jp - turkish conglomerates 20140120

7/22/2019 JP - Turkish Conglomerates 20140120

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CEEMEA Equity Research20 January 2014

Turkish Conglomerates

KCHOL.IS, KCHOL TINeutralPrice: TL8.32

Price Target: TL10.20

Updating fair values; continue to retain preference forSabanci over Koc on current valuations

SAHOL.IS, SAHOL TIOverweightPrice: TL8.23

Price Target: TL10.80

CEEMEA Financials &Conglomerates

Naresh Bilandani AC

(971) 4428-1763

[email protected]

Bloomberg JPMA BILANDANI <GO>

JPMorgan Chase Bank, N.A., Dubai Branc

Paul Formanko

(44-20) 7134-4718

[email protected]

J.P. Morgan Securities plc

Equity Ratings and Price Targets

Mkt Cap Rating Price Target

Company Ticker (TL bn) Price (TL) Cur Prev Cur P

Koc Holding KCHOL TI 21.10 8.32 N n/c 10.20 11Sabanci Holding SAHOL TI 16.79 8.23 OW n/c 10.80 11

Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 17 Jan 14.

See page 11 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a sinfactor in making their investment decision.

We lower our Dec-14 PT on Koc Holding shares by -9% to TRY10.2/shincorporating the new lower fair value of Tupras therein (resulting mainlyfrom the impact of a competition board fine; see note published today byTupras covering analyst Neeraj Kumar) and raising our conglomerate discountto 15% from 10% previously. We concurrently also reduce our Dec-14 PT forSabanci Holding shares by -6% to TRY10.8/sh arising from application of ahigher conglomerate discount of 20% vs. 15% previously. We continue toretain our preference for Sabanci over Koc on current valuations.

Changes to our call on Turkey. Since our last update on Turkishconglomerates on 28 Nov (click here), J.P. Morgan economists havereduced their macro growth outlook for Turkey (-0.5% lower 14E real GDP

to 2.5%yoy) and J.P. Morgan CEEMEA equity strategists arerecommending reducing risk in Turkish equities from N to UW.

Lowering PT on Koc Holding shares. We have now reduced our SOTP based Dec-14 PT on Koc shares by -9% to TRY10.2/sh. We incorporate alower portfolio value for the Tupras stake within Koc SOTP (TRY51.6/sh vs.TRY55.0/sh prev.; see Tupras notes published today and on 15-Jan). We alsoslightly reduce our portfolio value for Turkish autos following yoy lower guidance for 14E sales from Ford Otosan recently. Given a perception ofhigher investment risk in Koc shares (regulatory fines on Koc companies suchas Tupras and Tofas; further tax investigations ongoing in Tupras and Aygaz,Bloomberg 13 Nov), we are raising the overall conglomerate discount weapply to Koc Holding shares by +5pp to 15%. It is worth noting that Koc

benefits from a weaker TRY due to export revenues in Koc companies.

Lower PT on Sabanci Holding shares. We have reduced our SOTP basedDec-14E PT on Sabanci shares by -6% to TRY10.8/sh as we have increasedthe overall conglomerate discount we apply by +5pp to 20%. In our viewSabanci should command a higher conglomerate discount vs. Koc given thehigher proportion of its portfolio (35% vs. 12% in Koc) that remains unlisted(the current market environment could require Sabanci to look for a morefavorable timing for the Avivasa IPO currently planned for 14E). Sabancishares offer better upside potential vs. Koc on current valuations.

Key risks. Key downside risks in Koc and Sabanci could come from lowerthan expected economic growth and lack of investor risk appetite for

Turkish exposures while upside risks for Koc could arise from stabilizationin EM re-pricing and value-enhancing corporate actions.

Figure 1: Price performance - KocHolding, TRY

Source: Bloomberg (19 Jan 14)

Figure 2: Price performance - SabancHolding, TRY


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https://jpmm.com/research/content/GPS-1299668-0



















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Naresh Bilandani(971) [email protected]

Figure 3: Relative discounts to NAV for Sabanci vs. Koc

Source: J.P. Morgan calculations, Company data, Bloomberg (19 Jan 14)

Figure 4: Relative discount/premium to ‘listed only’ NAV for Sabanci vs. Koc

Source: J.P. Morgan calculations, Company data, Bloomberg (19 Jan 14)

Table 1: Export revenues (as a % of total sales revenues) in portfolio companies

% of NAV 2011A 2012A 2013E 2014E 2015E

Koc Holding Arcelik 14% 58 64% 67% 69% 71%Ford Otosan 11% 56 61% 69% 65% 67%

Tofas 9% 54 55% 57% 57% 57%Turk Traktor 5% 20 29% 32% 34% 36% Aygaz 4% 9% 13% 16% 19% 21%Sabanci Holding

Akcansa 4% 19 20% 21% 21% 22%Cimsa 4% 27 26% 26% 26% 26%

Source: J.P. Morgan estimates, Company data.

-48%

-45%

-42%

-39%

-36%

-33%

-30%

-27%

-24%

-21%

-18%

-15%

-12%

-9%

-6%

-3%

0%

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

Sabanci Koc

-18%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

24%

Jan-12 Feb-12 Mar-12 Apr-12 May-12 J un-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

Sabanci Koc



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Figure 5: Comparative share price performance of CEEMEA multi-industry conglomerate peers


Table 2: Koc Holding - SOTP model

Holdings Ticker Koc stake Current NAV % of otal Valuation basis 14E NAV % of total

Autos 7,983 32% 8,755 29%o/w Ford Otosan FROTO.TI 38.5 2,814 11 DCF, peer EV/EBITDA 3,089 10%o/w Tofas TOASO.TI 37.6 2,227 9% DCF, peer EV/EBITDA 2,639 9%

o/w Turk Traktor TTRAK.TI 37.5 1,171 5% DCF, peer EV/EBITDA 1,180 4%o/w Otokar OTKAR.TI 44.7 574 2% Consensus multiples 513 2%o/w other unlisted - - 1,197 5% MV+1 * 1,335 4%Energy 4,618 19% 5,949 19%

o/w Tupras TUPRS.TI * 3,612 15 JPM PT 4,743 16%o/w Aygaz AYGAZ.TI 40.7 1,006 4% DCF, peer EV/EBITDA 1,205 4%Financial services 5,010 20% 8,075 26%o/w Yapi Kredi YKBNK.TI ** 4,954 20 JPM PT 8,011 26%

o/w other unlisted - 64.7 57 0% MV+1 63 0%Consumer durables 3,487 14% 3,841 13%o/w Arcelik ARCLK.TI 40.5 3,463 14 DCF, peer EV/EBITDA 3,814 12%o/w other unlisted - - 24 0% MV+1 27 0%Food & retail 321 1% 366 1%

o/w Tat Konserve TATGD.TI 43.7 143 1% MV+1 167 1%o/w other unlisted - - 178 1% MV+1 199 1%Others - 1,614 7% 1,815 6%o/w listed - - 44 0% MV+1 64 0%

o/w unlisted - - 1,571 6% MV+1 1,751 6%Total listed NAV 20,007 81% 25,426 83%Total unlisted NAV 3,027 12% 3,375 11%Standalone net cash 1,765 7% 1,751 6%

NAV, TRY mn 24,798 100% 30,551 100%JPM holdco discount -15%14E NAV 25,877 Current mkt. cap 20,997 20,997

Discount to NAV -15% -19%

Price target (TNAV/NOSH) 10.20 Current sh. price, TRY 8.28

Upside/(downside) 23%

Source: J.P. Morgan estimates, Company data, Bloomberg (19 Jan 14); NOTE: * MV + 1 is eop market cap * (1+ke)

75

80

85

90

95

100

105

110

115

120

125

130

135

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

Koc Sabanci Remgro Kingdom MSCI EM



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Table 3: Sabanci Holding - SOTP model

Holdings Ticker Sabanci stake Current NAV % of total Valuation basis 14E Target NAV % of total

Financial Services 49% 54% Akbank AKBNK.TI 40.8% 10,383 45% JPM PT 13,692 50% Aksigorta AKGRT.TI 36.0% 319 1 Peer multiples 385 1% Avivasa unlisted 49.8% 697 3 Peer multiples 895 3%Energy 15% 13%

Enerjisa unlisted 50.0% 3,401 15% DCF 3,605 13%Retail 7% 7%Teknosa TKNSA.TI 60.3% 793 3 DCF, peer multiples 1,014 4%Carrefoursa CARFA.TI 50.8% 775 3 MV + 1 * 966 4%

Cement 7% 7%Cimsa CIMSA.TI 49.4% 841 4 DCF, peer multiples 960 3% Akcansa AKCNS.TI 39.7% 848 4 DCF, peer multiples 891 3%Industrials 7% 6%

Brisa BRISA.TI 43.6% 660 3 DCF, peer multiples 526 2%Kordsa KORDS.TI 91.1% 523 2 DCF, MV + 1 653 2%Sasa SASA.TI 51.0% 119 1 MV + 1 138 0%Yunsa YUNSA.TI 57.9% 77 0 MV + 1 96 0%

Temsa unlisted 48.7% 184 1 MV + 1 205 1%Others 16% 13%Philsa & Philip Morissa unlisted 25.0% 3,823 16% Peer multiples 3,529 13%Total listed NAV 15,338 66% 19,320 70%

Total unlisted NAV 8,106 35% 8,234 30%Standalone net cash -223 -1% 0 0%NAV, TRY mn 23,220 100% 27,554 100%JPM holdco discount -20%

Target NAV (TNAV) 22,043Current mkt. cap 16,507 16,507Discount to NAV -29% -25%

Price target (TNAV/NOSH) 10.80 Current sh. price, TRY 8.09Upside/(downside) 34%

Source: J.P. Morgan estimates, Company data, Bloomberg (19 Jan 14); NOTE: * MV + 1 is eop market cap * (1+ke)

Links to relevant notes on CEEMEA conglomerates and Turkey in addition to

links on the front cover of the note:

Turkish conglomerates: rolling forward PT to Dec-14; maintain preference

for Sabanci

Turkish conglomerates: incorporating new realities; prefer Sabanci over

Koc

Initiation reports: Koc Holding; Sabanci Holding

Remgro: Narrowing of discounts; moving to Neutral; click here for

initiation report on Remgro

Emlak Konut: near-term performance to be driven by ongoing political and

macro uncertainty - Reduce to Neutral

Ulker : share price out-performance; cut to Neutral

Turkish banks: Vakif, Halkbank remain our top Turkish picks, >35%

upside; click here for note on Bank Asya

































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Koc Holding

Neutral

Company Data

Price (TL) 8.32Date Of Price 17 Jan 14Price Target (TL) 10.20Price Target End Date 31-Dec-1452-week Range (TL) 11.85-7.70Market Cap (TL bn) 21.10Shares O/S (mn) 2,536Market Cap ($ mn) 9,447.73

Koc Holding A.S. (KCHOL.IS;KCHOL TI)

FYE Dec 2011A 2012A 2013E(Prev)

2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

Adj.EPS FY (TL) 0.84 0.91 0.94 0.88 0.91 0.88 1.25 1.19P/E (x) FY 9.9 9.1 8.8 9.4 9.1 9.4 6.6 7.0BV per share FY (TL) 9.18 10.55 11.71 11.63 12.84 12.73 14.46 14.26P/BV (x) FY 0.9 0.8 0.7 0.7 0.6 0.7 0.6 0.6DPS FY (TL) 0.15 0.19 0.18 0.17 0.17 0.17 0.24 0.23Div Yield FY 1.8% 2.2% 2.2% 2.0% 2.1% 2.0% 2.9% 2.7%ROE FY 16.1% 15.3% 13.9% 13.1% 12.1% 11.8% 14.8% 14.2%ROA FY 2.4% 2.2% 2.1% 1.9% 1.8% 1.7% 2.3% 2.2%Source: Company data, Bloomberg, J.P. Morgan estimates.

Changes to our financial estimates (as reflected in table above) vs. the previous are

mainly a result of incorporation of new estimates for Tupras as published by

covering analyst Neeraj Kumar; kindly refer to the publication on Tupras shares published today and the Tupras note published on 15-Jan (click here).

Investment Thesis, Valuation and Risks

Koc Holding (Neutral; Price Target: TL10.20)

Investment Thesis

Koc is a portfolio of Turkish blue-chips, most of which are #1 / #2 in their respective

sectors; exposure to Koc provides direct exposure to leading brands in the Turkish

economy. Koc companies’ combined sales contributed 9% of Turkish GDP and 11%

of Turkish exports in FY11. Nearly 83% of Koc’s NAV is listed on ISE and around

70% of NAV is made of stakes in 5 listed stocks – Yapi Kredi, Tupras, Ford Otosan,Arcelik and Tofas.

The Koc franchise provides resilience against risks: a) exposures in Koc’s NAV are

well diversified – energy (19%), financial services (20%), autos sector (32%),

consumer durables (14%) and the remaining 15% of NAV is composed of cash and

other sector exposures; b) there is a natural FX hedging on the consolidated b/s -

while Tupras & Aygaz would suffer from a weaker TRY, Arcelik and autos would

benefit given their sizeable exports revenues. Standalone position of the holdco is net

cash +ve $841mn with limited refi risks and scope for higher dividend inflow from

Tupras 15E and beyond. We are comfortable on corporate governance in the Koc

Holding structure.

ValuationWe value Koc Holding shares on an SOTP model with a PT of TRY10.2/sh to Dec-14E (vs. TRY11.2/sh Dec-14E prev.).

We value Yapi Kredi using J.P. Morgan’s PT for FY14E (rated OW at J.P. Morgan).We value Ford Otosan, Tofas, Turk Traktor, Arcelik and Aygaz at an average ofDCF value and global & regional peer EV/EBITDA multiples valuation. We valueTupras on J.P. Morgan PT through to FY14E. We value non-listed subsidiaries at adiscretionary discounted multiple of domestic sector price to sales average fromBloomberg (Koc provides end of FY/1H book values and revenues) for current NAVcalculation and then apply a hurdle rate based valuation for the target 14E value. We










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use a standard 11.5% hurdle rate (vs. 12% prev.) and 5% growth rate in ourvaluation.

Risks to Our Rating and Price Target

Key risks to our estimates on Koc Holding arise from lower than expected Turkish

economic growth, which would negatively impact consumer and corporate demand

and hence revenues of Koc’s portfolio companies like Yapi Kredi, Arcelik and autos.

While Koc Holding enjoys a natural FX hedge on its b/s via diversified sector

exposure, market/operational risks remain even though the currency exposure iseffectively hedged at the corporate and holdco level.

Apart from the above, investors need to be aware of execution risk in Koc arising

from its corporate activity i.e. acquisition of new / additional stakes and divestment

of stakes and political / regulatory risks in the current environment. While we are

comfortable from the corporate governance angle, some corporate governance risks

always remain associated with holding company structures such as Koc; an examplein Koc is the non-availability of standalone holding company statements - as such,

the cash position included in SOTP valuation is the one that is published by KocHolding investor relations in their quarterly presentations and not a JPM calculation.

We also think investors should be aware of some overhang risks on Koc Holdingshares arising from potential sale of stakes in the future from Koc family members(Bloomberg 9 May 2013).

Upside risks to Koc could arise from earlier stabilization of EM re-pricing and value-enhancing corporate actions (e.g. M&A, divestment of stakes, etc.)



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Sabanci Holding

Overweight

Company Data

Price (TL) 8.23Date Of Price 17 Jan 14Price Target (TL) 10.80Price Target End Date 31-Dec-1452-week Range (TL) 13.15-7.70Market Cap (TL mn) 16,792.52Shares O/S (mn) 2,040Market Cap ($ mn) 7,519.49

Haci Omer Sabanci Holding A.S. (SAHOL.IS;SAHOL TI)

FYE Dec 2011A 2012A 2013E 2014E 2015E

Adj.EPS FY (TL) 0.92 0.91 1.16 1.28 1.45 Adjusted P/E FY 8.9 9.0 7.1 6.5 5.7BV per share FY (TL) 6.81 7.96 9.02 10.16 11.42P/BV (x) FY 1.2 1.0 0.9 0.8 0.7DPS FY (TL) 0.10 0.10 0.14 0.19 0.22Dividend Yield FY 1.2% 1.2% 1.7% 2.3% 2.6%ROE FY 13.9% 12.3% 13.7% 13.3% 13.4%ROA FY 1.3% 1.1% 1.3% 1.3% 1.3%Source: Company data, Bloomberg, J.P. Morgan estimates.

Investment Thesis, Valuation and Risks

Sabanci Holding (Overweight; Price Target: TL10.80)

Investment Thesis

Sabanci Holding is one of the leading industrial & financial conglomerates in Turkey

with diversified interests in banking, insurance, energy, retail, tobacco, cement, autos

and other key sectors of the Turkish economy. Sabanci's portfolio consists of

companies that are top rated in their respective sectors and with the Sabanci backing

have managed to attract JV investments with international leaders in their respective

areas of operation further solidifying their domestic positioning. Around 68% of

Sabanci’s NAV is listed on the stock exchange. Key components of Sabanci NAV

are its investments in Akbank, Enerjisa and Philsa/Philip Morrisa. Close to 60% of

Sabanci Holding is held by the Sabanci family, one of the leading and reputed

business families in Turkey.

Valuation

We value Sabanci Holding shares on a SOTP-based model with a Dec-14E fair value

of TRY10.80/sh (vs. 11.45/sh prev.). We value portfolio companies in Sabanci

Holding using a mix of DCF, peer multiples and a hurdle rate based valuation; for

Akbank, which forms a part of Sabanci NAV, we use the fair value assigned by our

J.P. Morgan analyst for Turkish banks. For Avivasa, we use the valuation multiples

of its nearest domestic peer Anadolu Hayat, which is covered by J.P. Morgan Equity

Research. For all DCF valuations for portfolio companies, we use a consistent hurdle

rate of 12% and growth rate of 5%.

The fair NAV for Dec-14E for Sabanci Holding is derived by the above-mentionedvaluation methodologies for each investment; we then apply a discretionary 15%conglomerate discount to this fair NAV which gives us our target NAV for SabanciHolding for Dec-14E.

Risks to Rating and Price Target

Key risks to our estimates on Sabanci Holding arise from lower than expected

Turkish economic growth, significant & sustained depreciation in TRY negatively

impacting CAD, execution risk on M&A and IPO corporate actions from Sabanci

and its portfolio companies and residual overhang in shares from some family



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members, in the past, having registered their stake for sale over the next 10-20 years

(currently this stake is c6.5%).

While we are comfortable from the corporate governance angle and the Sabancifamily has in the past held a clean corporate governance record, some corporategovernance risks always remain associated with holding company structures such asSabanci; examples of this in Sabanci are the non-availability of clear details of thestandalone holding company financial statements or a possibility of majorityshareholder's (Sabanci family members’) interests not being fully aligned with thoseof minorities.



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Koc Holding: Summary of FinancialsProfit and Loss Statement Cash flow statementTL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E

Revenues 75,741 84,833 81,652 85,763 91,784 Op. profit 5,490 4,464 4,944 4,908 6,357

% Change Y/Y 40.7% 12.0% (3.7%) 5.0% 7.0% Depreciation & amortization - - - - -

Gross Margin (%) 14.7% 13.8% 15.0% 14.7% 15.9% Change in working capital & Other - - - - -

JPM Adj. EBITDA 6,525 5,617 6,128 6,228 7,944 Taxes - - - - -

% Change Y/Y 28.8% (13.9%) 9.1% 1.6% 27.6% Other items - - - - -

EBITDA Margin (%) 8.6% 6.6% 7.5% 7.3% 8.7% Cash flow from operations - - - - -

Op. profit 5,490 4,464 4,944 4,908 6,357

% Change Y/Y 33.8% (18.7%) 10.8% (0.7%) 29.5% Capex - - - - -

Op. profit Margin (%) 7.2% 5.3% 6.1% 5.7% 6.9% Free cash flow 646 (40) 78 51 131

Net Interest (790) 44 (96) (62) 160

Other items - - - - -

Earnings before tax 4,707 4,517 4,849 4,846 6,517

% change Y/Y 21.1% (4.0%) 7.3% (0.0%) 34.5%

Tax (charge) (857) (416) (873) (872) (1,173)

Tax as a % of EBT 18.2% 9.2% 18.0% 18.0% 18.0%Net Income (Reported) 2,124 2,315 2,244 2,243 3,016

% change Y/Y 22.5% 9.0% (3.1%) (0.0%) 34.5%

Shares Outstanding (m) 2,536 2,536 2,536 2,536 2,536

EPS (Reported) 0.84 0.91 0.88 0.88 1.19

% Change Y/Y 16.7% 9.0% (3.1%) (0.0%) 34.5%

EPS (JPM Adj.) 0.84 0.91 0.88 0.88 1.19

% Change Y/Y 16.7% 9.0% (3.1%) (0.0%) 34.5%

Dividend (net) 0.15 0.19 0.17 0.17 0.23

% change Y/Y (41.3%) 27.2% (10.1%) (0.0%) 34.5%

Balance sheet Ratio Analysis

TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E

Cash and cash equivalents 6,796 10,474 14,470 14,943 12,938 Gross Margin (%) 14.7% 13.8% 15.0% 14.7% 15.9%

Accounts Receivable 27,541 31,220 34,354 37,908 42,030 EBITDA margin (%) 8.6% 6.6% 7.5% 7.3% 8.7%

Inventories 6,790 6,657 6,938 7,311 7,721 Pre- ax margin 6.2% 5.3% 5.9% 5.7% 7.1%

Others 7,057 7,725 8,409 9,087 9,812 Net margin (%) 2.8% 2.7% 2.7% 2.6% 3.3%

Current assets 49,408 57,005 65,224 70,394 73,723 FCF to Sales 0.9% (0.0%) 0.1% 0.1% 0.1%

Net tangible fixed assets 11,537 14,267 15,532 16,786 17,952 FCF to Net Income 30.4% (1.7%) 3.5% 2.3% 4.4%

LT investments 9,624 10,067 11,409 12,414 13,244

Other LT assets 22,452 21,912 24,847 27,727 30,910 Interest coverage (x) 8.3 NM 64.1 101.1 49.6

Total assets 98,621 109,067 123,604 134,492 143,479 Net debt /EBITDA (x) 2.3 2.9 3.0 3.5 2.9

Net debt to Total Capital 39.0% 37.9% 38.7% 40.1% 39.3%

Payables 11,119 10,334 11,156 11,756 12,415 Net debt to equity 63.9% 61.1% 63.1% 66.8% 64.7%

ST loans 11,901 12,239 15,090 16,663 16,584

Others 39,011 42,303 46,934 50,900 55,411 Return on Average Equity 16.1% 15.3% 13.1% 11.8% 14.2%

Return on Average Net Assets 2.4% 2.2% 1.9% 1.7% 2.2%

Long term debt 9,763 14,583 17,980 19,855 19,761

LT pension Liability 792 878 878 878 878

Other liabilities 2,764 1,978 2,075 2,163 2,259

Total l iabilities 75,350 82,316 94,113 102,215 107,309

Shareholders' equity 13,897 16,286 18,056 19,872 22,462

Minorities & Other 9,374 10,465 11,435 12,405 13,708

BVPS 9.18 10.55 11.63 12.73 14.26

Source: Company reports and J.P. Morgan estimates.



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Sabanci Holding: Summary of FinancialsProfit and Loss Statement Cash flow statementTL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E

Revenues 22,234 26,094 30,989 35,331 39,378 Op. profit 4,390 4,676 5,846 6,420 7,287

% Change Y/Y 13.6% 17.4% 18.8% 14.0% 11.5% Depreciation & amortization - - - - -

Gross Margin (%) - - - - - Change in working capital & Other - - - - -

JPM Adj. EBITDA 4,390 4,676 5,846 6,420 7,287 Taxes - - - - -

% Change Y/Y 3.2% 6.5% 25.0% 9.8% 13.5% Other items - - - - -

EBITDA Margin (%) 19.7% 17.9% 18.9% 18.2% 18.5% Cash flow from operations - - - - -

Op. profit 4,390 4,676 5,846 6,420 7,287

% Change Y/Y 3.2% 6.5% 25.0% 9.8% 13.5% Capex - - - - -

Op. profit Margin (%) 19.7% 17.9% 18.9% 18.2% 18.5% Free cash flow 238 155 166 174 183

Net Interest - - - - - Acquisitions - - - - -

Other items 0 0 0 0 0 Disposals - - - - -

Earnings before tax 4,261 4,676 5,852 6,433 7,301

% change Y/Y (1.6%) 9.7% 25.2% 9.9% 13.5% Equity raised/repaid - - - - -

Tax (charge) (741) (920) (1,053) (1,158) (1,314) Dividends paid - - - - -

Tax as a % of EBT 17.4% 19.7% 18.0% 18.0% 18.0% Change in net debt (6,249) (4,811) 25 (4,234) (2,495)Net Income (Reported) 1,878 1,856 2,367 2,602 2,953

% change Y/Y 12.9% (1.2%) 27.5% 9.9% 13.5% Beginning Cash/Debt - - - - -

Shares Outstanding (m) 2,040 2,040 2,040 2,040 2,040 Ending Cash/Debt - - - - -

EPS (Reported) 0.92 0.91 1.16 1.28 1.45

% Change Y/Y 12.9% (1.2%) 27.5% 9.9% 13.5%

EPS (JPM Adj.) 0.92 0.91 1.16 1.28 1.45

% Change Y/Y 12.9% (1.2%) 27.5% 9.9% 13.5%

Dividend (net) 0.10 0.10 0.14 0.19 0.22

% change Y/Y (33.3%) (2.1%) 39.2% 37.4% 13.5%

Balance sheet Ratio Analysis

TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E TL in millions, year end Dec FY11 FY12 FY13E FY14E FY15E

Cash and cash equivalents 19,479 21,960 22,118 26,556 29,280 Gross Margin (%) - - - - -

Accounts Receivable 42,115 53,162 62,935 71,767 82,457 EBITDA margin (%) 19.7% 17.9% 18.9% 18.2% 18.5%

Inventories 1,640 1,791 1,990 2,300 2,565 Pre- ax margin 19.2% 17.9% 18.9% 18.2% 18.5%

Others 1,568 2,168 2,253 2,343 2,436 Net margin (%) 8.4% 7.1% 7.6% 7.4% 7.5%

Current assets 67,585 85,418 95,924 109,898 123,990FCF to Sales 1.1% 0.6% 0.5% 0.5% 0.5%

Net tangible fixed assets 5,872 6,914 7,605 8,366 9,202 FCF to Net Income 12.7% 8.3% 7.0% 6.7% 6.2%

LT investments 40,611 39,093 39,875 40,672 41,486

Other LT assets 34,336 41,565 49,062 55,870 64,161 Interest coverage (x) 15.3 24.3 28.9 30.2 32.7

Total assets 150,855 175,398 195,087 217,656 241,941 Net debt /EBITDA (x) (355.9%) (437.1%) (349.2%) (383.9%) (372.5%)

Net debt to Total Capital (158.6%) (202.8%) (162.6%) (225.6%) (240.4%)

Payables 95,092 109,239 122,566 138,149 154,694 Net debt to equity (61.3%) (67.0%) (61.9%) (69.3%) (70.6%)

ST loans 3,855 1,524 1,707 1,912 2,141

Others 14,485 16,649 18,370 20,273 22,426 Return on Average Equity 13.9% 12.3% 13.7% 13.3% 13.4%

Return on Average Net Assets 1.3% 1.1% 1.3% 1.3% 1.3%

Long term debt - - - - - WACC - - - - -

LT pension Liability 139 174 182 192 201

Other liabilities 11,811 17,299 19,301 21,560 24,051

Total liabilities 125,382 144,885 162,126 182,086 203,512

Shareholders' equity 13,900 16,251 18,414 20,732 23,294

Minorities & Other 11,574 14,262 14,547 14,838 15,135

BVPS 6.81 7.96 9.02 10.16 11.42

Source: Company reports and J.P. Morgan estimates.



11



Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document

individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as perKOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence orintervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Koc

Holding, Sabanci Holding.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Koc Holding, Sabanci

Holding.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment

banking clients: Koc Holding, Sabanci Holding.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following

company(ies) as clients, and the services provided were non-investment-banking, securities-related: Koc Holding, Sabanci Holding.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,

and the services provided were non-securities-related: Koc Holding, Sabanci Holding.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Koc

Holding, Sabanci Holding.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking

services in the next three months from Koc Holding, Sabanci Holding.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services

other than investment banking from Koc Holding, Sabanci Holding.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–

covered companies by visiting https://jpmm.com/research/disclosures , calling 1-800-477-0406, or [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .

Date Rating Share Price(TL)

Price Target(TL)

27-Oct-06 N 3.05 5.40

13-Jun-07 OW 3.84 6.45

23-May-12 OW 6.10 7.80

11-Jun-12 OW 6.04 7.43

18-Dec-12 NR 9.12 --

18-Mar-13 OW 9.66 11.00

28-May-13 N 11.00 11.25

25-Jun-13 N 8.58 9.10

28-Nov-13 N 9.48 11.200

7

14

21

Price(TL)

Sep

06

Mar

08

Sep

09

Mar

11

Sep

12

Koc Holding (KCHOL.IS, KCHOL TI) Price Chart

N TL11.25

OW TL7.43OW TL11

TL5.4OW TL6.45 OW TL7.8 NR N TL9.1N TL11.

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Break in coverage Dec 18, 2012 - Mar 18, 2013.

https://jpmm.com/research/disclosures


mailto:[email protected]








12



Date Rating Share Price(TL)

Price Target(TL)

28-May-13 OW 12.30 14.75

25-Jun-13 OW 9.50 11.60

28-Nov-13 OW 9.10 11.45

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, ifapplicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy

reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return iscompared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appearin the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s researchwebsite, www.jpmorganmarkets.com.

Coverage Universe: Bilandani, Naresh: Abu Dhabi Commercial Bank (ADCB.AD), Al Rajhi Bank (1120.SE), Banque Saudi Fransi(1050.SE), Commercial Bank of Qatar (COMB.QA), Commercial International Bank (Egypt) (COMI.CA), Doha Bank (DOBK.QA),Emirates NBD (ENBD.DU), FBN Holdings Plc (FBNH.LG), First Gulf Bank (FGB.AD), Guaranty Trust Bank (GTB.LG), Koc Holding(KCHOL.IS), National Bank of Abu Dhabi (NBAD.AD), Qatar National Bank (QNBK.QA), Riyad Bank (1010.SE), SABB (1060.SE),Sabanci Holding (SAHOL.IS), Samba Financial Group (1090.SE), United Bank for Africa plc (UBA.LG), Zenith Bank plc (ZETH.LG)

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2014

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 43% 45% 12%

IB clients* 57% 49% 36%

JPMS Equity Research Coverage 43% 50% 7%IB clients* 75% 66% 59%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analystor your J.P. Morgan representative, or email [email protected] .

0

6

12

18

24

Price(TL)

May

10

Feb

11

Nov

11

Aug

12

May

13

Feb

14

Sabanci Holding (SAHOL.IS, SAHOL TI) Price Chart

OW TL11.6

OW TL14.752OW TL11.45

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage May 28, 2013.

http://www.jpmorganmarkets.com/










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