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TURKEY M ARKET OUTLOOK BNP PARIBAS Mete Yuksel

31 AUGUST 2016

EQUITIES RESEARCH

TURKEY MARKET OUTLOOK

Remain overweight on banks

We stick to our high-beta, bank-heavy portfolio in this reshuffle as well given both short and long-term upbeat catalysts on the sector. We are in anticipation of one of the best quarterly profit performances from the sector for 3Q16, supported by solid NIM evolution, cost containment, sliding fee rebates and limited specific provisions. For the longer run, we still see room for upward revisions in bank earnings for 2017. A likely pickup in the pace of delinquent loans should be more than offset through easing of macro prudential measures such as lower general provisions, lower required reserves, milder transaction taxes and more generous duration caps for consumer loans. In all, Turkish banks are already trading with a deep discount at 6.0x earnings versus 7.9x for EM EMEA peers on 2017E, while the 5-year average is at par close to 8x. The actual discount on Turkish banks could even be wider should earnings expectations rise on softer macro prudential practices.

While a downgrade of the country’s sovereign rating to sub investment grade by Fitch or Moody’s remains a risk, we do not envisage long-lasting pressure on the market even if risk materializes. We would look for 25-40 bps higher costs on syndicated loans with minor negative impact on rollover ratios. A slight decline in availability of FX funding would not be detrimental for the sector given reduced appetite for FX borrowings by domestic corporates. The CARs on the other hand may come down by 120bps on average due to doubling risk weighting on Eurobond investments and FX bank receivables to 100%, which can comfortably be absorbed by the sector given the sector’s 15.8% CAR at end-July. As long as bond flows to EM continue on the back of dovish BOJ, BOE and ECB, stabilising China growth and unchanged FED rate hike pricing, we expect the downbeat impact of a sovereign rating downgrade to vanish in days.

In this reshuffle we keep our bank weighting at 37%, corresponding to 5.5pp overweigh positioning to the BIST100 benchmark. We are adding Yapi Kredi Bank following its 9% qtd underperformance vs. the banking index as well as BIST100 for no material reason other than ECB’s bank stress test passed by its JV partner UCI. YKB trades at a mere 5x 2017E earnings and half of its book will be one of the primary beneficiaries of extending durations on consumer loans and likely relief on credit card instalments for certain goods. We also add Tekfen not only due to the USD2.1b Qatar motorway project that will more than double its USD1.8b backlog, but also on likely additions that may bring about further geographical diversity. Finally, we include Dogus Oto to capitalise on potential easing of consumer loans, while also taking into consideration its sector-low 6.9x 2017E P/E.

Key Ideas Portfolio: Overview Key Ideas Weight BIST-100 Mkt cap 3m ADV Upside*

Portfolio (%) weight (%) (USD m) (USD m) (%)

Garanti Bank 12.5 9.6 10,775 263.3 26

Enka Insaat 12.2 1.4 6,241 10.1 35

Emlak Konut GYO

11.8 3.5 3,704 25.6 39

Dogus Otomotiv

11.5 0.4 755 4.4 27

Sabanci Holding

10.9 5.1 6,271 17.4 27

Yapi Kredi Bank

9.3 1.7 5,238 29.7 33

Tekfen Holding 8.9 0.7 902 11.6 25

Isbank 8.2 4.2 7,235 52.3 36

Bizim Toptan 7.7 0.2 183 0.9 46

Akbank 7.0 10.2 10,614 68.0 22

Portfolio BIST-100

Banks weight (%)

37.0 32.0

In TKFEN TI YKBNK TI DOAS TI Least preferred THYAO TI BIMAS TI

Performance Key

Ideas BIST-30

Rel. BIST-100

Rel. (%) (%) (%)

3-Aug 2.7 0.5 0.6 2-mth (1.1) 0.6 (0.1) 3-mth (1.2) 1.0 0.9 YTD 15.4 5.8 6.3 1-year 16.7 12.3 11.9

* upside to our TP Sources: Rasyonet; TEB Investment/BNP Paribas estimates

Mete Yuksel [email protected] +90 216 636 4536

Our research is available on Thomson One, Bloomberg, TheMarkets.com, FactSet and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for authorisation. Please see the important notice on the back page.

PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): TEB INVESTMENT. THIS REPORT IS DISTRIBUTED IN TURKEY BY TEB INVESTMENT AND OUTSIDE TURKEY JOINTLY BY TEB INVESTMENT AND BNP PARIBAS. THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 15

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TURKEY MARKET OUTLOOK Mete Yuksel

Exhibit 1: Key Ideas: DETAILED view (Revised portfolio) Name BBG code Weight BIST-30 BIST-100 Mkt cap Price TP Upside Free float 3m ADV 2-Year β (weekly)

(%) weight (%) weight (%) (USD m) (TRY) (TRY) (%) (%) (USD m) (rel. BIST-100)

BIST-100 XU100 - - - 164,100 76,119 - - 33 1,130.1 -

Key Ideas Portfolio - - - - 51,917 - - 29 38 483.3 1.03

Garanti Bank GARAN TI 12.5 11.5 9.6 10,775 7.58 9.55 26 48 263.3 1.19

Enka Insaat ENKAI TI 12.2 1.6 1.4 6,241 4.39 5.90 35 12 10.1 0.65

Emlak Konut GYO EKGYO TI 11.8 4.2 3.5 3,704 2.88 4.00 39 51 25.6 1.11

Dogus Otomotiv DOAS TI 11.5 0.4 0.4 755 10.14 12.90 27 26 4.4 1.14

Sabanci Holding SAHOL TI 10.9 6.0 5.1 6,271 9.08 11.50 27 44 17.4 1.11

Yapi Kredi Bank YKBNK TI 9.3 2.1 1.7 5,238 3.56 4.72 33 18 29.7 1.17

Tekfen Holding TKFEN TI 8.9 0.8 0.7 902 7.20 9.00 25 41 11.6 0.81

Isbank ISCTR TI 8.2 5.0 4.2 7,235 4.75 6.46 36 31 52.3 1.17

Bizim Toptan BIZIM TI 7.7 0.2 183 13.50 19.70 46 46 0.9 0.78

Akbank AKBNK TI 7.0 12.1 10.2 10,614 7.84 9.56 22 52 68.0 1.22

Prices as at 29 August 2016 Sources: Rasyonet; TEB Investment/BNP Paribas estimates

Exhibit 2: Key Ideas: PREVIOUS portfolio Weight 3-8-16 29-8-16 Abs Perf BIST-100 TR rel BIST-30 TR rel

(%) (Close, TRY) (Close, TRY) (%) (%) (%)

ENKAI 18.2 4.6 4.39 (3.7) (5.7) (5.8)

EKGYO 17.5 2.7 2.88 8.7 6.4 6.4

SAHOL 16.5 8.7 9.08 3.9 1.7 1.7

GARAN 13.6 7.3 7.58 4.1 2.0 1.9

ISCTR 12.4 4.6 4.75 4.2 2.0 2.0

AKBNK 11.0 7.5 7.84 4.3 2.1 2.0

BIZIM 10.8 13.9 13.50 (3.1) (5.1) (5.1)

BIST-100 TR 113,996 116,395 2.1 BIST-30 TR 137,613 140,599 2.2 BIST-Banks TR 173,119 181,854 5.0 BIST- Manufacturing TR 150,209 151,868 1.1 Key Ideas 2.7 0.6 0.5


Exhibit 3: Key Ideas: PREVIOUS least preferred portfolio Weight 3-8-16 29-8-16 Abs Perf BIST-100 TR rel BIST-30 TR rel

(%) (Weighted price, TRY) (Close, TRY) (%) (%) (%)

THYAO 100.0 5.13 5.16 0.6 (1.5) (1.6)

BIST-100 TR 113,996 116,395 2.1 BIST-30 TR 137,613 140,599 2.2 Least Preferred 0.6 (1.5) (1.6)


Exhibit 4: Relative performances since first inclusion BBG code Inclusion date Entry price 29-8-2016 Abs Perf BIST-100 TR rel

(Weighted avg, TRY) (Close, TRY) (%) (%)

AKBNK 5-1-16 6.42 7.84 22.2 10.9

BIZIM 1-6-16 16.82 13.50 (19.7) (18.9)

EKGYO 1-6-16 2.71 2.88 6 7.4

ENKAI 25-4-16 4.75 4.39 (7.5) 2.5

GARAN 15-7-16 8.38 7.58 (9.5) (1.6)

ISCTR 15-7-16 4.99 4.75 (4.8) 3.6

SAHOL 21-3-16 9.65 9.08 (5.9) 0.7


2 BNP PARIBAS 31 AUGUST 2016


Garanti Bank (GARAN TI; BUY; CP: TRY7.58; TP: TRY9.55) Fatih Topac, +90 216 636 4508, [email protected]

We still stick to the quality names like Garanti among banks. One of the major drags on the share price, the shipping sector NPLs, are almost out of sight as Garanti transferred bulk of the pending files under watch as NPL. For the remaining one single shipping file, Garanti has TRY200m free provision to more than offset its potential negative impact on earnings. Even more, the management is not totally ruling out the chance for this file to become a performing loan again, public on its public teleconference. We expect continued NIM accretion backed by sliding funding costs as well as market share gains in higher yielding loan areas such as business and retail banking. We also expect the bank to gain efficiency and limit cost growth below inflation. In our view, Garanti is among the best positioned names with 16.3% CAR and 15.2% Tier 1 capital ratios, the highest among peers in our coverage. As Basel III buffers weigh in the capital ratios over the next three years, Garanti bank’s resilient capital base should differentiate the bank positively from peers. Garanti trades at an undemanding 0.8x P/B and 6.1x P/E on our 2017 estimates, with 26% upside to our TRY9.55 TP.

Our 12m-forward looking TP of TRY9.55 for Garanti is derived from a Gordon Growth model. Major downside risks to our call are an unexpected deterioration in asset quality, further contraction in margins and slower loan expansion in the case of a slower economic activity. On the other hand, any easing in macro-prudential measures could drive upside to our valuation.

Exhibit 5: Key stock data – GARAN Exhibit 6: Price graph – GARAN YE 31 Dec (TRY m) 2015 2016E 2017E

Operating profit 4,315 5,690 6,716

Recurring net profit 3,407 4,638 5,372

Recurring EPS (TRY) 0.81 1.10 1.28

EPS Growth (%) (7.5) 36.1 15.8

Recurring P/E (x) 9.6 7.0 6.1

Price/book (x) 1.1 0.9 0.8

ROE (%) 11.8 14.1 14.0

Share Price Performance 1 Month 3 Month 12 Month

Absolute (%) 3.4 0.5 5.2

Relative to BIST-100 (%) 2.4 3.1 3.2

Mkt cap (TRY m / USD m) 31,836 / 10,775

CP/TP (TRY, 29 Aug) 7.58 / 9.55

3m ADT (USD m) 263.3

Free float (%) 48

12m high / low (TRY) 8.67 / 6.59

Sources: Rasyonet; Factset; TEB Investment/BNP Paribas estimates Sources: Rasyonet; Factset; TEB Investment/BNP Paribas estimates

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Enka Insaat (ENKAI TI; BUY; CP: TRY4.39; TP: TRY5.90) Toygun Onaran, +90 216 636 4533, [email protected]

Enka is benefiting from the improving relations with Turkey and Russia as the company’s entire real estate portfolio is located in Russia, mainly in Moscow and Enka is perceived as a Russian proxy. In line with the improvement in the investor sentiment, we expect to see some fundamental improvements in the remaining part of the year. Recall that Enka’s Russian operations were negatively affected last year due to worsening business sentiment and the company failed to add sizeable projects to its backlog where additions remained at only USD800m in 2015, which raised concerns on growth of the contracting segment going forward. However, we believe the negatives are already reflected in the share price and Enka offers significant upside potential of 35% compared to our target price of TRY5.90. Additionally, Enka’s USD2.9b net cash position provides a low risk profile while giving the company a competitive edge in potentially entering new investments, although its investment pace is substantially slow.

Contracting backlog decreased by 22% y-y in 2Q16 to US$1.8b, mainly due to project completions and limited new project additions. Iraq is the top-contributor to Enka’s backlog with USD382m accounting for 21% of the backlog, followed by US Embassy Projects with USD335m accounting for 18%. Following a weak project acquisition performance in the last 18 months, we expect Enka to be more active going forward. The postponed power plant projects in Iraq (second phases of Enka’s ongoing constructions) with USD800m total project value is likely to be awarded in 2H16 after the completion of the financing of the project. Additionally Enka is following several big ticket tenders in Turkey, namely a nuclear power plant investment and a three-store tunnel project that will connect the two sides of Bosporus.

More importantly, Enka is following the power plant tenders in Indonesia where the government has ambitious plans to increase the electricity output of the country. Note the Indonesian government is planning to add 35GW of new generation capacity of which 1/3 will be EPC (Engineering, Procurement and Contracting) and 2/3 will be IPP (Independent Power Producer) tenders. In that context, the Indonesian government is planning to tender power plants with various capacities for a total amount of 15.5GW. As the EPC contractor has to come from an OECD country, the tenders are closed to Chinese companies, making the competitive environment better. Enka is planning to get involved in both EPC and IPP tenders where the first tender is expected to be held in 3Q16. We believe the Indonesian market provides substantial potential for Enka, given its technical and financial capacity as an EPC contractor. Enka will participate in the 650MW combined cycle power plant tender in September 2016.

Enka’s real estate segment has been negatively affected from the economic turmoil and falling consumer confidence since end-2014. Starting from 2Q16, we see initial signs of stabilization in the real estate segment. Occupancy and rent rates started to stabilize in offices at 76% and USD725/sqm/year in 2Q16, while occupancy rate increased to 89% in 2Q16 from 86% in 1Q16 in retail area in the cost of lower rent rates that came down to USD425 from USD450/sqm/year in the same period. We expect the consumer sentiment and general economic environment to improve going forward, which is likely to have a positive impact on occupancy rates. Enka started the re-development project of Kashirskaya shopping mall from end-2015, which includes the demolishment of a 21k sqm shopping mall and building a 73k sqm shopping mall instead. We expect Enka’s net leasable area in retail to increase by 73k sqm to 350k sqm in 2017, which would generate an additional USD35m in rent income.

In our TP calculation, we use DCF and peer group comparison to derive fair value for Enka’s contracting segment, where we use a target 2016E EV/EBITDA multiple of 10x, in line with international contractors. Key downside risks to our investment case and target price are: 1) lower-than-estimated normalised contracting EBITDA margins (our estimate: 15%), 2) a sharp decline in oil prices impacting new




contracting order growth, or risk perceptions, 3) a sharp fall in vacancy rates in Russia, and 4) negative political developments in Iraq

Emlak Konut GYO (EKGYO TI; BUY; CP: TRY2.88; TP: TRY4.00) Toygun Onaran, +90 216 636 4533, [email protected]

Emlak Konut offers one of the best business models in the country thanks to its privileged access to valuable land bank of the government through its parent TOKI and unique revenue sharing model with the contractors that limits the risks and maximizes the return. Total size of Emlak Konut’s land bank is 11m sqm with an appraisal value of TRY6.2b. The company completed 7 RSM tenders in 2016 so far with 2.08x tender multiplier and TRY2.28b minimum revenue and two turnkey project tenders with TRY91m appraisal value. Emlak Konut is planning to tender Zeytinburnu land (103k sqm with TRY411m appraisal value) and 4 turnkey projects with TRY174m appraisal value in the remaining part of the year.

According to the data compiled by tne Turkish Statistical Institute, total house sales contracted by 2.7% y-y to 712k units in 7M16, on a 1.1% y-y increase in new house sales to 330k units and 5.7% decline in second hand sales to 382k units. Despite the negative developments that affects consumer sentiment negatively, new house sales remained resilient in Turkey, thanks to the strong real estate price appreciation, attractive financing packages provided by the contractors and stable economic environment where mortgage rates fluctuated in a narrow band. The housing price index increased by 12% y-y in Turkey and 16% y-y in Istanbul as of June 2016 on top of 17% and 26% increases in the previous 12-months, which supports the demand for housing. The data shows the sales momentum of completed housing units rather than the ongoing projects as it takes into account only official transactions in the title offices. Although it is not very indicative for the REICs that have ongoing projects, we think the upward pricing trend and positive momentum in new house sales are also supportive of the presales performance of ongoing projects. Real estate sales should be positively affected by the ongoing declining trend in mortgage rates supported by both the contractors and the banks.

In the absence of new project launches recently, Emlak Konut had a slow start to the year. According to presales figures, the company completed presale activities for 2,887 units (-51% y-y) worth of TRY1.9b (-47% y-y) and APU realized at TRY659k (+9% y-y) in 7M16. We expect Emlak Konut to see a very strong presales performance in August and September, driven by its action plan that was put into effect in the beginning of August to stimulate its sales activity. Accordingly, the company provided an attractive payment plan for home purchases with less down

Exhibit 7: Key stock data – ENKAI Exhibit 8: Price graph – ENKAI

YE 31 Dec (USD m) 2015 2016E 2017E Revenue 4,555 4,698 4,778 EBITDA 743 710 686 Rep. net profit 530 499 487 Net debt (2,806) (2,978) (3,075) Rep. EPS growth (%) (27.6) (5.7) (2.4) EV/EBITDA (x) 4.2 4.6 4.6 Rep. P/E (x) 12.1 12.8 13.2 Dividend yield (%) 2.6 2.1 2.7 Price/book (x) 1.3 1.2 1.1 Net debt/EBITDA (x) (3.8) (4.2) (4.5) ROE (%) 10.3 9.4 8.6 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (0.2) 0.9 (5.4) Relative to BIST-100 (%) (1.2) 3.5 (7.2) Mkt cap (TRYm / USD m) 18,438 / 6,241 CP/TP (TRY, 29 Aug) 4.39 / 5.90 12m high / low (TRY) 4.87 / 3.75 3m ADT (USD m) 10.1 Free float (%) 12


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payment, lower interest rate and longer maturity for its 30 RSM projects that include 15k units.

We expect the company to recover weak 7M16 sales with the previously tendered RSM and turnkey projects scheduled for launch throughout the year. Two large-scaled projects; Istinye and Zeytinburnu in Istanbul, will be launched in the remaining part of the year. Emlak Konut’s revenue share from those projects are TRY1.9b and TRY1.6b, respectively.

Emlak Konut expects to sell 11k units and generate TRY7.6b presales revenue from the ongoing projects and new projects scheduled in 2016, indicating a 5% y-y increase in presales units and 20% y-y increase in presales revenues. Additionally, Emlak Konut’s 2016 net income target of TRY1.5b is in line with our forecast of TRY1.56b. Emlak Konut is trading at a 42% discount to its NAV that stands at TRY4.99 per share as of end-2Q16. We note its historical discount to NAV is at 25%.

Our TP is based on SOTP valuation. Downside risks are slowdown in local economy, raise in interest rates, and contractor failures.

Dogus Otomotiv (DOAS TI; BUY; CP: TRY10.14; TP: TRY12.90) Toygun Onaran, +90 216 636 4533, [email protected]

Doas underperformed the BIST100 index by 16% in the last 12-months mainly on rising concerns related to the VW group’s pricing support and the absence of some flagship products following the VW emissions scandal, weakness and rising volatility in the TRY and a slowdown in Turkish light vehicle demand as the company operates as an importer solely dependent on domestic demand. We believe negatives are now priced in and that Doas is well positioned to benefit from improved consumer confidence and expected easing in consumer loans. New model launches and the introduction of the Jetta with the new diesel engine should also support volume growth.

We expect the banking regulator (BRSA) to extend the maturity cap of car loans from 48 to 60 months. Assuming that the maturity ceiling is extended to 60 months, the average monthly instalments will decline by 14%, according to our calculations. We think the regulator will announce this amendment in 3Q16.

Doas’s retail sales volumes fell 2% y-y in 1H16, slightly worse than the 0.5% contraction in the market, as Doas benefitted from 15% and 12% y-y sales volume growth in premium passenger cars and light commercial vehicles despite 4% and

Exhibit 9: Key stock data – EKGYO Exhibit 10: Price graph – EKGYO YE 31 Dec (TRY m) 2015 2016E 2017E Revenue 1,787 2,984 2,736 EBITDA 904 1,310 1,264 Rep. net profit 953 1,559 1,580 Net Debt (2,704) (5,684) (7,849) Rep. EPS growth (%) (0.2) 63.6 1.4 EV/EBITDA (x) 9.6 5.3 3.5 Rep. P/E (x) 11.7 7.2 7.1 Dividend yield (%) 0.0 3.3 5.6 Price/book (x) 1.2 1.0 0.8 Net debt/EBITDA (x) (3.0) (4.3) (6.2) ROE (%) 10.5 14.9 12.8 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) 7.9 7.1 18.9 Relative to BIST-100 (%) 6.9 9.7 16.6 Mkt cap (TRY m / USD m) 10,944 / 3,704 CP/TP (TRY, 29-Aug) 2.88 / 4.00 12m high / low (TRY) 3.11 / 2.27 3m ADT (USD m) 25.6 Free float (%) 51


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21% contractions in sales volumes of passenger car and heavy commercial vehicle. Despite not yet having the flagship Jetta diesel model for sale and negative news flow regarding VW’s emissions scandal, Doas is still Turkey’s leading light-vehicle supplier, with a 20.8% market share as of 2Q16 (-0.7ppt y-y). We expect a positive impact on Doas’s sales volumes when it starts selling Jetta diesels in December 2016.

Additionally, share buy-backs are providing downside protection for the company. Doas has bought back 10m shares for TRY102m at an average price of TRY10.18 per share since it announced the buy-back programme on 27 July 2016 limited to 22m shares. This has helped its share price to stabilise since then.

At 2017E P/E of 6.9x, we believe Doas is trading at attractive multiples compared to other listed automotive companies (FROTO: 10.3x, HOLD, CP: TRY32.80 TOASO: 12.7x, BUY, CP: TRY22.74) in Turkey. More importantly, Doas has a stable dividend payment policy where the company distributes cash dividends each year. Our 2017E dividend yield calculation, where we assume 75% payout ratio, stands at 7.8% at current prices.

Our 12M TP of TRY12.90 is based on a sum-of-the-parts (SoTP) valuation which includes a 10% holding discount to our NAV estimate. We value Doas’s core business, importing and distributing VW Group vehicles, using a DCF model. Key downside risks to our TP are: 1) a sharp devaluation in the TRY and/or a rise in interest rates that curb demand, 2) renegotiation of pricing strategy with Volkswagen on less favourable terms that has a negative impact on margins, and 3) an unexpected deterioration in consumer demand.

Sabanci Holding (SAHOL TI; BUY; CP: TRY9.08; TP: TRY11.50) Alper Paksoy, +90 216 636 4524, [email protected]

We expect Sabanci Holding’s earnings to rise c.30% per annum in 2015-17 and narrow the discounts on our SOTP and P/E valuations. We expect earnings growth to be mainly enabled by its two main businesses, banking and electricity.

We expect banking business earnings to accelerate through 2017 on continuing double-digit loan growth, low increases in operating expense, declining fee rebates and a slightly higher NIM.

We forecast electricity business’s (Enerjisa) EBITDA to continue rising strongly after an 80% increase y-y in 2015. We expect growth to be driven by higher volumes on

Exhibit 11: Key stock data – DOAS Exhibit 12: Price graph – DOAS

YE 31 Dec (TRY m) 2015 2016E 2017E Revenue 10,889 10,747 12,403 EBITDA 484 445 549 Rep. Net Profit 303 234 325 Net Debt 1,883 2,001 1,778 Rep. EPS growth (%) 19.7 (22.7) 38.9 EV/EBITDA (x) 7.7 9.4 7.5 Rep. P/E (x) 7.4 9.6 6.9 Dividend Yield (%) 6.7 13.4 7.8 Price/book (x) 1.7 1.7 1.6 Net debt/EBITDA (x) 3.9 4.5 3.2 ROE (%) 23.4 17.7 23.8 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (2.6) (9.2) (11.0) Relative to BIST-100 (%) (3.5) (6.9) (12.8) Mkt cap (TRY m / USD m) 2,231 / 755 CP/TP (TRY, 29 Aug) 10.14 /12.90 12m high / low (TRY) 12.55 / 8.65 3m ADT (USD m) 4.4 Free float (%) 26


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completion of all major investments within 2016 on the generation side and higher margins on the distribution side in the electricity business. The government’s recently announced plans to support local coal-based electricity production by purchasing some or most of their production is also likely to help the expected growth in Enerjisa’s EBITDA in 2016 and later on. We estimate coal-based production will account for 8% and 20% of Enerjisa’s electricity generation in 2016 and 2017, respectively. We estimate the electricity business’s leverage (net debt to EBITDA) will ease to 5x in 2017 from 9x in 2015.

The stock is trading at a 44% discount to its ‘current’/market-value-based SOTP which, in our view, is quite attractive compared with historical average discount of 35%.

We employ sum-of-the-parts (SOTP) in setting our TP for Sabanci Holdings. Valuations of “parts” are based on our valuation of individual businesses most of which we cover as listed stocks. For unlisted businesses, we use target multiples. A recession in the Turkish economy, excessively high interest rates, drought in Turkey, unfavourable changes in banking and electricity sector rules by the government and significant weakening of TRY against hard currencies pose key downside risks to our forecasts and TP.

Yapi Kredi Bank (YKBNK TI; BUY; CP: TRY3.56; TP: TRY4.72) Fatih Topac, +90 216 636 4508, [email protected]

Amidst the growing concerns regarding Italian banks’ capitalization problems, YKBNK stock sold off by 9.6% in the last 3 months, as one of the major subsidiaries of Unicredit bank. Nevertheless, the risk should mostly be out of the way now as Unicredit passed the latest round of ECB’s stress tests on July 29th. Another catalyst for YKB is the ongoing work of the BRSA for some easing in macro prudential conditions. If this happens to be case, YKB, as one of the leading retail oriented commercial banks in the country will benefit more compared to most peers in our view. Last but not least, 71% cumulative EPS growth performance of YKB as of 1H16 will be maintained in our view. Contribution of improving spreads will be reinforced by stronger CPI linker income into 3Q16 ensuring that that the earnings momentum remains intact. Such a quality bank is trading at 2017E 0.5x P/B and 5x PE multiples which we think are unwarranted. Therefore, we’re taking this opportunity to add YKB to our top picks list.

Our 12m-forward looking TP of TRY4.72 for Yapi Kredi is derived from a Gordon Growth model. Major downside risks to our call are an unexpected deterioration in

Exhibit 13: Key stock data – SAHOL Exhibit 14: Price graph – SAHOL YE 31 Dec (TRY m) 2015 2016E 2017E Revenue 30,036 35,786 39,906 EBITDA 5,371 7,045 8,266 Rep. net profit 2,236 2,513 3,223 Net Debt nm nm nm Rep. EPS Growth (%) 7.6 12.4 28.2 EV/EBITDA (x) nm nm nm Rep. P/E (x) 8.4 7.5 5.8 Dividend yield (%) 1.1 1.1 1.1 Price/book (x) 0.9 0.8 0.7 Net debt/EBITDA (x) 5.3 4.5 4.4 ROE (%) 10.3 11.4 13.0 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) 1.9 (1.3) 6.6 Relative to BIST-100 (%) 1.0 1.2 4.5 Mkt cap (TRY m / USD m) 18,527 / 6,271 CP/TP (TRY, 29 Aug) 9.08 / 11.50 12m high / low (TRY) 10.20 / 7.46 3m ADT (USD m) 17.4 Free float (%) 44


(10)(8)(6)(4)(2)024681012

7.4

7.9

8.4

8.9

9.4

9.9


(%) (TRY) SAHOL (LHS) Rel to BIST-100 (RHS)




asset quality, unexpected contraction in margins and slower loan expansion in the case of a slower economic activity.

Tekfen Holding (TKFEN TI; BUY; CP: TRY7.20; TP: TRY9.00) Toygun Onaran, +90 216 636 4533, [email protected]

Although Tekfen Holding is the best performing stock in BIST100 year-to-date with 93% absolute return and 82% outperformance vs. the benchmark index, the stock has underperformed the market by 2% in the last month due to lower than expected profitability in the contracting segment in 2Q16 and downward revision in agri-industry guidance after the 2Q16 results announcement. We continue to see an attractive upside potential in the stock as our TRY9.0 target price offers 25% upside potential. The recently received USD2.1b motorway project in Qatar could be a game-changer for Tekfen, as it helps the company reach an all-time high backlog, which we estimate at USD3.9b at end-2016. We expect revenue and EBITDA generation to surge in 2017 and 2018, benefiting from strong backlog growth. Tekfen is bidding for new projects in the Middle East, CIS and Turkey and we see upside risk in our backlog calculation if the company acquires new projects.

We increased our contracting segment forecasts for 2016, 2017 and 2018 as the new addition to the backlog is substantially higher than our projection for the year. With the inclusion of the USD2.1b project in Qatar, new project additions have reached USD2.9b so far in 2016, which is significantly higher than our USD800m projection. Tekfen previously added Tanap compressor stations (USD457m) and rapid railway (USD150m) projects in Turkey, a new headquarters building for the Tax Ministry (USD94m) in Azerbaijan, and extension in a chemical plant project in Saudi Arabia (USD53m) to its backlog in 2016. As a result, we have raised our revenue estimates for the contracting segment by 13%, 82% and 98% for 2016, 2017 and 2018, to TRY2.9b, TRY5.9b and TRY5.8b. As we kept our EBITDA margin unchanged, our contracting EBITDA estimates increased by the same magnitude to TRY250m, TRY500m and TRY446m for those years, while our net income estimates increased by 21%, 121% and 139% to TRY127m, TRY251m and TRY193m, respectively.

Following the 2Q16 results announcement, Tekfen made a downward revision to its agri-industry segment’s 2016 guidance, due to 1) a ban on nitrate fertilisers in Turkey and 2) declining fertiliser prices. The Turkish government suspended the sale of nitrate fertilisers in June 2016 until February 2017, due to rising security concerns as nitrate fertilisers with 28% or more nitrate composition are often used for making explosives. The main consumption season for nitrate fertilisers is the first five months and last two months of the year, while in 3Q16 the consumption of nitrate fertiliser tends to decline substantially. Nitrate fertilisers (AN33 and AN26) accounted for 36% of Tekfen’s total fertiliser sales in 2015. Although nitrate fertilisers are likely to be

Exhibit 15: Key stock data – YKBNK Exhibit 16: Price graph – YKBNK

YE 31 Dec (TRY m) 2015 2016E 2017E




EPS growth (%) (6.6) 42.5 17.8


Price/book (x) 0.7 0.6 0.5

ROE (%) 8.8 10.7 10.9


Absolute (%) 3.2 (12.3) 1.4

Relative to BIST-100 (%) 2.2 (10.1) (0.5)

Mkt cap (TRY m / USD m) 15,476 / 5,238

CP/TP (TRY, 29 Aug) 3.56 / 4.72

3m ADT (USD m) 29.7

Free float (%) 18

12m high / low (TRY) 4.34 / 3.21


(10)

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3.2

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(%) (TRY) YKBNK (LHS) Rel to BIST-100 (RHS)




substituted by urea and ammonium sulphate near term, we expect the ban to have a negative impact on Tekfen’s sales volumes and profitability. Additionally, the downward trend in fertiliser prices continues in 3Q16, following a 12% decline in Tekfen’s average fertiliser sales price, from USD334 per tonne in 1H15 to USD294 per tonne in 1H16.

Tekfen Holding cut its 2016 agri-industry EBITDA and net income guidance by 17% and 19% to TRY304m and TRY250m respectively, indicating a 15.7% EBITDA margin from its previous guidance of 17.1%. Despite the downward revision in 2016 guidance, we note this still implies substantial y-y growth for agri-industry EBITDA (+110% y-y) and net income (+233% y-y).

Our target price is based on a SOTP valuation, in which we assign an unchanged 15% holding company discount to our NAV estimate. We also assign an unchanged 3% discount to account for the founders’ shares. We valued contracting business using a DCF model, where we assigned a 5.5% risk free rate and 5.0% equity risk premium. We used a combined valuation of DCF and peer comparison to calculate the fair value of the agri-industry business, where we attached 75% weight to DCF and 25% weight to peer comparison (where we used EV/EBITDA multiples of international fertiliser producers based on Bloomberg estimates). We also applied a 40% discount on the appraisal values of the real estate assets in Tekfen’s portfolio that are mainly composed of land, which is in line with the average discount to NAV of listed real estate investment companies. Our calculations indicate TRY9.00 per share target price. Key downside risks are: 1) lower normalised margins than we expect in the contracting segment (7.7% from 2017E); 2) fewer new order additions to the contracting backlog, as the company scales down its operations to optimise margins; and 3) a sharp fall in fertiliser margins amid global weakening and capacity additions in Turkey.

Isbank (ISCTR TI; BUY; CP: TRY4.75; TP: TRY6.46) Fatih Topac, +90 216 636 4508, [email protected]

As Isbank resumed to be traded with its fundamentals, the stock outperformed XBANK by 8% in the last 3 months. We think the constructive environment should be providing further relief to Isbank and let it continue to trade with its fundamentals again. As for fundamentals, Isbank’s further focus on service-based revenue growth, i.e. fees, suggests the potential of fee income, in our view, since RWA-based revenue growth is limited. We thus expect Isbank to positively differentiate itself from peers in fee income growth starting from 2Q16, which would support the core banking revenue stream in the meantime.

Exhibit 17: Key stock data – TKFEN Exhibit 18: Price graph – TKFEN

YE 31 Dec (TRY m) 2015 2016E 2017E Revenue 3,888 4,947 8,565 EBITDA 294 540 873 Rep. net profit 193 367 547 Net Debt 183 (407) (16) Rep. EPS growth (%) 233.7 90.4 48.7 EV/EBITDA (x) 9.5 4.8 2.9 Rep. P/E (x) 13.8 7.3 4.9 Dividend yield (%) 1.5 2.2 4.1 Price/book (x) 1.3 1.1 1.0 Net debt/EBITDA (x) 0.6 (0.8) (0.0) ROE (%) 9.6 16.6 21.2 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (2.2) 1.6 83.5 Relative to BIST-100 (%) (3.1) 4.1 79.9 Mkt cap (TRY m / USD m) 2,664 / 902 CP/TP (TRY, 29 Aug) 7.20 / 9.00 12m high / low (TRY) 8.03 / 3.45 3m ADT (USD m) 11.6 Free float (%) 41


(20)

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20

40

60

80

100

120

3.3

4.3

5.3

6.3

7.3

8.3


(%) (TRY) TKFEN (LHS) Rel to BIST-100 (RHS)




Our 12m-forward looking TP of TRY6.46 for Isbank is derived from a Gordon Growth model. Major downside risks to our call are an unexpected deterioration in asset quality, further contraction in margins and slower loan expansion in the case of a slower economic activity.

Bizim Toptan (BIZIM TI; BUY; CP: TRY13.5; TP: TRY19.7) Kayahan Demirak, +90 216 636 4535, [email protected]

Bizim is the leading Cash &Carry player in Turkey in terms of geographical coverage with 153 stores in 65 cities. The company has a diversified customer profile, allowing the company to adjust changing macroeconomic conditions. Bizim’s business model is more flexible with different store types (based on size and SKU) aimed at improving nationwide accessibility. Bizim is growing in both Eastern and Western parts of Turkey. In the Western part, the company is increasing its penetration by developing its soft franchise system, while in the Eastern part the company is opening new cash & carry stores. In the western provinces, the competition was much more severe and the company aims to tap more revenue stream and reach out more retail consumers either via its own cash & carry stores or its soft retail consumers.

Starting 2015, the company slowed down new store openings remarkably while shutting down non-performing stores. The company also initiated a soft franchise operation in August 2015. After a brief restructuring period, Bizim has started to gain market share in urban provinces while maintaining its healthy growth in rural provinces. Moreover, the growth of discounters has urged local supermarkets to join soft franchise systems for better vendor financing and economies of scale in procurement.

We see Bizim as an ideal pick among consumer names on two aspects. First, its restructuring efforts have finally paid off and the company has started to raise LFL growth rates and profit margins. Second, on top of new potential store openings, we expect soft franchise system and rising share of private label products to contribute significantly to the company’s top-line. Moreover, the company has a decent cash position and strong cash generation capacity as the growth and profit margins pick up.

BIZIM posted revenue growth of 14% y-y in 1H16, while EBITDA margin improved by 0.5ppt to 3.0% as opex to sales ratio declined by 0.8ppt to 7% during the same period. We expect the company to maintain its improving operational performance going forward.

Exhibit 19: Key stock data – ISCTR Exhibit 20: Price graph – ISCTR YE 31 Dec (TRY m) 2015 2016E 2017E




EPS growth (%) (14.3) 18.0 18.3


Price/book (x) 0.7 0.6 0.5

ROE (%) 10.0 10.6 10.8


Absolute (%) 3.3 6.0 1.4

Relative to BIST-100 (%) 2.3 8.7 (0.5)

Mkt cap (TRY m / USD m) 21,375 / 7,235

CP/TP (TRY, 29 Aug) 4.75 / 6.46

3m ADT (USD m) 52.3

Free float (%) 31

12m high / low (TRY) 5.17 / 4.13


(14)

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2

4.0

4.2

4.4

4.6

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5.2


(%) (TRY) ISCTR TI Rel to BIST-100 (RHS)




Our TP is based on DCF methodology. Key downside risks are: operating expense management amid a shift of customer mix towards the more service intensive-end (HORECA and corporate segments); financing expense management (higher-than- expected customer financing to ensure loyalty); performance of new stores; and faster than expected growth in organized retail trade.

Akbank (AKBNK TI; BUY; CP: TRY7.84; TP: TRY9.56) Fatih Topac, +90 216 636 4508, [email protected]

Another quality name that we keep in our top picks list is by far the most efficient Turkish bank in our coverage, Akbank. 12m-trailing Cost/Income (C/I) ratio of 36.6% is, in our view the main indicator of Akbank’s significant efficiency. On the other hand, in an environment where bank capitalizations are under pressure on Basel III related regulations for the upcoming years, Akbank is positively differentiating itself from peers with one of the best Tier I ratios. On the other hand, the bank is also one of the most comfortable names in terms of liquidity. By far the lowest LDR among top-tier banks at 105% is supportive of the management’s growth prospects. The LDR even comes down to as low as 71% after being adjusted for free capital and TRY bond issuances, providing the bank sufficient potential for above sector growth. Last but not least, we expect Akbank to deliver the best cost management in 2016. The bank has cut down its headcount by c2k ytd with the number of employees coming down to 14k and also curbed down the number of branches by c.100 down to 900 as the management is laying more emphasis on digital banking and efficiency. That said, we expect Akbank to have the best C/I ratio at 37% in 2016. In all, we expect Akbank to have one of the best core banking income growth evolution in 2016 on the back of these differentiating factors. Albeit being the best performing banking stock so far this year, we believe Akbank is still undervalued, as it is currently trading at a 0.9x P/B and 6.6x P/E on our 2017 estimates.

Our 12m-forward looking TP of TRY9.56 for Akbank is derived from a Gordon Growth model. Major downside risks to our call are an unexpected deterioration in asset quality, further contraction in margins and slower loan expansion in the case of a slower economic activity.

Exhibit 21: Key stock data – BIZIM Exhibit 22: Price graph – BIZIM YE 31 Dec (TRY m) 2015 2016E 2017E Revenue 2,564 2,926 3,249 EBITDA 71 87 102 Rep. net profit 14 26 44 Net debt (51) (52) (68) Rep. EPS growth (%) 32.0 79.4 69.2 EV/EBITDA (x) 7.1 5.6 4.7 Rep. P/E (x) 37.8 21.1 12.5 Dividend Yield (%) 0.4 0.7 3.3 Price/book (x) 3.7 3.2 2.8 Net debt/EBITDA (x) (0.7) (0.6) (0.7) ROE (%) 10.2 16.4 24.1 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (5.1) (21.7) 21.8 Relative to BIST-100 (%) (6.0) (19.8) 19.4

Mkt cap (TRY m / USD m) 540 / 183 CP/TP (TRY, 29 Aug) 13.50 / 19.70 12m high / low (TRY) 18.13 / 11.18 3m ADT (USD m) 0.9 Free float (%) 46


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(%) (TRY) BIZIM TI Rel to BIST-100 (RHS)




Our least preferred list

Bim Birlesik Magazalar (BIMAS TI; HOLD; CP: TRY50.55; TP: TRY57.50) Kayahan Demirak, +90 216 636 4535, [email protected]

We are adding BIMAS to our least preferred list as the discounter space is becoming increasingly populated with aggressive growth strategies of the three major discounters (BIM, A101 and Sok). We have seen clear impacts of increasing competitive pressures on BIM’s financials in 2Q16 as the company’s LFL traffic growth declined by 3.2% y-y. In addition to that, the company is making price investments to restore declining traffic numbers, which will likely pressure operating margins near term. Further, BIM has cut FY16 revenue growth guidance to 15% y-y from 20%, which indicates that weak traffic numbers will likely continue going forward.

Our TP is based on a weighted average of DCF (70%) and P/E based peer comparison (30%). Upside risks include: increasing competition from mainstream grocers and other players, on the back of potential consolidation in the sector that enhances their competitive position in the market on higher economies of scale; and further investments in non-core assets with low visibility and potential regulatory measures that would help private label and discount chains. Downside risks include a sharp increase in food price inflation and further decline in traffic growth.

Exhibit 23: Key stock data – AKBNK Exhibit 24: Price graph – AKBNK

YE 31 Dec (TRY m) 2015 2016E 2017E Operating profit 3,828 4,971 5,928 Recurring net Profit 2,995 3,977 4,742 Recurring EPS (TRY) 0.75 0.99 1.19 EPS Growth (%) 0.2 32.8 19.2 Recurring P/E (x) 10.7 8.0 6.7 Price/book (x) 1.2 1.1 0.9 ROE (%) 11.6 14.0 14.6 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) 1.8 (1.4) 17.0 Relative to BIST-100 (%) 0.9 1.1 14.7 Mkt cap (TRY m / USD m) 31,360 / 10,614 CP/TP (TRY, 29 Aug) 7.84 / 9.56 3m ADT (USD m) 68.0 Free float (%) 52 12m high / low (TRY) 8.92 / 6.17


Exhibit 25: Key stock data – BIMAS Exhibit 26: Price graph – BIMAS YE Dec (TRYm) 2015 2016E 2017E Revenue 17,428 20,926 24,738 EBITDA 865 1,053 1,268 Rep. Net Profit 585 721 866 Net Debt (329) (342) (427) Rep. EPS Growth (%) 0.0 23.3 20.1 EV/EBITDA (x) 17.4 14.3 11.8 Rep. P/E (x) 26.2 21.3 17.7 Dividend Yield (%) 1.8 2.3 2.8 Price/book (x) 9.2 7.5 6.2 Net debt/EBITDA (x) (0.4) (0.3) (0.3) ROE (%) 41.5 38.8 38.3 Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (8.4) (12.6) 3.0 Relative to BIST-100 (%) (9.3) (10.4) 1.0 Mkt cap (TRYm / USD m) 15,347 / 5,194 CP / TP (TRY, 29 Aug) 50.55 / 57.50 12m high / low (TRY) 62.45 / 47.07 3m ADT (USD m) 16.2 Free Float (%) 60


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(%) (TRY) AKBNK (LHS) Rel to BIST-100 (RHS)

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(%) (TRY) BIMAS (LHS) Rel to BIST-100 (RHS)




Turkish Airlines (THYAO TI; HOLD; CP: TRY5.16; TP: TRY6.00) Alper Paksoy, +90 216 636 4524,[email protected]

We keep THY in our least favourite list as we estimate its EBITDAR/EBITDAR margin will deteriorate substantially in 2H16 (around 7 ppt y-y) to 16%/13% as in 1H16 without any prospects for a quick turnaround. We expect significant margin deterioration to be triggered by significant yield erosion (12% lower y-y in 2H16 in USD terms, similar to that in 1H16), low growth in unit sales (only 4% y-y in revenue-passsenger-kilometres in 2H16 vs 9% y-y in 1H16) and high contraction in its load factor (-4 ppt y-y in 2H16, similar to that in 1H16) on significant weakness in demand for international air travel in Turkey.

Upside risks to our DCF-based TP are: 1) quick recovery in demand growth for air travel in Europe and Turkey, particularly if the fear of terrorist activities eases; 2) THY cutting capacity quickly and aligning it with demand; and 3) the JPY weakening against the USD. Downside risks are: 1) continued terrorist attacks in Turkey or Europe; 2) THY trying to grow seat capacity significantly in 2017; 3) major increases in oil prices; and 4) the JPY gaining further against the USD.

Exhibit 27: Key stock data – THYAO Exhibit 28: Price graph – THYAO YE Dec (TRY m) 2015 2016E 2017E Revenue 28,752 28,879 34,676 EBITDA 4,458 2,334 3,512 Rep. Net Profit 2,993 (1,430) (714) Net Debt 20,169 29,506 36,196 Rep. EPS Growth (%) 64.5 (147.8) 50.1 EV/EBITDA (x) 5.2 9.4 11.4 Rep. P/E (x) 2.4 9.6 nm Dividend Yield (%) 0.0 0.0 0.0 Price/book (x) 0.5 1.7 0.5 Net debt/EBITDA (x) 4.5 12.6 10.3 ROE (%) 25.8 (10.3) (5.2) Share Price Performance 1 Month 3 Month 12 Month Absolute (%) (0.2) (16.4) (35.2) Relative to BIST-100 (%) (1.1) (14.3) (36.4) Mkt cap (TRYm / USD m) 7,121 / 2,410 CP / TP (TRY, 29 Aug) 5.16 / 6.00 12m high / low (TRY) 9.28 / 4.87 3m ADT (USD m) 126.1 Free float (%) 50


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(%) (TRY) THYAO (LHS) Rel to BIST-100 (RHS)




Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): TEB INVESTMENT

ANALYST(S) CERTIFICATION

Mete Yuksel, TEB Investment, +90 216 636 4536, [email protected] The TEB Investment 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

The individual(s) identified above 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 herein.

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:

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:

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.

Company Ticker Disclosure (as applicable)

Enka Insaat ENKAI TI 2, 3, 4

Ford Otosan FROTO TI 2, 3, 4

Garanti Bank GARAN TI 2, 3, 4

Isbank ISCTR TI 2, 3, 4

Tofas Otomobil TOASO TI 2, 3, 4

Yapi Kredi Bank YKBNK TI 2, 3, 4

Company Ticker Price (as of 29-Aug-2016 closing price) InterestN/A N/A N/A N/A



Company Ticker Price Rating Valuation & Risks

Akbank AKBNK TI TRY 7.84 BUY Downside risks to our GGM-based TP are 1) slower than anticipated GDP growth rate leading to worse than expected NPL formation, 2) possible regulatory pressure on the retail segment that might hurt the fees and, 3) a sudden rise in interest rates causing both higher cost of funding and resulting in trading losses

Bim Birlesik Magazalar BIMAS TI TRY 50.55 HOLD Our TP is based on a weighted average of DCF (70%) and P/E based peer comparison (30%). Upside risks include: increasing competition from mainstream grocers and other players, on the back of a potential consolidation in sector, that enhances their competitive position in the market on higher economies of scale; and further investments in non-core assets with low visibility and potential regulatory measures that would help private label and discount chains. Downside risks include a sharp increase in food price inflation and further decline in traffic growth.

Bizim Toptan BIZIM TI TRY 13.50 BUY Key downside risks to our DCF based target price are: operating expense management amid a shift of customer mix towards the more service-intensive-end (HORECA and corporate segments); financing expense management (higher-than-expected customer financing to ensure loyalty); performance of new stores; and faster-than-expected growth in organized retail trade.

Dogus Otomotiv DOAS TI TRY 10.14 BUY Key downside risks to our TP are: 1) a unexpected contraction in domestic demand compered to our growth estimate, 2) renegotiation of the pricing strategy with Volkswagen on less favourable terms, and 3) a sharp increase in interest rates, forcing the company to switch back to vendor financing

Emlak Konut GYO EKGYO TI TRY 2.88 BUY Downside risks to our SOPT-based TP are slowdown in local economy, raise in interest rates, and contractor failures.

Enka Insaat ENKAI TI TRY 4.39 BUY Key downside risks to our investment case and DCF-based TP are: 1) lower-than-estimated normalised contracting EBITDA margins (our estimate: 15%), 2) a sharp decline in oil prices impacting new contracting order growth, or risk perceptions, 3) a sharp fall in vacancy rates in Russia, and 4) negative political developments in Iraq.

Ford Otosan FROTO TI TRY 32.80 HOLD Our 12-month target price is based on the weighted average of DCF (80%) and peer multiples (20%). The key upside risks are: 1) better-than-expected market-share gains in the LCV market on the back of new commercial vehicles, 2) new export mandates, 3) new licencing and sercive agreements and 4) higher normalized EBITDA margin

Garanti Bank GARAN TI TRY 7.58 BUY Downside risks to our GGM-based TP are 1) slower than anticipated GDP growth rate leading to worse than expected NPL formation, 2) possible regulatory pressure on the retail segment that might hurt the fees and, 3) a sudden rise in interest rates causing both higher cost of funding and resulting in trading losses

Isbank ISCTR TI TRY 4.75 BUY Downside risks to our GGM-based TP are 1) slower than anticipated GDP growth rate leading to worse than expected NPL formation, 2) possible regulatory pressure on the retail segment that might hurt the fees and, 3) a sudden rise in interest rates causing both higher cost of funding and resulting in trading losses

Sabanci Holding SAHOL TI TRY 9.08 BUY Recession in Turkish economy, too high interest rates, unfavourable regulatory changes in banking and electricity industries, drought in Turkey and significant weakening of TRY against hard currencies pose important downside risks to our forecasts

Tekfen Holding TKFEN TI TRY 7.20 BUY Key downside risks to our SoTP valuation are: 1) lower normalized margins than we expect in the contracting segment (7.7% starting from 2017); 2) fewer new order additions to the contracting backlog, as the company scales down its operations to optimize margins; and 3) a sharp fall in fertilizer margins amid global weakening and capacity additions in Turkey.

Tofas Otomobil TOASO TI TRY 22.74 BUY The key downside risks are: 1) renegotiation of take-or-pay contracts at less-favourable terms; 2) substantial contraction in domestic automotive demand; and 3) lower than expected demand for Tofas’ new PC models

Turkish Airlines THYAO TI TRY 5.16 HOLD Upside risks to our DCF-based TP are: 1) quick recovery in demand growth for air travel in Europe and Turkey, particularly if the fear of terrorist activities eases; 2) THY cutting capacity quickly and aligning it with demand; and 3) the JPY weakening against the USD. Downside risks are: 1) continued terrorist attacks in Turkey or Europe; 2) THY trying to grow seat capacity significantly in 2017; 3) major increases in oil prices; and 4) the JPY gaining further against the USD.

Yapi Kredi Bank YKBNK TI TRY 3.56 BUY Downside risks to our GGM-based TP are 1) slower than anticipated GDP growth rate leading to worse than expected NPL formation, 2) possible regulatory pressure on the retail segment that might hurt the fees and, 3) a sudden rise in interest rates causing both higher cost of funding and resulting in trading losses

Sources: Factset; BNP Paribas

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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.

RATING DISTRIBUTION (as at 30 August 2016)

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. © 2016 BNP Paribas Group

Total BNP Paribas coverage universe 497 Investment Banking Relationship (%)

Buy 290 (58.4%) Buy 29.66

Hold 140 (28.2%) Hold 36.43

Reduce 67 (13.5%) Reduce 25.37


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