.4

24.9

Malaysia

55,496

62,904

13

1.87

1.43

1.33

12.37

11.91

10.87

16.7

12.5

12.7

(14.3)

9.6

0.4

9.6

Philippines

23,681

23,416

(1)

2.10

2.28

2.07

13.70

18.26

16.09

16.6

12.8

13.5

(14.3)

13.5

(10.5)

13.5

Thailand

75,330

74,258

(1)

1.84

1.96

1.75

11.25

13.20

12.01

17.3

15.7

15.4

2.3

9.9

7.3

9.9

Turkey

75,263

74,008

(2)

1.55

1.35

1.21

8.49

11.23

10.01

17.9

11.6

12.8

(28.9)

12.1

(7.2)

12.1

Turkey (TEB / BNPP )

75,263

69,350

(8)

1.55

1.36

1.22

8.49

11.01

10.39

14.8

11.9

12.5

(23.2)

6.7

(6.0)

6.0

EM EMEA excl. Turkey

145,300

160,687

11

1.59

1.50

1.38

8.60

10.69

10.31

20.5

12.6

13.9

(38.1)

3.6

nm

nm

EM EMEA excl. Turkey & Russia

125,436

130,285

1.72

1.92

1.79

12.03

14.07

12.62

15.4

13.1

14.7

(11.0)

11.5

nm

nm

EM EMEA*

220,564

234,695

1.51

1.44

1.32

8.57

10.87

10.21

19.7

12.3

13.5

(35.3)

6.4

nm

nm

1,400,589 1,518,141

1.30

0.94

0.84

7.42

7.26

6.78

20.8

15.3

13.1

6.0

7.1

nm

nm

EM Asia**
EM LatAm***

303,039

20

1.95

1.72

1.55

8.86

9.24

8.25

24.0

18.9

19.7

(12.9)

12.0

nm

nm

EM****

1,885,970 2,070,471

251,873

10

1.39

1.05

0.93

7.75

7.79

7.24

20.9

15.2

13.6

(1.7)

7.6

nm

nm

MSCI WORLD BANKS

3,333,567

n.a.

1.01

1.02

0.97

na

10.93

9.94

6.7

9.3

9.8

29.1

9.9

MSCI EMRG MKT BANKS

1,509,253

n.a.

1.24

1.16

1.05

na

8.45

7.51

14.5

7.0

9.8

5.3

12.6

Data as of 26 Jan 2015 17:58 GMT+2


*:
Czech Rep., Hungary, Poland, Russia, Egypt, Morocco, South Africa, Turkey
**:
China, Indonesia, India, Malaysia, Philippines, South Korea, Taiwan, Thailand
***: Brazil, Chile, Colombia, Mexico, Peru
****: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa,
Taiwan, Thailand, Turkey
Sources: Bloomberg; TEB Investment/BNP Paribas estimates

14

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 23: Sector multiples


--- 12-Mth -Stock

Price

-- Reported P/E -- ----- EV/EBITDA -----

-------- P/BV --------

-- Gross div yield*-14 15E


E
E
(%)
(%)

T. Up

13

14E

15E

13

14E

15E

13

14E

15E

13

(TRY) (TRY)

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

14

10.4

11.0

10.4

1.6

1.4

1.2

1.2

1.6

10.4

11.1

10.5

1.6

1.4

1.2

1.2

1.6

Banks
Large Banks
AKBNK

REC

TP

9.40

------ EV/sales ------

-------- ROE --------

13

14E

15E

13

14E 15E

(x)

(x)

(x)

(%)

1.2

16.3

14.1 13.3

1.2

15.7

13.0 12.3

(%)

(%)

8.79

(6) HOLD

12.8

12.2

11.8

1.8

1.5

1.4

1.5

1.2

1.2

13.8

13.3 12.2

GARAN

10.70 10.49

(2) HOLD

15.0

13.5

12.6

2.0

1.9

1.7

1.3

0.9

1.0

13.7

13.9 14.1

HALKB

16.45 19.44

18

BUY

7.5

8.7

8.2

1.5

1.2

1.1

2.2

1.3

1.3

21.1

15.6 14.2

7.25

7.88

BUY

10.3

9.7

9.2

1.4

1.1

1.0

2.0

1.7

1.9

13.7

13.4 12.5

VAKBN

5.90

6.40

BUY

9.3

9.6

9.3

1.2

1.0

0.9

0.7

0.7

0.5

13.0

11.5 10.7

YKBNK

5.31

5.69

BUY

7.2

12.3

11.2

1.3

1.2

1.1

1.3

1.7

0.9

18.7

10.4 10.2

ISCTR

8.2

7.4

6.8

1.4

1.2

1.0

0.7

1.0

1.4

18.1

17.3 16.2

ALBRK

Medium and Small Banks


1.76

2.70

39
53

BUY

6.6

6.0

5.3

1.1

0.9

0.8

0.0

2.0

0.8

18.1

16.4 15.9

TSKB

2.15

2.66

24

BUY

9.9

8.7

8.3

1.7

1.4

1.3

1.9

2.0

2.3

18.1

18.1 16.5

* Net of rights
Sources: Company financials; TEB Investment/BNP Paribas estimates

Telecoms
(Toygun Onaran, +90 216 636 4533, toygun.onaran@tebyatirim.com.tr)
The shift in consumer preferences in the telecommunication industry towards more
mobility is shaping consumption and competition trends. The declining trend seen in
the last decade in fixed lines is expected to continue at a slower pace in 2015, while
the mobile segment is expected to grow. We forecast fixed-line penetration will
decline to 16% in 2015, from 17.7% in 2013 and 16.5% in 2014E. The number of
mobile subscribers is expected to grow by 3% in 2015 on top of expected 3.5%
growth in 2014, carrying the total number of subscribers to 74.3m in 2015, implying
95.9% penetration. Considering that mobile devices are used by people older than
nine years old, we calculate adjusted penetration will reach 115% of the population
eligible to use mobile devices in Turkey in 2015, up from 109% in 2013.

EXHIBIT 24: Fixed-line subscribers & penetration


(m)
20
18

# of subscribers (LHS)
17.5

16

EXHIBIT 25: Mobile subscribers & penetration


(%)

Penetration (RHS)

30
16.5
24.5

14

16.2
22.8

15.2
22.3

25
13.9
20.6

13.6
18.3

12

12.7
17.7

10

12.7
16.6

12.4

20

16.5 16.0

# of subscribers (LHS)

15

Penetration (RHS)

80
70
60

65.8

62.8

61.8

65.3

67.7

40

10

30

20

69.7

71.9

72.1

74.3

93.8 94.1
90.9
89.5

98

92
90
88

87.4

86.5

(%)

95.9 96
94

92.1

50

8
6

(m)

86
84

83.8

82
80

Sources: Information and Communications Technologies Authority & TEB


Investment/BNP Paribas estimates

2015E

2014E

3Q14

2013

2012

2011

2010

2009

2008

10

78

76
2008 2009 2010 2011 2012 2013 3Q14 2014E 2015E

Sources: Information and Communications Technologies Authority & TEB


Investment/BNP Paribas estimates

We believe that the change in the composition of mobile subscribers is more


important than the change in the total number of subscribers for the mobile
operators, as post-paid subscribers generate significantly higher ARPU than pre-paid
subscribers. Mobile subscribers switched from pre-paid to post-paid contracts on the
back of declining post-paid tariffs making it more affordable, increasing data usage
and smartphone penetration. We expect the share of post-paid subscribers to reach
46.2% in 2015, up from 40.5% in 2013 and 20.4% in 2008. Our forecasts indicate

15

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

14% CAGR in post-paid subscribers for 2008-15, while pre-paid subscribers are
expected to contract by 4% CAGR in the same period.

EXHIBIT 26: Mobile subscriber breakdown


(%)

Post-paid

EXHIBIT 27: Mobile revenue breakdown


(%)

Pre-paid

100

100

90

90

80

80

70
60

79.6

74.7

69.1

64.7

61.6

59.5

57.1

56.5

53.8

40

40

30

30

10

20.4

30.9

2.3

4.4

Data

VAS

7.3
14.1

19.0

24.0

28.5

68.8

65.6

61.8

58.6

2012

2013

60
50

25.3

1.3

Message

70

50

20

Voice

35.3

38.4

40.5

42.9

43.5

46.2

80.9

80.7

78.3

77.0

20
10
0

2008

2008 2009 2010 2011 2012 2013 3Q14 2014E 2015E


Sources: Information and Communications Technologies Authority & TEB
Investment/BNP Paribas estimates

2009

2010

2011

2014E 2015E

Sources: Information and Communications Technologies Authority & TEB


Investment/BNP Paribas estimates

Parallel to the change in subscriber composition, the revenue sources of the mobile
operators also changed significantly in the same period. Mobile operators have more
balanced revenue structures as they manage to diversify revenue sources. The
weight of voice revenue, once the major contributor of revenues, has gradually
declined especially in the last couple of years, as mobile data revenues surged
substantially. We expect the trend to continue in 2015 as the growth in mobile data is
supported by: 1) increasing smartphone penetration, 2) change in consumer
preference toward non-voice channels in social and business communications; 3)
increasing post-paid subscribers; and 4) increasing availability and affordability of
data services. We expect the share of data revenues to rise to 28.5% in 2015 from
19% in 2013 and the share of voice revenue to decline to 58.6% in 2015 from 65.6%
in 2013.
The government is planning to start the tender process for 4G licenses in 2015. We
believe that with the availability of 4G services, growth in mobile data revenues will
accelerate further as 4G services will allow users to enjoy significantly faster data
communication, while making 3G services more affordable. We believe that Turkcell
is the best prepared mobile operator in Turkey for 4G services in terms of
infrastructure sufficiency and investment capacity. Recall that Turkcell obtained the
3G license with 40 MHz bandwidth for EUR358m in 2008, while Vodafone paid
EUR250m for 35 MHz bandwidth and Avea paid EUR214 for 30 MHz bandwidth.

EXHIBIT 28: 3G licenses in Turkey (2008-23)


Size

Appraisal Value

Acquisition Value

(Mhz)

(EUR m)

(EUR m)

Turkcell

40

285

358

Vodafone

35

250

250

Avea

30

214

214

Sources: Information and Communications Technologies Authority

We think that Turkcell is well positioned to benefit from the expected growth in the
mobile data segment and the 4G licence tender will provide Turkcell with a valuable
opportunity to increase its competitive advantage over its competitors in providing
premium services.

16

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 29: Global peer comparison: Telecom


BBG code

------------------- EV/EBITDA -------------------

----------------------- P/E -----------------------

2014E

2015E

2016E

2014E

2015E

2016E

(x)

(x)

(x)

(x)

(x)

(x)

Mobile operators
Vimpelcom

VIP US

3.4

3.8

3.8

7.8

9.4

6.9

MTS

MTSS RM

3.5

3.4

3.3

6.5

7.9

6.1

MTN

MTN SJ

6.0

5.9

5.5

13.7

13.4

11.9

Vodacom

VOD SJ

7.7

7.8

7.2

14.3

13.2

14.4

Partner

PTNR IT

4.2

4.6

4.7

11.1

16.0

10.7

CEL IT

4.1

4.8

4.7

6.0

11.0

7.8

TELEC CP

4.0

4.1

4.1

14.6

12.0

12.9

4.7

4.9

4.8

10.6

11.8

10.1

Cellcom
O2 Czech Rep

Average
Fixed line - Developed Markets
Deutsche Telekom

DTE GR

6.9

6.6

6.4

25.2

22.3

19.9

British Telecom

BT/A LN

6.9

6.7

6.5

16.1

14.8

13.5

Telefonica (Spain)

TEF SM

6.8

6.5

6.3

15.9

14.9

13.7

Orange

ORA FP

6.0

6.0

6.0

17.5

16.3

15.5

Telekom Austria

TKA AV

5.9

5.8

5.6

-120.9

18.7

14.8

TIT IM

5.9

6.0

6.0

13.7

13.3

12.6

HTO GA

4.4

4.5

4.5

14.7

12.8

11.5

6.1

6.0

5.9

-2.5

16.2

14.5

Telecom Italia
OTE

Average
Fixed line - Emerging Markets
Telefonica Czech

SPTT CP

4.0

4.1

4.1

14.6

13.6

12.9

MTELEKOM HB

4.7

4.8

4.7

13.5

15.4

12.5

Telecom Egypt

ETEL EY

4.6

5.0

4.9

8.7

8.4

7.8

Bezeq

BEZQ IT

5.2

6.1

6.1

8.0

10.7

10.9

4.7

5.0

5.0

11.2

12.0

11.0

TCELL TI

6.9

6.6

6.2

12.3

12.7

12.3

10.7

11.0

10.7

TTKOM TI

6.7

6.5

6.3

12.4

12.0

11.9

Magyar

Average
Turkcell
Turkcell Adj. by TRY1.90/share dividend forecast
Turk Telekom

Sources: Bloomberg consensus estimates, BNP Paribas/TEB Investment estimates

EXHIBIT 30: Sector multiples


Price -- 12-Mth --

REC

TP T.Up
(TRY) (TRY)
Telecom Services
Diversified Telecom Svc.
TTKOM

7.68

7.90

Wireless Telecom Svc.


TCELL

--- EV/EBITDA ---

------- P/BV -------- --Gross div. yield* --

----- EV/sales ----- -------- ROE --------

13

14E

15E

13

14E

15E

13

14E

15E

13

14E

15E

13

14E

15E

13

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(x)

(x)

(x)

(%)

17

14.9

12.4

12.5

6.5

6.1

6.4

2.5

2.8

2.6

2.1

12.1

5.8

2.2

2.0

2.1

17.5

21.1 21.3

20.6

12.6

12.2

6.8

6.4

6.1

5.0

4.1

3.6

9.0

3.4

4.8

2.6

2.4

2.2

22.1

35.9 31.5

3 HOLD

20.6

12.6

12.2

6.8

6.4

6.1

5.0

4.1

3.6

9.0

3.4

4.8

2.6

2.4

2.2

22.1

35.9 31.5

13.7

12.3

12.7

6.3

5.9

6.6

2.1

2.5

2.4

0.0

14.8

6.1

2.0

1.9

2.1

16.8

18.7 19.3

13.7

12.3

12.7

6.3

5.9

6.6

2.1

2.5

2.4

0.0

14.8

6.1

2.0

1.9

2.1

16.8

18.7 19.3

21
14.50 17.60

-- Reported P/E --

21

BUY

14E 15E
(%)

(%)

* Net of rights
Sources: Company financials; TEB Investment/BNP Paribas estimates

17

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

Food retailing
(Kenan Cosguner, +90 216 636 4531, kenan.cosguner@tebyatirim.com.tr)
EXHIBIT 31: Consumer Confidence
(index)
85
80
75
70
65

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Oct-11

Jan-12

Jul-11

Apr-11

Oct-10

Jan-11

Jul-10

Apr-10

Jan-10

60

Source: State Institute of Statistics

In our view, weak economic activity and high food inflation undermined consumer
sentiment in Turkey in 2014. In our view, consumers have traded down in Turkey in
2014 and will probably remain cautious in 2015, as well.
We believe BIMAS is placed to be the least affected by Turkeys adverse
environment. We believe that recovery in the companys profit margins will continue
as inflation calms down. Recovery in profit margins should continue into 2015 as new
stores come online to generate revenues and the company feels less inflationary
pressure (current inflation is running at around 9%, compared with as low as 6% for
mid-2015). Lower fuel expenses should help consumer budgets and tame
inflationary pressure. We think the market has misinterpreted BIMs aspirations to
expand into supermarkets. We dont think it is related to the maturation of the
discount channel, but is more to do with potential opportunities in the supermarket
channel after years of bleeding profitability and subpar growth due to relentless
competition from the discount channel. BIM has benefited from trading down as
consumers try to make the most out of their budgets in 2014. High food inflation,
while increasing the top line, has had a negative impact on margins. BIM has been
successful in passing on cost pressures while accelerating growth (adding 500 new
stores a year in Turkey from 2014).
Migros was able to maintain its high margins by focusing on growth and efficiency.
The company has developed a new store format which lives up to changing
consumer demand and supports long-term organic growth. However, the new format
requires more time for testing before being deemed successful and sustainable given
ever-rising competition in the supermarket segment. The main challenge has been
negative LFL growth due to lower in-store inflation and low traffic growth in
hypermarkets. However, the company has been able to deal with this challenge by
increasing supply-chain efficiency and improving product assortment. Despite high
competition from the discount segment, the company focused on differentiation in
price-quality mix, utilizing its strong knowledge base.

18

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 32: Peer Comparison Retail


BBG code

Migros Ticaret A.S

------------------ EV/EBITDA ------------------

------------------------ P/E ------------------------

2014E

2015E

2016E

2014E

2015E

2016E

(USD m)

(x)

(x)

(x)

(x)

(x)

(x)

MM IN

16,486

10.0

10.2

8.3

16.4

17.2

13.6

MGROS TI

1,801

11.5

10.2

9.2

32.5

27.3

23.3

Company
Magnit

Mkt cap

X 5 Retail Group

FIVE LI

3,285

6.9

6.7

5.8

10.8

10.7

8.5

Jeronimo Martins

JMT PL

7,091

9.5

9.3

8.6

19.1

19.1

17.1

DFI SP

12,129

18.2

16.5

15.0

24.4

21.9

19.8

1025 HK

938

4.3

4.0

3.8

13.3

12.3

11.3

Dairy Farm Intl Hldgs Ltd


Wumart Stores Inc-H
Cencosud SA

CENCOSUD CI

6,017

10.7

9.5

8.8

15.2

11.5

9.8

Walmart De Mexico-Ser V

WALMEXV MM

36,443

15.3

14.0

12.6

21.0

21.2

18.9

Pick N Pay Stores Ltd

PIK SJ

2,427

13.6

13.0

10.9

40.0

33.3

25.5

Shoprite Holdings Ltd

SHP SJ

9,229

11.5

11.0

9.8

24.9

24.9

21.8

KR US

33,550

8.9

7.8

7.4

23.1

19.9

18.5

Kroger Co
Safeway Inc
Carrefour SA
Koninklijke Ahold NV

SWY US

8,095

6.1

5.9

6.7

33.1

30.3

28.9

CA FP

23,651

8.8

8.2

7.6

19.3

16.9

14.7

AH NA

16,568

6.7

6.3

6.0

18.2

16.8

15.9

Delhaize Group

DELB BB

8,554

6.0

5.5

5.1

18.5

16.4

14.6

Tesco PLC

TSCO LN

28,166

6.1

10.7

10.4

6.9

20.6

18.9

Wal-mart Stores Inc

WMT US

285,900

8.2

8.2

8.0

17.1

17.7

17.1

9.5

9.2

8.5

20.8

19.9

17.5

BIMAS TI

6,910

22.4

17.7

14.9

34.1

26.2

22.0

135

92

76

64

32

25

Peer group average


BIMAS
Premium/ (Discount) to peers (%)

Sources: Bloomberg estimates; TEB Investment/BNP Paribas estimates

In 2014, restrictions on credit card instalments hit the revenues of Bizim severely. In
addition, weak consumer sentiment and a tough competitive environment further hurt
revenue. Despite the reversal of restrictions on corporate credit cards and acquisition
of the soft franchise system, the company struggled to increase revenues due to
ongoing weak business activity. In our view, the HORECA segment will suffer as
tourism may come under pressure due to economic turmoil in Russia, a major
market for the Turkish tourism industry.
In this environment CCOLA is the most affected consumer name. Because of a
strong base in 1H14, we expect weak y-y growth figures for CCOLA in the Turkish
market. Except for Pakistan, CCOLAs other markets (Iraq, Kazakhstan, Azerbaijan
etc.) are adversely affected by low oil prices. Hence, growth rates will come under
pressure. Moreover, its strong base in international operations (9M14 +15.6%) on the
back of strong growth in Kazakhstan (+20%) puts further pressure on y-y growth
rates in international operations in 9M15. However, low oil prices should provide
support for profit margins (lower distribution expenses and resin prices). Hence, the
stock lacks a short-term catalyst, though we believe that the long-term growth story
for the stock remains intact.
In our view, Ulker has a better growth outlook in 2015 and we expect a 5% increase
in unit sales on the back of growth in domestic consumption and new product
launches. However, ongoing problems in Iraq and other export markets pose a risk to
growth in unit sales. We expect an around 7% increase in unit prices. The acquisition
of international operations (Egypt and Saudi Arabia) is to be completed in 1Q15. We
expect roughly TRY300m in revenue from international operations for FY15.
Moreover, we expect a recovery in margins at Ulker, to 12.4%.
Despite the attractive valuation of Anadolu Efes, we believe downside risks are still
high in international operations. Recall that beer consumption in Russia has
contracted by 4-5% on an annual basis since 2008. Moreover, ongoing political
problems in Ukraine and slowdown in economic activity in Kazakhstan will continue
to hurt beer consumption. High excise taxes and the governments regulatory

19

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

restrictions will continue to hurt consumption growth in Turkey. The company s unit
sales have contracted 3.6% (on a CAGR basis) since 2008 due to a sharp increase
in excise taxes, regulatory pressures and strong competition from rival Tuborg. In
2015, we do not see a major change in outlook for the company, so we remain
neutral.

EXHIBIT 33: Sector multiples


--- 12-Mth --- REC
Stock

Price

TP T. Up

(TRY) (TRY)

-- Reported P/E -- ---- EV / EBITDA ---- ---------- P/BV -------13

14E

15E

13

14E

15E

13

14E

-- Gross div yield*--

15E

13

14E

15E

----- EV / Sales ----- --------- ROE --------13

14E

15E

13

14E 15E

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(%)

(%)

(%)

(x)

(x)

(x)

(%)

Food & Staples Retailing

13

35.3

33.7

25.8

23.7

21.3

16.8

14.2

12.3

10.0

1.5

1.9

2.1

1.1

0.9

0.8

44.5

39.1 42.8

(%)

(%)

BIMAS

49.70 57.00

15

BUY

36.5

33.7

25.7

24.3

21.7

17.0

15.1

12.9

10.5

1.5

1.9

2.1

1.2

1.0

0.8

46.0

41.4 45.1

BIZIM

18.75 19.70

5 HOLD

18.8

33.9

28.6

14.7

14.4

13.2

5.5

5.1

4.6

1.7

1.7

1.4

0.3

0.3

0.3

31.0

15.7 17.1

MGROS

23.75 24.10

1 HOLD

na

36.7

27.1

16.0

13.9

11.6

5.1

4.5

3.8

0.0

0.0

0.0

0.9

0.7

0.6 (44.3)

13.0 15.2

Food & Bev.

12

na

28.5

21.8

na

15.6

12.7

2.4

2.3

2.1

1.6

1.2

1.1

2.7

2.4

2.0

2.4

8.2 10.1

Beverages

17

na

34.5

22.3

na

15.1

12.4

2.0

1.9

1.8

1.6

0.9

0.7

2.8

2.5

2.1

0.8

5.6

8.2

4.1

6.1

AEFES

21.85 24.50

12 HOLD

na

32.7

21.0

na

15.1

12.3

1.4

1.3

1.2

2.3

1.0

0.8

2.8

2.5

2.1

32.1

CCOLA

49.80 62.00

24

na

37.2

24.2

17.4

15.2

12.6

4.9

4.5

3.9

0.6

0.8

0.5

2.8

2.5

2.1

21.1

BUY

12.6 17.2

* Net of rights
Sources: Company financials; TEB Investment/BNP Paribas estimates

Real estate
(Emre Yuzbasioglu, +90 216 636 4535, emre.yuzbasioglu@tebyatirim.com.tr)
At the beginning of 2014, markets were very volatile on the back of political tension,
the 550bp CBRT policy rate hike in January, and benchmark bond yields climbing to
12% levels. The CBRT rate cuts in 2Q14 and 3Q14 helped the real estate market by
increasing affordability. Home sales figures remained elevated and reached their
highest quarterly figures in 4Q14. Overall, in a year like 2014, home sales figures
exceeded FY13 figures, which was a historic year in terms of low interest rates and
high annual sales figures. The fundamentals of the residential real estate sector
namely, a young population, increasing urbanization, decreasing household size, and
urban transformation projects remain supportive for coming years, and these
fundamentals showed their strength in 2014 as home sale figures reached the same
levels as 2013, although average mortgage rates were around 2ppt higher than in
2013.

EXHIBIT 34: Monthly home sales vs. Interest rates

EXHIBIT 35: Quarterly home sales vs. Interest rates

Monthly home sales (LHS)

(units)

Inverted interest rates (RHS)

135,000

(x)

(units)

13

335,000

125,000

12

115,000

11

105,000

10

(x)

Quarterly home sales (LHS)


Inverted interest rates (RHS)

12
11

286,000

10
9

237,000

95,000

188,000

85,000

139,000

75,000

7
6

Sources: Turkstat; CBRT

3Q14

1Q14

3Q13

1Q13

3Q12

1Q12

3Q11

1Q11

3Q10

1Q10

3Q09

1Q09

4
3Q08

90,000
1Q08

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Sources: Turkstat; CBRT

Mortgage uptake plays an important part in total home sales, and low interest rates
are the key in higher usage ratios. In June 2013, average mortgage rates declined to
a record low of 8.3% and mortgage usage increased to 45.4%. The lowest rates in
2014 were around 10.7% in October and mortgage usage increased to one of its

20

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

highest levels for the year. In 2015, realized and expected rate cuts from the CBRT
will lead to a lower interest-rate environment, and ECB QE might also provide room
to sustain that environment. Overall, we expect a benign interest rate environment,
especially for 1H15, and the rest of the year will depend on the Fed decision
regarding a rate hike.

EXHIBIT 36: Inverted interest rates vs. share of mortgages


(x)

Inverted interest rates (LHS)

13

Share of mortgage (RHS)

(%)
46

12

EXHIBIT 37: Home sales vs. share of mortgages


(units)

(%)

Home sales (LHS)


Share of mortgage (RHS)

135,000

46

42

125,000

42

38

115,000

11
10

38
105,000

34
9

34
95,000

Sources: Turkstat; CBRT

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

26

May-13

75,000

Jan-13

30

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

26

Jan-13

85,000

Mar-13

30

Source: Turkstat

The probability of buying or building a home in the next 12 months, a sub-index of


the consumer confidence index, rose from 8.1% in November to 8.4% in December,
while the Consumer Confidence Index continued to decline and was 67.8 in
December, the lowest since January 2010. While longer-term trends of the two
indicators move parallel to each other, we face countermoves for the short run, such
as the divergence of the last month, as seen in the chart below, which suggest that
consumer appetite for buying homes has started to recover, even though the overall
confidence index has declined heavily. We think that consumer confidence will catch
up with home-buying appetite in the months ahead, rather than the other way round
on the back of realized and expected CBRT rate cuts. However, consumers tend to
wait until the trough of the rate cycle before purchasing a house. The probability of
buying a home increases after interest rates bottom out and start to rise. Overall, we
expect consumers to look closely at CBRT decisions in 1Q15, and to start to take
action in 2Q15 and beyond.

EXHIBIT 38: Consumer Conf. vs. probability of buying a home


(index)

Consumer confidence (LHS)


Probability of buying a home (RHS)

80

EXHIBIT 39: Probability of buying a home vs. Int. rates

(%)

(x)

13

13

13

12

12

12

(%)

Inverted interest rates (LHS)


Probability of buying a home (RHS)

11

75

11

11

10
10

10

70

Source: Turkstat

21

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

8
Sep-13

7
Jul-13

May-13

Mar-13

Jan-13

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

65

Sources: Turkstat; CBRT

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 40: Probability of buying a home vs. Home sales


(units)

Home sales (LHS)

Probability of buying a home (RHS)

(%)

135,000

13

125,000

12

115,000
11
105,000
10
95,000

Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14

75,000

Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

Jan-13
Feb-13
Mar-13
Apr-13
May-13

85,000

Sources: Turkstat; TEB Investment/BNP Paribas estimates

Automotive
(Analyst: Toygun Onaran, +90 216 636 4533, toygun.onaran@tebyatirim.com.tr)
We expect the automotive companies to benefit from a better demand environment
supported by a low interest rate, weaker euro and expected improvement in
consumer confidence in 2015. Light vehicle sales in Turkey contracted 10% y-y in
2014 as consumers shied away from buying new vehicles due to high interest rates,
a weak TRY, increased taxes, and loan restrictions introduced at the beginning of the
year. We saw two different trends in 2014, with the first half being worse, as
consumer sentiment weakened severely with a negative impact on auto sales, while
auto demand recovered in the second half, benefiting from the stabilization of
interest rates and the TRY.

EXHIBIT 41: Auto loan rates (weighted average)


(%)
16
15
14
13
12
11
10
9
8
Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Source: Central Bank of Turkey

Auto sales contracted 25% y-y in 1H14 and posted 2% y-y growth in 2H14.
Therefore, we expect a higher growth rate in 1H15, benefiting from the low base of
the previous year, while growth should moderate in 2H15. We believe that consumer
sentiment will be positively affected by the decline in interest rates and a weak euro,
which should support consumers purchasing power. Our forecasts indicate a 12% yy increase in light vehicle sales in Turkey in 2015, benefiting from 11% y-y growth in
passenger cars and 14% y-y growth in light commercial vehicles.

22

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 42: Light vehicle sales volume breakdown


2010

2011

2012

2013

2014

Change

2015E

Change

(units)

(units)

(units)

(units)

(units)

(y-y %)

(units)

(y-y %)

Domestic PC

155,634

179,488

146,604

147,128

157,349

173,084

10

Imported PC

354,150

414,031

409,676

517,527

429,982

(17)

481,580

12

PC

509,784

593,519

556,280

664,655

587,331

(12)

654,664

11

Domestic LCV

149,720

158,586

129,399

98,778

98,224

(1)

113,940

16

Imported LCV

101,409

112,334

92,082

89,945

82,126

(9)

91,981

12

LCV

251,129

270,920

221,481

188,723

180,350

(4)

205,921

14

33.0

31.3

28.5

22.1

23.5

1.4pp

23.9

0.4pp

Domestic LV

305,354

338,074

276,003

245,906

255,573

287,024

12

Imported LV

455,559

526,365

501,758

607,472

512,108

(16)

573,561

12

LV

760,913

864,439

777,761

853,378

767,681

(10)

860,585

12

Total market

Share in total sales (%)

Sources: Automotive Manufacturers Association; BNP Paribas/TEB Investment estimates

On the other hand, we expect the positive outlook in export markets to continue in
2015, especially in Europe. The ECBs recently announced QE programme should
benefit consumers from a bank lending perspective and improve consumer
confidence levels.

EXHIBIT 43: Global peer comparison


--------------------- EV/EBITDA --------------------Company

Country

BBG code

--------------------------- P/E ---------------------------

2014E

2015E

2016E

2014E

2015E

2016E

(x)

(x)

(x)

(x)

(x)

(x)

Kia Motors Corporation

South Korea

000270 KS

3.9

3.5

3.3

5.5

5.3

4.9

Hyundai Motor Co

South Korea

005380 KS

6.3

6.1

5.8

5.3

5.1

4.9

Qingling Motors
Tan Chong Motor Holdings
Great Wall Motor Company
Dongfeng Motor
Mahindra & Mahindra

China

1122 HK

19.1

14.9

14.4

11.2

10.3

9.6

Malaysia

TCM MK

11.0

8.3

6.9

20.1

12.1

9.3

China

2333 HK

11.0

8.3

7.1

12.9

9.8

8.3

Hong Kong

489 HK

43.6

38.6

35.3

6.4

6.1

5.4

India

MM IN

11.7

12.6

10.5

18.5

18.9

14.9

11.0

8.3

7.1

11.2

9.8

8.3

Emerging markets' median


Ford Motor Co

US

F US

4.9

3.4

3.1

13.5

9.3

7.9

Germany

VOW GR

8.2

7.5

6.8

9.2

8.5

7.7

Renault Sa

France

RNO FP

10.2

9.1

8.2

10.8

8.0

6.3

Peugeot Sa

France

UG FP

9.7

7.9

7.2

14.5

10.1

Volkswagen Ag

Fiat Spa
Nissan Motor Co Ltd

Italy

FCA IM

3.5

3.0

2.7

26.6

11.5

8.0

Japan

7201 JP

11.3

9.6

8.6

11.6

9.4

8.2

Isuzu Motors Ltd

Japan

7202 JP

6.2

5.9

5.2

11.2

11.3

9.8

Suzuki Motor Corp

Japan

7269 JP

5.9

5.3

4.7

18.7

17.2

15.2

Germany

BMW GR

10.6

10.2

9.7

11.7

11.1

10.7

Japan

7267 JP

9.2

8.9

8.0

11.3

10.8

9.4

Sweden

BILIA SS

4.1

4.0

5.0

9.4

8.6

9.6

8.2

7.5

6.8

11.4

10.8

9.4

Bayerische Motoren Werke


Honda Motor Co Ltd
Bilia Ab-A Shs

Developed markets' median


Dogus Otomotiv

Turkey

DOAS TI

12.4

10.8

10.3

12.5

10.2

9.6

Ford Otosan (adjusted)

Turkey

FROTO TI

16.2

10.1

9.5

21.5

12.4

12.4

Tofas Turk

Turkey

TOASO TI

9.9

9.1

8.2

16.3

13.4

15.0

Sources: Bloomberg consensus estimates; BNP Paribas/TEB Investment estimates

23

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 44: Sector multiples


--- 12-Mth --Price

REC ---- Reported P/E ----

TP. T. Up

(TRY) (TRY)
Automobiles

(%)
5

--- EV / EBITDA --- ---------- P/BV --------- -- Gross div yield* -- ------ EV / Sales -----

--------- ROE ---------

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(x)

(x)

(x)

(%)

(%)

(%)

13

14E

15E

13

14E

15E

13

14E

15E

13

14E

15E

13

14E

15E

13

14E

15E

17.8

17.2

9.8

13.7

11.8

9.9

4.3

3.9

3.1

4.6

3.6

4.2

1.0

1.0

0.9

24.1

23.7

35.0

DOAS

14.40 15.00

BUY

14.1

12.5

10.2

12.3

10.8

9.4

2.8

2.8

2.4

6.9

6.9

5.2

0.7

0.7

0.6

19.5

22.4

25.4

FROTO

32.25 33.20

3 HOLD

17.6

24.7

14.4

16.7

15.3

9.8

5.1

4.5

3.8

2.7

1.8

2.5

1.2

1.2

0.9

30.3

19.4

28.7

TOASO

17.45 18.80

20.1

15.0

7.4

11.8

9.8

10.2

4.6

3.9

2.9

5.5

4.0

5.5

1.1

1.2

1.2

21.9

28.1

44.9

BUY

* Net of rights
Sources: Company Financials; TEB Investment/BNP Paribas estimates

Aviation
(Alper Paksoy, +90 216 636 4524, alper.paksoy@tebyatirim.com.tr)
We forecast Turkish aviation will grow 10% in terms of passenger numbers in 2015,
driven by 10% growth in international passengers. This will again significantly exceed
our Turkish GDP growth rate expectation of 3% while it represents a slight slowdown
from 11% in 2011. We estimate the slight easing of the growth rate will mainly come
from the slowdown in domestic passenger growth given the vastly increased number
of domestic passengers in Turkey since 2003. Please see our report on Pegasus
Airlines of 10 October 2014, Rapid and competitive growth, for further details.
We expect growth in scheduled air travel will again significantly exceed that in
charter air travel due to the increasing competitiveness of scheduled air travel in
terms of fares and number of destinations and quickly increasing capacities. Listed
Turkish airline stocks, Turkish Airlines (THYAO TI; BUY; CP: TRY9.58; TP: TRY10.3)
and Pegasus (PGSUS TI; BUY; CP: TRY31.85; TP: TRY36.7), will benefit from this
trend given their being mainly involved in scheduled air travel.
Despite the major decline in fuel prices since September 2014, we expect Turkish
airline stocks to face headwinds in terms of yields and margins in 2015. THY already
aims to increase passenger numbers 13% y-y, and we understand it is looking to
further increase this by 2ppt. Given THYs planned growth rate significantly exceeds
the 5% growth in Europe and 7% worldwide expected by the International Air
Transport Association, we estimate THY will have to pass all of the savings from fuel
on in its fares. Given constraints at its main hub, Istanbul Ataturk (IST), we expect it
will try to grow faster at Sabiha Gokcen (SAW) and create extra competition for
Pegasus, which plans to grow 17-18% in terms of passenger numbers in 2015.

24

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

EXHIBIT 45: Airline equities multiple comparison


BBG code Mkt cap

Net debt /
EBITDA

------------ P/E ------------

------ EV/EBITDA ------

YE13

14E

15E

16E

14E

15E

16E

-------- Net margin -------14E

15E

16E

---- EBITDA margin ---14E

15E

16E

(USD b)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(%)

(%)

(%)

AF FP

2.7

4.0

neg.

11.9

4.9

4.9

3.4

2.8

(2)

11

IAG (BA/Iberia) - UK/Spain

IAG LN

16.0

0.9

16.5

11.2

9.1

6.2

4.7

4.0

13

15

17

Lufthansa Group - Germany

LHA GR

8.0

0.8

14.4

7.1

6.0

3.8

3.0

2.7

10

11

Ryanair - Ireland

RYA ID

15.9

0.0

n.m.

17.0

15.0

11.5

9.7

8.6

10

14

15

20

25

26

Easyjet - UK

EZJ LN

10.2

(0.9)

14.2

13.2

12.0

8.4

7.9

7.0

10

11

11

15

16

17

52.8

0.4

15.1

12.1

9.4

6.9

5.7

5.0

13

15

16

Europe
Air France/KLM France/Netherlands

Average
Americas
LATAM Group - Brazil/Chile
Gol - Brazil
Copa - Panama

LFL US

6.2

4.4

neg.

17.7

12.2

9.0

7.3

6.8

12

16

18

GOLL4 BZ

1.5

3.1

neg.

n.m.

20.4

8.5

6.4

6.5

(4)

11

14

15

CPA US

5.0

(0.1)

11.3

12.1

10.8

8.7

9.1

7.9

16

15

16

23

23

23

12.7

2.5

11.3

14.9

11.5

8.7

7.6

7.1

15

17

19

Average
Asia
Qantas - Australia

QAN AU

4.1

1.6

neg.

11.6

6.6

8.7

3.8

2.8

(3)

13

15

601111 CH

15.6

7.3

n.m.

14.3

14.2

11.0

8.1

7.6

17

21

20

China Eastern - China

670 HK

9.3

7.6

n.m.

11.8

10.4

11.0

8.6

7.9

14

18

18

Cathay Pasific - Hong Kong

293 HK

9.2

3.3

20.3

11.8

9.9

8.3

6.5

5.9

13

16

16

JETIN IN

0.8

12.0

neg.

neg.

8.7

neg.

19.1

10.7

(10)

(2)

(3)

SIA SP

10.9

(2.3)

n.m.

n.m.

20.0

4.7

5.3

4.5

13

13

16

Korean Airlines - Korea

003490 KS

2.4

8.9

neg.

8.2

7.8

8.2

6.5

6.2

(3)

17

21

20

Asiana - Korea

020560 KS

1.4

11.1

neg.

10.8

9.3

11.5

7.7

7.1

(1)

11

12

China Southern - China

1055 HK

7.4

7.2

n.m.

11.4

10.6

9.3

6.8

6.4

13

17

16

China Airlines - China

2610 TT

2.7

6.3

neg.

19.7

23.7

9.2

6.3

6.5

(1)

13

18

16

Thai Airways - Thailand

THAI TB

1.0

5.3

neg.

n.m.

8.7

18.2

7.6

6.3

(8)

13

14

64.8

4.9

n.m.

12.5

9.6

10.0

6.7

6.1

(1)

11

15

16

2.8

14.1

12.3

10.3

8.4

6.6

5.9

12

16

16

Air China - China

Jet Airways - India


Singapore Airlines - Singapore

Average
All Average
Pegasus - Turkey

PGSUS TI

1.4

1.2

11.6

14.7

12.8

8.1

7.1

7.5

13

12

12

THY - Turkey

THYAO TI

5.6

3.9

7.4

8.4

10.1

8.6

7.6

7.7

12

14

15

Priced close of 23 Jan 2015


Source: Bloomberg

EXHIBIT 46: Sector multiples


Price --- 12-mth ---

REC

TP T. Up
(TRY) (TRY)
Airlines

--- Reported P/E --13

14E

15E

---- EV/EBITDA ---13

14E

15E

-------- P/BV -------- --- Gross div yield* --13

14E

15E

13

14E

15E

------ EV/sales -----13

14E

15E

--------- ROE --------13

14E

15E

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

22.4

8.5

9.1

9.5

8.6

7.4

2.0

1.6

1.3

1.1

0.0

0.0

1.3

1.1

1.1

10.4

20.8

15.3

THYAO

9.71 10.30

BUY

21.2

8.0

8.5

9.5

8.7

7.4

1.9

1.5

1.2

1.3

0.0

0.0

1.2

1.1

1.1

10.2

20.7

15.4

PGSUS

31.85 36.70

15

BUY

34.5

12.2

14.5

9.2

8.5

7.0

2.8

2.4

1.9

0.0

0.0

0.0

1.6

1.1

0.9

12.8

21.3

14.9

*Net of rights
Sources: Company financials; TEB Investment/BNP Paribas estimates

Steel
(Alper Paksoy, +90 216 636 4524, alper.paksoy@tebyatirim.com.tr)
We expect listed Turkish steel producers, most of which are integrated through the
BOF route, will face much less benign conditions in 2015. This will be due to average
sales prices coming down more than raw material prices such as iron ore and coking
coal. Steel prices came down 15-20% from early September 2014 through
December 2014, while raw material prices have largely remained unchanged.
Turkish integrated steel producers have enjoyed bumper profits since 2H13 with
international raw material prices for integrated producers plummeting since then on
contracting Chinese demand. Chinese steel production grew at 13% per annum

25

BNP PARIBAS

28 JANUARY 2015

Turkey Strategy

Mete Yuksel

between 2003 and 2012 but growth slowed to 7% in 2013 (accounting for nearly 50%
of world steel production of 1.6b tonnes) and an estimated 4% in 2014 on our
estimates, on a slowdown in domestic demand growth. This has led to major
declines in steel making raw material prices, especially in 1H14 when combined with
new major capacity being brought online by large mining companies especially for
Chinese consumption. With the cost advantage coming from substantially lower raw
material prices, Chinese steel producers increasingly turned to export markets in
2H14, registering an around 70% y-y increase in exports in tonnes and putting major
downward pressure on world steel prices. We expect Chinese steel producers will
increase their exports 30-40% y-y in 2015 after the 50% y-y increase in 2014 and
continue applying significant downward pressure to world steel prices as well as the
margins of Turkish steel producers.
We prefer Kardemir (KRDMD TI; BUY; CP: TRY2.05; TP: TRY2.38) over Erdemir
(EREGL TI; HOLD; CP: TRY4.81; TP: TRY4.23) given its favourable valuation and
our expectation that it will be able to increase its earnings and maintain its margins
despite the downward pressure of lower steel prices. We expect Kardemir will be
able to defend its EBITDA margin on unit sales rising c20% y-y on increased
capacity and additional savings from higher energy self-sufficiency. We foresee only
a 3% y-y increase in Erdemirs unit sales in 2015 and a 20% decline in net profit.
Please see our report of 15 December 2014, Tailwinds turning to headwinds, for
further details.

EXHIBIT 47: Steel equities multiple comparison


Mkt cap
Company

Business

Net debt/
EBITDA

----------- P/E -----------

------ EV/EBITDA ------

----- Net Margin -----

--- EBITDA margin ---

2013

14E

15E

16E

14E

15E

16E

14E

15E

16E

14E

15E

16E

(USD b)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(%)

(%)

(%)

-98.6 -109.5

AMERICAS
CSN (CSNA3 BZ)

Integrated / Mining

2.9

3.9

26.9

6.2

8.5

6.8

27

21

24

Usiminas (USIM5 BZ)

Integrated

3.2

1.2

48.7

10.6

9.5

7.7

8.2

6.9

15

14

15

US Steel (X US)

Integrated

3.3

4.2

9.3

7.7

8.1

4.2

3.7

3.3

10

Average:

3.1

9.3

9.1

8.8

6.0

6.8

5.7

17

14

16

ASIA
China Steel (2002 TT)

Integrated

13.4

3.8

20.5

18.9

16.8

11.0

10.1

9.4

17

19

19

Posco (005490 KS)

Integrated

22.2

1.2

17.0

10.6

9.5

7.0

6.3

5.9

10

11

11

Severstal (SVST LI)

Integrated

7.9

1.8

16.7

7.7

8.1

4.2

4.2

4.0

11

10

24

25

23

Novolipetsk (NLMK LI)

Integrated / Mining

7.5

1.8

8.5

8.9

9.1

4.2

4.1

4.0

21

22

21

Nippon Steel (5401 JP)

Integrated

23.5

6.8

10.4

10.7

8.7

8.1

7.8

6.6

12

12

14

Baoshan (600019 CH)

Integrated

16.2

2.6

15.2

12.9

10.9

7.2

6.4

5.5

11

12

12

Average:

3.0

9.5

10.2

9.3

6.1

5.8

5.9

16

17

17

3.8

2.6

21.2

15.5

13.2

9.5

8.0

7.0

10

10

10

EUROPE
Acerinox (ACX SM)

Integ.Stainless

ArcelorMittal (MT US)

Integrated

16.8

2.6

12.9

10.5

7.0

5.2

4.8

4.1

10

10

SSAB (SSABA SS)

Integrated

2.6

12.7

192.3

15.8

10.5

9.5

8.0

7.0

10

11

Average:

6.0

12.9

10.5

10.2

8.1

6.9

6.1

10

11

All average:

3.8

18.0

10.6

11.1

7.0

6.7

5.9

3.4

4.4

5.0

14

14

15

Kardemir (KRDMD TI)

Integrated

0.8

2.2

6.5

7.6

7.5

7.0

6.7

5.4

17

14

12

25

25

25

Erdemir (EREGL TI)

Integrated

7.2

1.3

9.5

12.9

11.8

6.9

8.2

7.6

14

12

13

22

20

21

Priced at close of 23 Jan 2015


Multiples for Erdemir and Kardemir may slightly differ from those elsewhere in this report as they are based on USD and calculated based on year-end balance sheet positions
rather than averages. Mcap and multiples for Kardemir, only for D-class share
Sources: TEB Investment/BNP Paribas estimates for Kardemir and Erdemir and Bloomberg for the rest

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EXHIBIT 48: Sector multiples


--- 12-Mth --Price

(TRY (TRY
Metals & Mining
EREGL
KOZAA
KOZAL

REC

TP T. Up

4.83

4.23

1.66

2.01

18.00 18.60

----- Report P/E ----- ----- EV/EBITDA ----13

14E

15E

13

14E

15E

-------- P/BV -------13

14E

-- Gross div yield*--

15E

13

14E

15E

----- EV/sales -----

-------- ROE --------

13

13

14E

15E

14E

15E

(%)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(x)

(%)

(%)

(%)

(x)

(x)

(x)

(%)

(%)

(%)

(6)

13.9

8.7

10.0

7.8

6.5

6.9

1.7

1.5

1.4

2.7

4.0

5.7

1.9

1.6

1.6

13.0

18.1

14.6

18.4

10.3

13.0

10.3

7.4

8.3

2.0

1.8

1.8

3.1

4.9

7.3

2.0

1.6

1.7

11.7

18.5

13.9

(12) HOLD
21

BUY

3.1

6.6

7.2

1.7

4.1

6.0

0.5

0.5

0.4

0.0

0.0

0.0

0.9

1.6

2.2

16.1

7.1

6.0

3 HOLD

5.7

10.1

10.9

2.4

3.7

3.6

1.6

1.5

1.3

4.6

5.3

3.0

1.5

1.8

1.7

30.6

15.0

12.8

KRDMD

2.06

2.38

16

BUY

16.0

4.7

4.4

8.5

5.7

5.3

1.3

1.0

0.8

0.0

0.0

0.0

1.6

1.5

1.3

8.4

24.5

20.9

PRKME

4.06

5.50

35

BUY

9.6

10.4

7.7

5.5

4.3

3.3

1.2

1.1

1.0

0.0

2.9

2.4

na

na

na

na

na

na

*Net of rights
Sources: Company financials; TEB Investment/BNP Paribas estimates

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Stock preferences for 2015


Top preferences
Halkbank (HALKB TI; BUY; CP: TRY16.4; TP: TRY19.44)
(Fatih Topac, +90 216 636 4508, fatih.topac@tebyatirim.com.tr)
Halkbank has the most appealing valuation among the large-cap banks in our
coverage as well as the highest ROE among peers despite solid catalysts. The stock
is oversold on the large-ticket NPL issue. This, in our view, was a specific case with a
high likelihood of recovery in 2016. We are not in anticipation of further large-size
NPLs from the bank this year.
We expect the bank to complete the divestiture of its insurance subsidiary in 2Q15 at
rich multiples. On the way to the subsidiary sale news flow regarding due diligence,
preliminary bids and the announcement of shortlist are set to keep investor interest
high on Halk.
Financial intermediation of Halk between Turkey and Northern Iraq as well as Iran
seems set to continue for the foreseeable future. Waivers to Iran have been
extended until June 2015 and more time could be granted as long as Iran continues
taking constructive steps.
On core operational performance, management is looking for a sector-topping
budget of 20bp NIM enhancement y-y in 2015 while we are looking for a slight drop
in our estimates. 20-22% ROE guidance is also the highest among those banks that
have announced ROE guidance, 7ppt of which should stem from the divestiture of
insurance subsidiaries in our view. 16-18% loan growth guidance is parallel to peers
budgets for 2015, while our expectation is at the lowest end of this range.
Managements fee income expectation of 10% and opex growth expectation of 1113% are parallel to our expectations. Management expects a solid improvement in
asset quality with a 3.2-3.4% NPL ratio versus 3.7% at end-3Q14 and 70-80bp
specific CoR, corresponding to a remarkable 20bp improvement y-y. For next year
we expect 14% ROE while management guides for 20-22% including the 100%
provisioning of the large-scale NPL in 2Q15 and one-off profit items like the
insurance sale that is to take place in the same quarter.
Even on our current conservative estimates, 2015E 1.1x P/BV and 8.2x P/E multiples
are at the low end of the peer group range, and could get even more appealing if the
bank delivers the numbers indicated in the budget.

Turkcell (TCELL TI; BUY; CP: TRY14.4; TP: TRY17.60)


(Analyst: Toygun Onaran, +90 216 636 4533, toygun.onaran@tebyatirim.com.tr)
In line with the profitable growth strategy, Turkcell remained focused on expanding
the post-paid customer base (from 37.5% in 2012 to 43% in 3Q14) and increasing
smartphone penetration (from 18% in 2012 to 37% in 3Q14). Both mobile data and
fibre broadband segments continue to be the main drivers of revenue growth. In
3Q14, these segments posted 38% y-y growth and accounted for 27% of
consolidated revenues, up from 21% in 3Q13. We expect mobile and fibre
broadband segments to drive growth in Turkcells revenues in 2015, with expected
y-y growth of 25% and 15%, respectively.
The company is expecting to reach a more balanced revenue structure, benefiting
from high growth rates in mobile broadband and fibre broadband revenues. Currently,
mobile broadband accounts for 17% of total revenues and is growing more than 30%
a year. Its share is expected to reach 30-35% in the medium term. Fibre broadband
accounts for 10% of revenues, is growing at high rates, and is expected by the
company to make a 20% contribution in the medium term. We expect Turkcells
operations to be resilient to the volatility in GDP growth as GDP sensitivity of mobile
communication is not very high. We also think that Turkcell is well protected from the
fluctuations in interest rates and TRY thanks to its cash-rich balance sheet (TRY5.2b
net cash position as at end-3Q14).

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The shareholders dispute that blocked the dividend payment since 2010 has ended
following Cukurovas payment to Alfa. This has raised expectations for the
distribution of the long-awaited dividend. Additionally, CMB holds the right to
intervene and decide for a dividend distribution after 31 March, 2015, if Turkcell fails
to convene its General Assembly. Our base-case scenario indicates a TRY1.90 per
share cash dividend distribution from the aggregated earnings between 2010 and
2014, which implies a 13.1% dividend yield.
At 12.7x 2015E P/E, Turkcell is trading at a 3% discount its global peer group. When
adjusted for the dividend Turkcells 2015E P/E drops to 11.0x, which implies a 16%
discount to its global peer group.

Aselsan (ASELS TI; BUY; CP: TRY12.15; TP: TRY13.9)


(Emre Yuzbasioglu, +90 216 636 4535, emre.yuzbasioglu@tebyatirim.com.tr)
We think that sizeable prospective contracts, such as a long-range air defence
missile system and Altay tank serial production, are on the horizon, which could bring
an additional USD1.5b order backlog to the company. Although the possibility of the
blacklisted (by the US) Chinese company, CPMIEC (a state-owned enterprise),
winning the long-range air defence system tender is still on the table, we expect the
government to cancel its negotiations with CPMIEC and choose EUROSAM (not
listed) or Raytheon (RTN US) on this tender. In addition to the above, protection of
the Strategic Targets tender and Stand-Off Jammer projects should be watched
closely in 2015 and 2016, respectively. Delivery schedules on these projects are
crucial to our valuation and pose upside risk.
We believe Aselsans SPO (secondary placement offering) decision, which is
awaiting the result of this long-range missile deal, is an opportunity for the company
to increase its daily trading volume and lift market capitalisation, as the SPO is
planned to be a restricted rights issue.
Aselsan generates 97% of its revenue from defence contracts, vs about 60% for its
global peers. Management plans to expand its focus on civilian contracts in sectors
such as energy and transportation, to increase its growth opportunities. We welcome
this strategy, as a civilian focus should enhance growth prospects in addition to the
bright defence revenue outlook.
Management has been putting hard work into new collaboration agreements on both
civilian and non-Turkey defence projects and signed a couple of MoU agreements
with several companies such as IBM (development of metal-air batteries), Durmazlar
(supply and development of electronic systems for trains), and Eurofighter Typhoon
(development of engine control systems) whose benefits we expect to see in the
medium to long term.
The nature of the defence business allows Aselsan to benefit from TRY depreciation,
as 83% of its revenue is denominated in FX vs 60% of costs.

Tofas Otomobil (TOASO TI; BUY; CP: TRY17.4; TP: TRY18.80)


(Toygun Onaran, +90 216 636 4533, toygun.onaran@tebyatirim.com.tr)
The recovery in domestic light vehicle sales in the second half of 2014 was better
than our expectations. We have seen a significant recovery in LCV demand thanks
to a 75% reduction in K license fees effective from July 2014. In December 2014, LV
sales increased 13% y-y to 147K, bringing cumulative sales to 768k units in 2014,
indicating 10% y-y contraction. Thanks to the superior sales performance in the last
month of the year, 2014 domestic LV sales exceeded our estimate of 700K units by a
wide margin. Following a 25% contraction in 1H14, domestic demand improved
significantly in the second half as LV sales grew by 2% in 2H14. We expect the
upbeat demand to continue in 1H15 and forecast an around 10% y-y increase in LV
sales given the low base impact of 1H14.
The completion of Doblo US investment will help Tofas to diversify its export markets
starting from 4Q14. Tofas will export at least 175k units of Doblo to the US until 2021.

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We expect US exports to be 4.5k units in 2014 and 15-20k annually starting from
2015. With the contribution of US Doblo sales, Doblo capacity increased to 190k
units (up from 160k) with 150k under take-or-pay agreement.
Tofas is planning to complete a new passenger car, a compact sedan model to be
built on a new platform, investment by 2H15. Tofas will also develop compact
hatchback and station wagon versions of this model by 2016. Accordingly, with the
completion of these model investments Tofas PC production capacity will be 160k
units annually starting from 2016. Renewal of the Minicargo model will be on the
table in 2015, where the main focus will be on the content of the take-or-pay
agreement. We expect the Minicargo capacity to be limited to 50k (down from 165k)
starting from 2016.
We expect 2014 and 2015 EBITDA margins to be strong at 12.2% and 11.7%,
respectively, benefiting from weak TRY and positive contribution of take-or-pay
agreements. We believe Tofas is well positioned to benefit from the recovery in
domestic demand, especially in LCVs. Additionally new PC models will provide a
more balanced product portfolio for Tofas and increase the companys
competitiveness in both domestic and export markets.

Bim Birlesik Magazalar (BIMAS TI; BUY; CP: TRY50.15; TP: TRY57)
(Kenan Cosguner, +90 216 636 4531, kenan.cosguner@tebyatirim.com.tr)
We believe recovery in profit margins will continue into 2015 as new stores come
online to generate revenues and the company feels less inflationary pressure
(current inflation running at around 9% compared with as low as 6% for mid-2015).
Lower fuel expenses should help consumer budgets and tame inflationary pressure.
We think the market has misinterpreted BIMs aspirations to expand into
supermarkets. We dont think it is related to the maturation of the discount channel,
but is more to do with potential opportunities in the supermarket channel after years
of bleeding profitability and subpar growth due to relentless competition from the
discount channel.
BIM has benefited from trading down as consumers try to make the most out of their
budgets in 2014. High food inflation, while increasing the top line, has had a negative
impact on margins. BIM has been successful in passing on cost pressures while
accelerating growth (adding 500 new stores a year in Turkey from 2014). We raise
our EBITDA margin estimate 10bp for 2015-16, resulting in 2% increases in our
2015-16 EBITDA and net income estimates

Coca Cola Icecek (CCOLA TI; BUY; CP: TRY49.40; TP: TRY62.0)
(Kenan Cosguner, +90 216 636 4531, kenan.cosguner@tebyatirim.com.tr)
We favour CCOLA as a long-term growth play. Despite a weak growth outlook for
FY15; we still expect a 13% top-line CAGR and 17% earnings CAGR over the next
three years.
CCOLA is one of the few companies in the consumer space that is demonstrating
solid sustainable earnings performance in the current weak growth environment.
In our view, the current share price weakness (the stock underperformed the BIST by
25% in the past one year) is a good opportunity to accumulate the stock for the
medium term, as among our major consumer names, it offers the best risk-return
profile. CCOLA trades at an 11.4x 12-month forward EV/EBITDA, i.e., at the lowerend of its historical 11.5-17x trading range.

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Least favoured
Akbank (AKBNK TI; HOLD; CP: TRY9.4; TP: TRY8.79)
(Fatih Topac, +90 216 636 4508, fatih.topac@tebyatirim.com.tr)
Akbank has the highest specific CoR, at 135bp, among the big six banks as of 3Q14
and we are cautious about the evolution of asset quality into 2015. Akbank is one of
the most expensive names among banks in our coverage universe with 2015E 1.35x
P/BV and 11.8x P/E multiples and the current stock price has 6% downside to our
target price. Therefore, our conviction name for the short side of the trade among
banks is Akbank.

Erdemir (EREGL TI; HOLD; CP: TRY4.81; TP: TRY4.23)


(Alper Paksoy, +90 216 636 4524, alper.paksoy@tebyatirim.com.tr)
We recommend underweighting Erdemir as we see little upside potential to its
valuation. We believe the continuing slide in flat steel prices as well as the weak
outlook may result in its EBITDA declining 10%, or nearly 2ppt, y-y, thereby acting as
a negative catalyst for the share price which has outperformed the local index 52%
YTD and 122% since the end of 2012 on strong margin expansion.

Turk Telekom (TTKOM TI; HOLD; CP: TRY7.49; TP: TRY7.90)


(Toygun Onaran, +90 216 636 4533, toygun.onaran@tebyatirim.com.tr)
Turk Telekom offers limited 5% upside potential to our target value. We believe that
the companys capex budget will increase in 2015 due to the upcoming 4G license
tender and required infrastructure investments related to 4G network, which may
increase leverage on the balance sheet. Additionally Turk Telekom is expected to
purchase 10% of the remaining shares of AVEA from the Isbank Group within 2015,
which will require an additional cash outflow from the company to a loss-making
subsidiary. Note that the company had TRY6.8b net debt as of 3Q14. As a result, we
see downside risk on our 4.8% dividend yield expectation for 2015, which should act
as a negative catalyst for stock performance.

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Disclaimers and Disclosures


APPENDIX
DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): TEB Investment, BNP Paribas JV
ANALYST(S) CERTIFICATION
Mete Yuksel, TEB Investment, BNP Paribas JV, +90 216 6364536, mete.yuksel@teb.com.tr.
The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately
reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part
of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research
analyst herein.
Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE
and/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS
"BNP Paribas is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP
Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to
relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other
entities within the BNP Paribas Group (collectively, "BNP Paribas").
The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this
report:
Company

Ticker

N/A

N/A

Disclosure (as applicable)


N/A

BNP Paribas represents that:


1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees.
2. It had an investment banking relationship with this company in the last 12 months.
3. It received compensation for investment banking services from this company in the last 12 months.
4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months.
5. It beneficially owns 1% or more of any class of common equity securities of the subject company.
6. It makes a market in securities in respect of this company.
7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in
securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted.
8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the
company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA


The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or
recommended in this report:
Company
N/A

Ticker
N/A

Price (as of 26-Jan-2015 closing price)


N/A

Interest
N/A

1.

The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (BNPPSK) by means of
payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.
2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company.
3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act.
4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the
transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares.
5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year.
6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,
BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision
shall apply only where tender offer has not expired.
7. The listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering
into arrangement for public offering or underwriting-related agreement for issuance of stocks
8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation.
9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8.
10. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the
following securities or rights (hereinafter referred to as Securities, etc. in this Article) regardless of whose name is used in the trading.
1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited.
2) Stock options of the Company whose securities dealings are being solicited.
3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

GENERAL DISCLAIMER
This report was produced by TEB Investment, BNP Paribas JV, member company(ies) of the BNP Paribas Group.
This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without
our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein.
This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any

32

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trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other
investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report.
Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the
recipients own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this
report may not be available for sale in certain jurisdictions.
As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and
internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this
document, either for its own account or for the account of its clients.
Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street
Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and
therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document
you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial
services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001,
division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).
Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an
offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer
or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant
Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the
dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under
no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent
that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory
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Additional Disclosures
Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in
our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this
note or your BNP Paribas representative.
All share prices are as at market close on 26 January 2015 unless otherwise stated.

RECOMMENDATION STRUCTURE
Stock Ratings
Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price.
BUY (B). The upside is 10% or more.
HOLD (H). The upside or downside is less than 10%.
REDUCE (R). The downside is 10% or more.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a
temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will
reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our
recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations
Improving (): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months.
Stable (previously known as Neutral) (): The analyst expects the fundamental conditions of the sector to be maintained over the next 12
months.
Deteriorating (): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months.
Country (Strategy) Recommendations
Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine
market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index
returns relative to the market cost of equity.
Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market
recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns
relative to the market cost of equity.
Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine
market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index
returns relative to the market cost of equity.

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RATING DISTRIBUTION (as at 28 January 2015)


Total BNP Paribas coverage universe

687

Buy
Hold
Reduce

Investment Banking Relationship

(%)

345

Buy

8.70

253

Hold

4.30

89

Reduce

1.10

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.
2015 BNP Paribas Group

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