Equity / Mid Cap.

/ Banking

Albaraka Turk
Bloomberg: ALBRK TI
Reuters: ALBRK IS
Revising up, feeling up, heads up
Upgraded to Outperform. We are raising our recommendation to Outperform from Market perform for Al Baraka shares on the back of the revised-up estimates for 2012. The banks relative underperformance on YtD basis seems a bit overdone, in our view, and its laggard stance may change given the better outlook ahead. We, now, forecast TL175mn net earnings for the bank in 2012 from our previous estimate of TL159mn (up 10%), mainly triggered by better asset quality assumptions we pencilled in vs. that of the beginning of the year and softer operating cost burden projections following the guidance we got from the management. Overall, the management looks more confident for 2012 prospects given the improved liquidity conditions in domestic and global scales, which will be further buoyed by lower than previously anticipated capital erosion calculated in Basel II. Albaraka shares trade at 5.4x 12E P/E and 0.8x 12E P/BV, which compares favourably with 6.5x 12E P/E and 0.9x 12E P/BV multiples of Tier-II banks. Growth to be secured by relieved liquidity conditions. We forecast 20% loan and deposit growth in 2012, which should translate into 17% asset growth. On the funding side, new branches and the banks ability to pinpoint the sharing rates base our deposit growth estimates, though we retain our average sharing rate on TL deposits as c. 82% on weighted basis, broadly in line with 2011 averages. The banks target to raise US$ 200mn worth of Sukuk issue in 2Q12 will definitely bolster the asset growth, which we find quite attainable given the improved global liquidity conditions and costs. The CBRTs recent easing on RRRs on TL side came as a big relief to Islamic banks, which normally operate at limits in terms of loan to deposit ratios and any easing on reserve requirement front has a more marginal impact on these banks relative to that on commercial banks. Net profit margin has stabilized. We pencil in a flat net profit margin for Albaraka at 4.9% in 2012. This will first be exacerbated by the loan growth (our estimate also stands at 20%) and favourable mix change towards retail segments including SMEs. This might turn out to be conservative as improved liquidity conditions and eased RRs have been also positively affecting the spread conditions. Depending upon the loan demand and liquidity conditions, the bank may pinpoint the sharing rates to attract more deposits, though it seems a remote possibility to us at least for the first half of the year. Risen lending rates in the market render a better LtD spread for the participation banks under normal conditions, which did not automatically work in 2H11 due to sheer liquidity squeeze. This cloudy outlook has been changing favourably especially in conjunction with liquidity climate driven by easing on RRR fronts and permitting the participation banks to tap into CBRTs overnight borrowing via using revenue sharing certificates as collaterals.

14/02/2012

Company Update

OUTPERFORM
Upside Potential*
Stock Data Price at 13 02 2012 12-Month Target Price Mcap (mn) Float Mcap (mn) No. of Shares Outstanding Free Float (%) Avg.Daily Volume (3M, mn) Market Data ISE 100 US$ Spot Rate US$ 12-Month Forw ard
Price Performance (%) 1 Mn

31%
US$ 1.01 1.31 543 98 539 mn 18.00

TRY 1.77 2.33 954 172

1.9

0.9 TRY 60,557 1.756 1.9145

3 Mn -8 -5 -15

12 Mn -27 -34 -22

TRY US$ Relative to ISE-100

23 29 7

Price / Relative Price

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 01-09
ALBRK Relative to ISE 100

TL

Relative

160 140 120 100 80 60 40 20 0

2.60

11-09

09-10

07-11
1.42

52 Week Range (Close TRY)

Bulent Sengonul
bsengonul@isyatirim.com.tr +90 212 350 25 66

Kutlug Doganay
kdoganay@isyatirim.com.tr +90 212 350 25 08

Please refer to important disclaimer at the end of this report.

Albaraka Turk
Basel II impact will be less than previously thought. Management now guides 50-60bps erosion in CAR vs. its previous 150-160bps estimate. Basel II will be a major headwind for banks operating at rather lower CARs, while Al Baraka stood at the top names to be adversely affected from new Basel II applications. Based on the guidance, previous impact calculations associated with Basel II remained overly conservative for Al Baraka resulting in c. 150bps CAR erosion, which has elevated a potential capital increase concerns. We think that the managements intention to increase the capital will be shelved until the end of 2013, which should be a relief for the stock performance. Asset quality will likely to remain strong. We estimate that Albarakas NPL ratio remained resilient at 2.9% in 4Q11 due to limited increase in NPL additions and a potential write-off from the collateralized portion of its NPL stock. Going forward, we pencil in only 8% YoY increase in the banks NPL book as the expected loan growth would be driven by volume increase with existing clients, those the bank has strong knowledge about. Hence, we estimate that Albarakas NPL ratio will ease 30bps down to 2.6% in 2012, and specific CoR net off collections will be 50bps, c. 27bps lower on annual basis.

Albaraka Turk
Income Statement (TL mn) Profit Shares Income Profit Shares Expense Net Profit Shares Income Net Trading Income Provision For Loan Losses Commission Income (net) Other Non-Interest Revenues Other Non-Interest Expenses EBT Tax Net Income Balance Sheet (TL mn) Cash & CBT Banks & Financial Institutions Marketable Securities Loans (net) Non-Performing Loans (net) - Gross NPL - Allow ance (-) Participations & Subsidiaries (Net) Premises and Equipment (Net) Other Assets Total Assets Deposits Funds Borrow ed Other External Resources Total Liabilities Shareholders' Equity Total Liabilities & Shareholders' Equity Ratios Asset composition & capital adequacy Loan/Deposit Loan/Total assets Deposits/Total assets Securities/Total assets Total equity/Total assets Free capital/ Total assets CAR Profitability NIM ROAA ROAE Equity multiplier Fee income /Total revenues Efficiency Cost/Income Cost/Assets Fee income /op-ex Asset quality NPL Provision coverage Cost of risk Valuation metrics P/E x P/BV x
3

2009 656 349 308 25 (132) 81 27 (177) 132 26 105 2009 617 608 328 4,633 19 170 151 6 140 16 6,415 5,465 0 0 5,704 711 6,415 2009 85% 72% 85% 5% 11% 9% 14.5% 6.2% 1.9% 15.6% 7.5 10.2% 40% 2.9% 18% 3.6% 89% 6.1% 8.6 1.3

2010 667 350 316 16 (105) 83 57 (201) 166 32 134 2010 701 731 435 6,271 27 191 164 2 192 20 8,406 6,882 375 0 7,554 853 8,406 2010 91% 75% 82% 5% 10% 8% 14.1% 4.9% 1.8% 17.1% 8.4 10.1% 43% 2.5% 41% 3.0% 86% 1.2% 10.8 1.7

2011E 780 401 379 18 (93) 90 46 (240) 200 42 159 2011E 1,099 778 544 6,960 29 207 178 0 214 29 9,723 7,146 895 0 8,726 997 9,723 2011E 97% 72% 73% 6% 10% 8% 13.2% 4.9% 1.8% 17.2% 8.5 9.7% 45% 2.5% 38% 2.9% 86% 0.8% 5.9 0.9

2012E 958 523 435 15 (100) 106 28 (263) 221 46 175 2012E 1,077 907 590 8,370 32 224 192 57 227 34 11,340 8,246 1,225 0 10,174 1,166 11,340 2012E 102% 74% 73% 5% 10% 8% 12.4% 4.9% 1.7% 16.2% 8.2 9.5% 45% 2.4% 40% 2.6% 86% 0.5% 5.4 0.8

2013E 1,149 647 502 14 (116) 120 37 (295) 262 54 208 2013E 1,182 683 656 10,377 38 274 237 66 184 39 13,128 9,946 1,378 0 11,762 1,367 13,128 2013E 104% 79% 76% 5% 10% 8% 12.3% 4.8% 1.7% 16.4% 8.1 9.1% 44% 2.3% 41% 2.6% 86% 0.6% 4.5 0.7

Albaraka Turk

This report has been prepared by Yatrm Menkul De erler A. . ( Investment) solely for the information of clients of Investment. Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies, investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and with the assistance of independent advisors, as they believe necessary. The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. All information in these pages remains the property of Investment and as such may not be disseminated, copied, altered or changed in any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written permission of Investment. (www.isinvestment.com)

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