Valuation Barometer 28 September 2018 14:30

Macro Background: Balance, Discipline and Transformation; ’s new macro narrative has finally arrived

Two very important developments regarding the Turkish economy took place in a short time span in September: 1. On September 13, the CBRT hiked the policy rate by 625bps to 24%, significantly higher than the market expectation of around 400bps. With a 12-month inflation expectation of around 14.5%, the CBRT thus moved beyond the curve while it has long been criticized for being behind the curve in terms of its policy responses. 2. On September 20, Treasury and Finance Minister Berat Albayrak announced a realistic and comprehensive “New Economy Program (NEP)” for 2019, 2020 and 2021. (https://rapor.garantiyatirim.com.tr/arastirma/NEP2019-2021.pdf) Our key takeaways from the program are as follows: Disinflation has been set as a policy priority. The program envisages a period of adjustment for the Turkish economy to reach a healthier balance with lower inflation that will pave the way for sustainable growth going forward. In addition to monetary policy, the program sees a tight fiscal policy as the key support system for this disinflation phase. With pledges to keep the budget deficit below the 2% threshold and to generate public savings of TL76bn, a disciplined fiscal policy forms the core of the New Economy Program. We find the strong commitment to fighting inflation and the acceptance of much lower growth rates during the adjustment period by the government as a sea change in Turkey’s macroeconomic policy framework. The title of the program has rightfully been set as “Balance- Discipline and Transformation.” We mentioned the balance and discipline features of this framework above. The program also envisages the transformation of the Turkish economy to a healthier plateau with a lower current account deficit with a competitive export orientation rather than strong reliance on domestic consumption. We understand that the market will remain in a testing mode regarding the execution of this program, especially concerning public finance KPIs. In this sense we find the establishment of a public finance transformation office that will be responsible for the monitoring and reviewing of these KPIs as a supportive initiative. Execution will definitely be key in transforming the Turkish economy, but we consider the government’s strong commitment with this ambitious plan as an important first step. As Minister Albayrak mentioned at the beginning of his NEP presentation, several factors precluded the government from displaying such a strong commitment for readjustment during the previous five years. However, as the Minister stated, following the June 24 elections, the government has received a very strong mandate from the public for five years. It is now time to deliver on this mandate and we believe the government is now on the same page as the market, which is in itself a very good reason to have a positive stance on the Turkish economic outlook.

Valuation Dynamics: A positive sentiment towards Turkish financial assets  We believe that following the developments on the policy side, the confidence in the Turkish economy and sentiment towards Turkish financial assets will improve despite the low growth figures envisaged in the NEP (2018: 3.8%, 2019: 2.3%, 2020: 3.5%). The pricing has already turned positive with the USDTRY declining by 9% since the beginning of September when the positive expectations started to build up. The BIST-100 index also staged a nearly 6,000 point (6%) recovery since the CBRT’s strong rate hike. We believe the strengthening expectations for disinflation and thus lower long- term rates are equity supportive. Given the valuation advantage of Turkish equities, we believe the positive trend in the BIST-100 index will continue going forward.  With a risk free rate of 18.5% (current 10yr bond rate@ 17.92%), our revised target BIST-100 index at 118k indicates an 18% upside potential. Note that our price targets also include revisions regarding our company specific assumptions considering the new economic outlook with lower growth expectations.  An improvement in U.S.-Turkish relations could act as a potential catalyst for the index in the meantime and a vice-verse situation is a potential temporary risk factor. Additionally, the recent balancing on the UST-10 year rate following the sharp spike throughout September is also a relieving factor for Turkish equities.  We believe the banking sector will continue to recover, following XBANK’s outperformance of the BIST 100 index by 13% after the CBRT’s rate hike. Our banking top picks at the moment are AKBNK and YKBNK. On the non- side, our top picks are ANACM, ARCLK, CCOLA, ENJSA, MGROS, PGSUS, TCELL, THYAO and TUPRS. We regularly update our model portfolio which has outperformed the BIST-100 by 11% ytd. Multiples and Ratios P/E 2017 2018T 2019T EV/EBITDA 2017 2018T 2019T P/BV 2017 2018T 2019T MSCI World 18.8 16.5 15.1 MSCI World 12.0 10.9 10.1 MSCI World 2.5 2.4 2.2 MSCI EM 12.6 12.0 10.8 MSCI EM 8.2 8.3 7.6 MSCI EM 1.6 1.6 1.4 Eurostoxx 17.3 14.8 13.5 Eurostoxx 10.2 9.4 8.8 Eurostoxx 1.9 1.8 1.7 S&P 500 21.1 18.1 16.4 S&P 500 13.7 12.0 11.1 S&P 500 3.5 3.4 3.1 BIST 100 7.5 7.3 6.3 BIST 100 7.3 6.6 5.7 BIST 100 1.1 1.1 1.0

P/OCF 2017 2018T 2019T Dividend Yield 2017 2018T 2019T N.Debt/EBITDA 2017 2018T 2019T MSCI World 12.2 11.4 10.4 MSCI World 2.4% 2.4% 2.6% MSCI World 2.0 1.8 1.6 MSCI EM 8.8 7.8 6.6 MSCI EM 2.7% 2.9% 3.2% MSCI EM 1.5 1.5 1.4 Eurostoxx 9.6 9.4 8.7 Eurostoxx 3.5% 3.6% 3.8% Eurostoxx 3.4 3.2 3.0 S&P 500 13.8 13.2 11.8 S&P 500 1.8% 1.9% 2.0% S&P 500 1.5 1.3 1.2 BIST 100 10.0 4.8 4.7 BIST 100 4.3% 4.3% 5.1% BIST 100 3.3 2.9 2.5

Analyst: Taylan Ozgur TOPRAK Research EVP: Alev Bosut BERRAK Sales Contact: 1 +90 (212) 384 11 34 +90 (212) 384 10 50 +90 (212) 384 1155 [email protected] [email protected] [email protected]

Research: +90 (212) 318 2730 Sales: +90 (212) 318 2741 September 28, 2018 Valuation Barometer RESEARCH

Model Portfolio

Top Picks P/B P/E Performance Since Entry 2018 2019 2018 2019 Last Close 12M TP Upside Weight Absolute Relative AKBNK 0.6 0.5 4.7 4.1 6.9 7.20 4% 10% -32.0% -27.3% YKBNK 0.5 0.4 3.6 3.0 1.8 2.20 23% 10% -14.4% -19.1%

EV/EBITDA P/E Performance Since Entry 2018 2019 2018 2019 Last Close 12M TP Upside Weight Absolute Relative ANACM 5.8 4.6 6.6 5.6 3.4 3.95 18% 10% 26.6% 30.2% ARCLK 7.1 5.9 12.9 9.6 14.0 18.10 29% 8% 14.6% 8.3% CCOLA 6.9 5.7 30.5 22.1 34.6 41.80 21% 7% -7.4% -4.2% ENJSA 4.1 3.0 7.1 4.4 5.3 6.80 29% 9% 0.1% -2.8% MGROS 6.0 5.2 - 28.0 15.9 20.15 26% 10% 0.5% 0.5% PGSUS 4.9 2.9 4.9 2.7 27.9 31.36 13% 9% -23.7% -9.8% TCELL 4.5 3.8 13.7 9.0 11.5 15.30 33% 9% -21.0% -6.6% THYAO 6.2 4.0 5.8 3.3 19.1 20.74 9% 10% 1.4% 19.8% TUPRS 4.8 5.0 9.5 6.4 135.5 169.40 25% 8% 36.0% 58.3%

PERFORMANCE OF OUR MODEL PORTFOLIO 1 mth 3 mths 2018 Since 2017 TL USD TL USD TL USD TL USD Model Portfolio 12.0% 9.6% 9.2% -16.7% -4.8% -41.4% 60.9% -7.5% BIST-100 Index 9.9% 7.6% 4.9% -20.0% -14.0% -47.1% 26.9% -27.1% Relative Performance 1.9% 4.1% 10.7% 26.8%

 AKBNK: Strong core capital ratio and asset quality, prudent stance to defend the margins  ANACM: Continuation of sales volume growth expectations  ARCLK: Geographically diversified operations with solid prospects  CCOLA: Resilient operational performance  ENJSA: Offers both growth and defensiveness  MGROS: Strong turnover, retained traffic growth  PGSUS: Strong demand outlook and cost control  TCELL: Double-digit revenue growth with margin expansion and a dividend distribution  THYAO: Strong demand outlook and strong 3Q18 results to be expected  TUPRS: Strong season and crack margins, long FX position and strong profitability  YKBNK: Better ROE prospect; low duration gap

Source: Garanti Securities Estimates September 28, 2018 Valuation Barometer RESEARCH

Turkish & Foreign Financial Markets (As of September 27, 2018)

Turkish Financial Markets Data Change (%) Close Daily Weekly Monthly Annual YTD BIST-100 (TL) 100,299 1.2 4.3 6.9 -0.9 -13.0 BIST-100(USD) 16,510 2.0 7.7 9.4 -41.8 -46.0 BIST-30 (TL) 124,360 1.1 4.7 7.0 -0.0 -12.5 BIST- (TL) 115,405 3.7 12.7 13.2 -28.9 -32.7 BIST-Industrials (TL) 128,135 0.2 1.8 2.7 12.5 -1.0 Daily Volume (TL mn) 11,182 70.5 5.3 56.1 112.4 98.2 Daily Volume (USD mn) 1,841 71.9 8.7 59.8 24.6 23.1 Average Daily Volume (TL mn) 3 mth 8,365 1.4 3.4 4.0 71.9 39.7 Average Daily Volume (USD mn) 1,534 0.4 0.8 -5.5 10.7 -2.6 Foreign Retention (%, change bps) 62.70 -0.0 35.0 112.0 -306.0 -227.0 XUTUM Mcap (TL mn) 798,577 1.0 3.4 5.4 4.6 -7.0 XUTUM FF Mcap (TL mn) 249,329 1.1 4.0 6.6 4.6 -8.7 Benchmark Interest Rate (%, change bps) 25.94 24 54 146 1401 1254 Gov. Bond Yield 10Y (%, change bps) 17.99 -50 -102 -377 672 672 CBRT O/N Lending Rate (%, change bps) 24.00 0 475 475 1475 1475 CBRT 1 Week Repo Rate (%, change bps) 17.75 0 0 0 975 975 Currency Basket €/$ 6.51 -2.0 -3.6 -4.4 67.4 56.1 $/TL 6.01 -1.6 -3.1 -4.2 68.0 58.2 €/TL 7.01 -2.3 -4.1 -4.6 66.9 54.2 CDS (5Y, change bps) 372 -8.4 -29.1 -113.5 179.7 206.8 Eurobond 2030 (USD, % change) 131 0.5 0.8 4.8 -17.3 -16.8 Eurobond 2030 Yield (%, change bps) 7.8 -7.5 -12.3 -70.6 242.2 241.0

Foreign Markets Data Change (%) Close Daily Weekly Monthly Annual YTD Dow Jones (US) 26,440 0.2 -0.8 1.4 18.4 7.0 S&P 500 (US) 2,914 -0.3 -0.6 0.6 16.2 8.7 FTSE 100 (UK) 7,542 -0.0 2.4 -1.0 3.1 -1.9 DAX (Germany) 12,351 -0.7 0.2 -1.4 -2.4 -4.4 CAC 40 (France) 5,522 -0.3 1.3 0.7 4.5 3.9 Nikkei (Japan)* 24,120 1.4 1.9 5.7 19.0 6.0 Bovespa (Brasil) 80,000 1.7 2.4 3.3 8.4 4.7 MICEX (Russia) 2,464 -0.4 2.6 6.4 18.4 16.8 SENSEX 30 (India)* 36,173 -0.4 -2.6 -7.0 16.1 6.2 Composite - SHCOMP (China)* 2,821 1.1 3.4 1.6 -15.7 -14.7 MSCI World 2,189 -0.0 -0.3 0.3 10.1 3.9 MSCI-EM 1,051 0.5 1.4 -1.8 -2.5 -8.9 USD 2Y Treasury (%, change bps) 2.83 -0.6 1.5 15.8 135.2 94.0 US 10Y Treasury (%, change bp) 3.04 -1.0 -2.1 16.2 73.3 63.5 Brent Spot (USD/Barrel, % change) 82 0.3 3.7 7.4 41.3 22.4 Gold Spot (USD/Ounce, % change) 1,183 0.0 -2.0 -1.5 -7.8 -9.2

Source: Matriks; Bloomberg; Garanti Securities * Morning data

Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Valuation Metrics

BIST - 100 12m fwd P/E BIST - 100 12m fwd EV/EBITDA

9x 12x 12x 11x 11x 8x 10x 10x 7x 7.10 9x 8.77 8x 7x 6x 5.94 6x7x 6.56

6x5x 5x

07.13 09.13 05.14 07.14 10.14 12.14 03.15 05.15 01.16 03.16 06.16 08.16 11.16 01.17 04.17 06.17 09.17 11.17 02.18 04.18 12.13 02.14 08.15 10.15 07.18 09.18

07.13 09.13 12.13 02.14 05.14 07.14 10.14 12.14 03.15 05.15 08.15 10.15 06.16 08.16 11.16 01.17 04.17 06.17 09.17 11.17 07.18 09.18 01.16 03.16 02.18 04.18

12M forward P/E Average +1 std dev 12M fwd EV/ EBITDA Average +1 std dev -1 std dev -1 std dev +2 std dev -2 std dev +2 std dev -2 std dev

BIST - 100 Earnings Yield - Bond Yield (10Y) P/E Discount of MSCI TR to MSCI EM

4.0% 10.0% 3.0%5.0% 0.0% 2.0%3.0% -10.0% 1.0% 1.4% -20.0% 1.0% -25.0% -30.0% 0.0%

-1.0% -40.0%

02.14 07.14 05.15 10.15 08.16 01.17 11.17 04.18 12.14 03.16 06.17 09.18

-1.0% 09.13

06.13 11.13 04.14 08.14 01.15 06.15 03.16 08.16 12.16 05.17 10.17 02.18 07.18 10.15 -3.4% -50.0% -3.0% -42.8% -2.0% -60.0%

-3.0%-5.0%

12.13 02.14 05.14 07.14 10.14 12.14 03.15 05.15 01.16 03.16 06.16 08.16 11.16 01.17 04.17 06.17 02.18 04.18 07.18 09.18 07.13 09.13 08.15 10.15 09.17 11.17

-4.0%-7.0% P/E Discount Average +1 std dev EY - BY Average +1 std dev -1 std dev +2 std dev -2 std dev -1 std dev +2 std dev -2 std dev

P/E Discount of Turkish Banks to EM Banks BIST - 100 Index and Bond Yield (10Y)

36.0% 125,000 0 BIST - 100 Bond Yield (Inverted) - rhs 2 18.0% 115,000 45 0.0% 105,000 6

-18.0% -18.6% 95,000 810 10 -36.0% 85,000 1215 -53.3% -54.0% 75,000 14 -72.0% 1620 65,000

18

12.13 02.14 05.14 07.14 10.14 12.14 03.15 05.15 08.15 10.15 01.16 03.16 06.16 08.16 11.16 01.17 04.17 06.17 09.17 11.17 02.18 04.18 07.18 09.18 09.13 07.13 55,000 2025 P/E Discount Average +1 std dev

-1 std dev +2 std dev -2 std dev

12.13 02.14 10.14 12.14 08.15 10.15 06.16 08.16 04.17 06.17 09.17 11.17 02.18 04.18 07.18 09.18 07.13 09.13 05.14 07.14 03.15 05.15 01.16 03.16 11.16 01.17

Source: Bloomberg; Garanti Securities 4

# 4 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Valuation Metrics

BIST - 100 (in terms of currency basket) BIST - 100 vs EPS

45,000 120,000 16000

40,000 106,000 14000 35,000 92,000 12000 30,000

25,000 78,000 10000

20,000 64,000 8000 15,000 BIST - 100 12M fwd EPS (rhs) 50,000 6000

10,000

09.13 02.14 07.14 12.14 05.15 03.16 08.16 01.17 11.17 04.18 09.18 10.15 06.17

09.10 09.11 03.12 03.13 09.15 03.16 03.17 03.18 09.08 03.09 09.09 03.10 03.11 09.12 09.13 03.14 09.14 03.15 09.16 09.17 09.18

BIST - 100 Target and Actual BIST 100 Index Difference Between Target and Actual BIST 100 Index

140000 30%

125000 25%

110000 20% 15% 95000 10% 80000 5% 65000 0%

50000

01.13 06.13 11.13 04.14 09.14 01.15 11.15 04.16 09.16 01.17 06.17 11.17 09.18 06.15 04.18

01.13 06.13 11.13 04.14 09.14 01.15 06.15 11.15 04.16 09.16 01.17 06.17 11.17 04.18 09.18 BIST - 100 Target BIST 100 BIST - 100 (Target - Actual)

Returns of MSCI Indices (yoy) BIST Sectoral Performances (ytd)

120 Transportation 110 Metals 100 90 BIST - Industrials 80 Conglomerates 70 Cons. Materials 60 Construction 50 Food and Beverage 40 BIST - 100 -14% 30 REIT

Telecoms

09.17 10.17 11.17 01.18 02.18 03.18 04.18 05.18 06.18 07.18 08.18 09.18 12.17 Banking MSCI EM MSCI Turkey MSCI World -40% -30% -20% -10% 0% 10% 20%

Source: Bloomberg; Garanti Securities 5

# 5 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Valuation Metrics

Banks 12M forward P/E Industrials 12M forward P/E 14x 10x 13x 8x 12x 11x 6x 10x 4x 9x

2x 8x

09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward P/E Average +2 std dev -2 std dev 12M forward P/E Average +2 std dev -2 std dev

Petroleum and Chemicals 12M forward P/E Basic Metals 12M forward P/E 14x 16x

12x 14x

11x 12x

9x 10x

8x 8x

6x 6x

09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward P/E Average +2 std dev -2 std dev 12M forward P/E Average +2 std dev -2 std dev

Construction 12M forward P/E Telecoms 12M forward P/E 15x 13x

13x 12x

11x 10x

9x 9x

7x 7x

09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward P/E Average +2 std dev -2 std dev 12M forward P/E Average +2 std dev -2 std dev

Food and Beverage 12M forward P/E Retail 12M forward P/E 27x 25x 22x 24x

20x 21x 17x 18x 15x

12x 15x

09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward P/E Average +2 std dev -2 std dev 12M forward P/E Average +2 std dev -2 std dev

Source: Bloomberg; Garanti Securities 6

# 6 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Valuation Metrics

Industrials 12M forward EV/EBITDA Petrochemicals 12M forward EV/EBITDA 10x 10x

9x 9x

8x 8x

7x 7x

6x 6x

5x 5x

11.17 09.13 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 04.18 09.18 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18 12M forward EV/EBITDA Average +2 std dev -2 std dev 12M forward EV/EBITDA Average +2 std dev -2 std dev

Basic Metals 12M forward EV/EBITDA Construction 12M forward EV/EBITDA 9x 10x

9x 8x 8x 7x 7x 6x 6x

5x 5x

11.17 09.13 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 04.18 09.18 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward EV/EBITDA Average +2 std dev -2 std dev 12M forward EV/EBITDA Average +2 std dev -2 std dev

Telecoms 12M forward EV/EBITDA Food and Beverage 12M forward EV/EBITDA 7x 13x 12x 6x 11x 10x 5x 9x 8x

4x 7x

09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

11.17 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 04.18 09.18

12M forward EV/EBITDA Average +2 std dev -2 std dev 12M forward EV/EBITDA Average +2 std dev -2 std dev

Retail 12M forward EV/EBITDA Cons. Materials 12M forward EV/EBITDA 10x 16x 9x 14x 8x 13x 7x 11x

10x 6x

8x 5x

11.17 09.13 09.13 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 04.18 09.18 02.14 07.14 12.14 05.15 10.15 03.16 08.16 01.17 06.17 11.17 04.18 09.18

12M forward EV/EBITDA Average +2 std dev -2 std dev 12M forward EV/EBITDA Average +1 std dev -1 std dev

Source: Bloomberg; Garanti Securities 7

# 7 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Valuation Metrics

Historical Valuation Trends (Last 5 years)

P/E 12M fwd EV/EBITDA 12M fwd 20.00 Max Min Current Avg. 12.00 Max Min Current Avg.

15.00 10.00

10.00 8.00

5.00 6.00

0.00 4.00 MSCI World MSCI EM SP 500 Eurostoxx BIST 100 MSCI World MSCI EM SP 500 Eurostoxx BIST 100

Net Debt/EBITDA 12M fwd P/B 12M fwd 6.00 Max Min Current Avg. 3.50 Max Min Current Avg.

3.00 4.50 2.50

2.00 3.00 1.50 1.00 1.50 0.50

0.00 0.00 MSCI World MSCI EM SP 500 Eurostoxx BIST 100 MSCI World MSCI EM SP 500 Eurostoxx BIST 100

P/CF 12M fwd ROE 12M fwd Max Min Current Avg. 22.00 Max Min Current Avg. 12.50 18.00 10.00 14.00 7.50

10.00 5.00

2.50 6.00

0.00 2.00 MSCI World MSCI EM SP 500 Eurostoxx BIST 100 MSCI World MSCI EM SP 500 Eurostoxx BIST 100

Source: Bloomberg; Garanti Securities 8

# 8 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Turkish asset performances vis-a-vis peers in 2018 ytd

Global Indices ( USD, %) FX ( against USD %)

-47 % Turkey ARS TRY 38% Argentina BRL ZAR South Africa RUB Brazil INR IDR Hungary CLP

Poland HUF CNY India KRW PLN Czech Republic CZK Mexico MYR COP Russia MXN -60% -50% -40% -30% -20% -10% 0% 10% 20% -10% 0% 10% 20% 30% 40% 50% 60%

10-Year Local Bond Yields (bps) 10-Year USD Bond Yields (bps)

Turkey 650 bps Turkey 233 bps Indonesia Brazil Brazil

Hungary South Africa Russia India Russia

S.Africa Indonesia Columbia Mexico Ukraine Chile Mexico Poland China Colombia

-50 50 150 250 350 450 550 650 750 0 50 100 150 200 250 300

Source: Bloomberg; Garanti Securities 9

# 9 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Revisions

Target Index 2018E 2019E Risk free rate Real GDP Growth 3.0% 1.5%

Inflation 21.5% 14.5% Changes 18.0% 18.5% 19.0% EPS 13621 15755

Growth

14.0% 116,595 110,742 105,448

ERP 5.5% 12M Index Target g 14.5% 116,595 14.5% 123,101 116,595 110,742 RfR 18.5%

15.0% 130,377 123,101 116,595 P/E Target 7.4 6.5

*We derive our 12 month forward target level of BIST - 100 from our bottom-up valuation models for stocks under our coverage (74 stocks comprising 87% of the total BIST Mcap) We reached a 12 month BIST 100 index target of 118,540 indicating an 18% increase over 27.09.2018’s BIST-100 close level through the bottom-up valuation. Our top-down valuation with details shared above indicates a slightly lower BIST 100 Index target of 116,595 with a 16% upside potential.

Garanti Securities Coverage Estimates (TLmn) 2017 2018E 2019E Sales 400,042 557,855 691,725 Growth 32% 39% 24% EBITDA 59,817 81,488 101,810 Growth 48% 36% 25% EBITDA Margin 15% 15% 15% Industrials - Net Income 29,733 31,464 52,496 Growth 90.3% 5.8% 66.8% Net Income Margin 7% 6% 8% Banks - Net Income 23,243 23,410 27,288 Growth 26% 1% 17% Total - Net Income 52,976 54,875 79,784 Growth 56% 4% 45% BIST - 100 Monthly Revision Trends

5.0% 8.0% Sales Revisions EBITDA Revisions 5.0% EPS Revisions 4.0% 4.0% 3.0% 6.0% 3.0% 2.0% 4.0% 2.0% 1.0% 1.0% 0.0% 2.0% 0.0% -1.0% -1.0% -2.0% 0.0% -2.0% -3.0% -2.0% -3.0% -4.0% -4.0% -5.0% -4.0% -5.0% -6.0% -6.0% -7.0% -6.0%

-7.0%

01.14 05.14 10.14 02.15 07.15 12.15 04.16 09.16 01.17 06.17 11.17 03.18 08.18 01.14 05.14 10.14 02.15 07.15 12.15 04.16 09.16 01.17 06.17 11.17 03.18 08.18

01.14 05.14 10.14 02.15 07.15 12.15 04.16 09.16 01.17 06.17 11.17 03.18 08.18

Source: Bloomberg; Garanti Securities 10

# 10 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Revision Trends

Net Sales (%) 5 d 4 w Ytd EBITDA (%) 5 d 4 w Ytd EPS (%) 5 d 4 w Ytd MSCI World 0.2 0.5 5.9 MSCI World 0.3 0.3 5.9 MSCI World 0.5 0.6 16.0 MSCI EM 0.7 0.2 3.1 MSCI EM 0.6 0.0 4.9 MSCI EM 0.8 -0.1 6.1 Eurostoxx -1.0 -1.3 3.2 Eurostoxx -0.8 -0.9 2.6 Eurostoxx -0.7 -0.7 8.4 S&P 500 0.0 0.4 8.2 S&P 500 0.0 -0.2 7.9 S&P 500 -0.2 -0.1 20.3 BIST 100 0.9 4.0 28.4 BIST 100 2.3 3.1 16.7 BIST 100 -0.4 0.8 6.6

Estimate Revision Trends (Top 5 Gainers and Losers)

Sales Revisions (1 month ) Sales Revisions (ytd) ENKAI -1.4% OTKAR 6.2% TOASO -0.3% EKGYO 9.3% OTKAR 0.0% TTKOM 11.4% TTKOM 0.0% TOASO 11.8% TCELL 0.2% TCELL 16.7% SAHOL 5.5% KRDMD 40.4% ASELS 5.8% TKFEN 41.6% EREGL 6.5% ASELS 42.9% TUPRS 8.1% THYAO 47.1% KCHOL 8.7% TUPRS 49.4% -5% 0% 5% 10% -10% 0% 10% 20% 30% 40% 50% 60%

EBITDA Revisions (1 month ) EBITDA Revisions (ytd) SAHOL -2.6% PETKM -8.6% ENKAI -1.2% EKGYO 0.8% EKGYO -0.8% TUPRS 3.3% ARCLK -0.1% ARCLK 19.0% OTKAR 0.0% TTKOM 19.4% PETKM 6.3% TKFEN 47.2% EREGL 8.0% TAVHL 48.1% ASELS 8.7% ASELS 53.2% TUPRS 9.4% THYAO 53.6% KRDMD 14.8% KRDMD 128.7% -10% 0% 10% 20% -30% -5% 20% 45% 70% 95% 120% 145% EPS Revisions (1 month ) EPS Revisions (ytd) KRDMD -16.4% TTKOM -147.5% ENKAI -6.9% PETKM -23.3% ARCLK -4.6% TUPRS -17.2% TCELL -4.1% HALKB -13.0% HALKB -3.0% ARCLK -10.0% SISE 9.4% ASELS 62.2% SODA 10.0% SISE 70.1% ISCTR 13.1% SODA 73.6% YKBNK 23.0% KRDMD 127.9% ASELS 28.1% THYAO 153.7% -30% -15% 0% 15% 30% 45% -225% -150% -75% 0% 75% 150% 225%

Source: Bloomberg; Garanti Securities 11

# 11 Please see the last page of this report for important disclosures. September 28, 2018 Valuation Barometer RESEARCH

Recommendation List

27.09.2018 Ticker Rating Close Upside Market Cap. Avg. Vol. P/E P/BV ROE Foreign Own. Target Price* (TL) Potential (USDmn) ** 2018E 2019E 2018E 2019E 2018E 2019E Cur. 1M Chg. FINANCIALS Banks Banks 3.6 3.1 0.44 0.38 15.6% 15.5% AKBNK OP 6.94 7.20 4% 4,569 54.9 4.7 4.1 0.60 0.53 16.0% 15.6% 73.1% -1.2 pp Garanti GARAN - 7.56 - - 5,226 187.2 ------82.2% -0.9 pp HALKB MP 6.63 6.90 4% 1,364 75.6 2.5 2.2 0.29 0.25 16.6% 15.9% 57.0% 1.3 pp Isbank ISCTR MP 4.41 4.60 4% 3,267 38.3 3.6 3.2 0.41 0.37 13.4% 13.6% 60.6% -8.2 pp Vakifbank VAKBN MP 3.71 3.50 -6% 1,527 20.0 2.5 2.1 0.35 0.29 17.1% 17.0% 78.2% -3.0 pp YKB YKBNK OP 1.79 2.20 23% 2,489 32.6 3.6 3.0 0.45 0.39 14.1% 14.4% 45.5% -3.0 pp TSKB TSKB OP 0.85 1.00 18% 392 4.7 4.1 3.5 0.59 0.51 18.3% 18.4% 45.7% -1.3 pp Albaraka Turk ALBRK UP 1.43 1.40 -2% 212 1.1 3.9 3.2 0.48 0.44 9.7% 10.2% 52.6% 2.5 pp Insurance & Anadolu Hayat ANHYT MP 6.55 7.50 15% 464 0.1 9.2 8.0 2.54 2.24 25.4% 25.3% 63.0% 0.6 pp Avivasa AVISA MP 11.46 13.19 15% 223 0.2 7.5 6.8 2.44 2.11 28.2% 29.2% 94.6% -0.4 pp Aksigorta AKGRT OP 3.65 4.50 23% 184 0.3 5.3 4.5 1.67 1.48 20.5% 18.5% 69.6% 1.5 pp ANSGR UP 4.34 4.00 -8% 357 0.1 7.9 7.2 1.52 1.41 10.7% 11.7% 20.4% 0.3 pp

Ticker Rating Close Upside Market Cap. Avg. Vol. P/E Adj.NAV Prem. / Disc. Foreign Own. Target Price* (TL) Potential (USDmn) ** 2018E 2019E (USDmn) to adj. NAV Cur. 1M Chg. Conglomerates Koc Holding KCHOL OP 17.06 20.70 21% 7,121 21.5 8.0 6.3 7,614 -6% 83.6% -1.8 pp Sabanci Holding SAHOL OP 7.55 8.90 18% 2,536 14.5 3.9 3.3 4,483 -43% 72.8% 0.0 pp Sise Cam SISE MP 6.13 6.20 1% 2,270 6.6 7.2 6.8 2,203 3% 46.7% 0.0 pp

Ticker Rating Close Upside Market Cap. Avg. Vol. P/E EV/EBITDA P/BV Foreign Own. Target Price* (TL) Potential (USDmn) ** 2018E 2019E 2017E 2018E Trailing Cur. 1M Chg. REIC REIC EKGYO OP 1.80 2.40 33% 1,126 21.9 3.7 3.0 3.5 2.8 0.6 67.2% 2.9 pp Halk GYO HLGYO MP 0.65 0.75 15% 92 0.8 3.6 1.5 6.9 6.6 0.3 2.6% 0.8 pp Is REIT ISGYO OP 0.90 1.20 33% 142 1.2 8.5 2.0 7.6 7.2 0.3 23.1% 0.8 pp Ozak REIC OZKGY MP 2.36 2.55 8% 97 0.8 6.9 1.6 16.8 4.4 0.4 71.7% -1.3 pp Torunlar REIC TRGYO MP 1.73 2.00 16% 285 0.5 1.9 1.1 5.8 9.1 0.3 43.4% 0.6 pp

Ticker Rating Close Upside Market Cap. Avg. Vol. P/E EV/EBITDA EV/Sales Foreign Own. Target Price* (TL) Potential (USDmn) ** 2018E 2019E 2018E 2019E 2018E 2019E Cur. 1M Chg. INDUSTRIALS 11.6 7.0 5.9 4.7 0.9 0.7 Adana Cement ADANA MP 5.94 6.48 9% 86 0.2 5.9 6.5 8.3 6.3 1.6 1.3 4.0% 0.6 pp Anadolu Efes AEFES MP 21.68 25.20 16% 2,113 2.3 - 64.8 6.7 5.8 1.0 0.9 82.3% 0.1 pp Akcansa AKCNS MP 8.42 10.36 23% 265 0.2 8.0 7.0 5.5 4.8 1.1 0.9 22.1% -5.8 pp Akrilik AKSA MP 10.05 12.96 29% 306 1.9 7.8 4.2 4.8 4.4 0.7 0.5 52.2% 1.0 pp Aksa Enerji AKSEN MP 4.34 5.10 18% 438 2.7 - 76.1 6.9 5.9 1.5 1.1 17.5% 0.3 pp Anadolu Cam ANACM OP 3.36 3.95 18% 415 2.4 6.6 5.6 5.8 4.6 1.3 1.1 53.3% 1.4 pp Arcelik ARCLK OP 13.99 18.10 29% 1,556 10.8 12.9 9.6 7.1 5.9 0.7 0.6 63.1% 0.8 pp Aselsan ASELS OP 27.80 34.90 26% 5,217 115.9 9.6 9.1 15.2 9.7 3.1 1.9 25.6% -1.6 pp AYGAZ MP 12.50 15.17 21% 617 0.7 5.4 4.2 8.4 7.8 0.3 0.2 72.7% 0.6 pp Bagfas BAGFS MP 5.96 7.10 19% 44 0.3 - 33.3 9.0 5.2 1.2 0.7 4.7% 0.3 pp BIMAS MP 82.25 84.90 3% 4,110 15.2 23.2 19.4 14.5 12.2 0.8 0.7 66.5% -0.2 pp Bizim Toptan BIZIM MP 6.00 6.60 10% 59 0.3 24.0 16.4 2.9 2.3 0.1 0.1 30.4% 0.9 pp Brisa BRISA OP 6.76 8.21 21% 340 0.5 46.0 9.2 8.0 6.3 1.3 1.0 18.3% -1.3 pp Bolu Cement BOLUC OP 4.71 6.45 37% 111 0.2 6.1 3.9 4.7 4.2 1.3 1.1 14.6% 0.0 pp Coca-Cola Icecek CCOLA OP 34.60 41.80 21% 1,449 2.7 30.5 22.1 6.9 5.7 1.1 0.9 92.3% 1.0 pp Celebi CLEBI OP 50.00 75.87 52% 200 0.5 7.0 4.7 4.7 3.3 1.0 0.7 64.8% -0.9 pp Cimsa CIMSA OP 8.97 11.84 32% 199 0.6 5.8 4.4 5.4 4.6 1.4 1.2 50.4% -0.4 pp Dogus Otomotiv DOAS MP 5.44 6.25 15% 197 0.8 4.8 3.2 5.4 4.9 0.3 0.2 10.3% 0.4 pp Enka Insaat ENKAI MP 5.29 6.31 19% 4,354 2.7 10.3 10.3 6.9 7.4 1.4 1.3 69.6% -0.1 pp Enerjisa ENJSA OP 5.26 6.80 29% 1,023 6.1 7.1 4.4 4.1 3.0 1.0 0.8 57.2% -3.5 pp Eregli Demir Celik EREGL OP 11.25 13.86 23% 6,481 33.0 10.9 7.4 5.5 4.6 1.5 1.2 77.0% -0.3 pp FROTO OP 66.80 75.10 12% 3,858 5.4 10.3 9.3 8.1 5.9 0.7 0.5 81.6% 0.8 pp Gubretas GUBRF MP 3.09 3.50 13% 170 0.9 - 33.3 4.0 3.5 0.4 0.3 11.9% 0.7 pp Indeks INDES MP 6.51 8.00 23% 60 0.8 2.6 4.7 4.6 4.0 0.1 0.1 48.1% -3.7 pp KRDMD MP 4.11 5.16 26% 528 100.4 5.7 5.4 3.1 3.1 0.7 0.6 50.0% 0.1 pp Kordsa Global KORDS MP 9.70 11.50 19% 311 1.3 6.1 3.7 5.5 3.2 0.7 0.5 42.3% 2.6 pp Logo LOGO MP 33.98 39.40 16% 140 0.6 13.7 10.4 9.0 7.2 2.7 2.2 59.4% -2.1 pp Lokman Hekim LKMNH OP 4.95 7.50 51% 20 0.3 19.5 11.7 4.7 3.6 0.6 0.5 30.7% -2.0 pp Mardin Cement MRDIN MP 3.56 3.93 10% 64 0.1 7.8 7.2 7.4 6.9 1.5 1.5 6.1% 0.0 pp Mavi MAVI OP 35.10 46.40 32% 287 2.6 16.6 13.4 5.6 4.2 0.8 0.6 76.8% -8.8 pp Medical Park MPARK OP 11.45 12.77 12% 392 1.4 - - 7.5 5.6 1.1 0.9 79.3% -0.7 pp MGROS OP 15.94 20.15 26% 475 3.6 - 28.0 6.0 5.2 0.3 0.3 28.1% -8.1 pp Odas Enerji ODAS OP 3.83 4.70 23% 86 2.2 - 8.6 23.9 5.7 2.1 1.2 2.2% 0.7 pp PETKM OP 5.44 7.10 31% 1,477 66.0 7.4 6.1 6.7 5.8 1.0 0.8 41.0% 7.4 pp Pegasus PGSUS MP 27.86 31.36 13% 469 10.1 4.9 2.7 4.9 2.9 0.7 0.5 29.0% -7.8 pp Selçuk Ecza SELEC MP 3.33 3.84 15% 340 0.5 5.0 4.4 5.0 4.3 0.2 0.2 59.3% -0.3 pp Soda Sanayii SODA MP 7.01 7.35 5% 1,154 8.6 6.2 5.8 7.8 5.8 2.0 1.5 58.6% 0.7 pp Şok Marketler SOKM OP 9.00 10.90 21% 907 3.4 26.4 19.8 10.8 7.5 0.5 0.3 78.7% n.a Tat Konserve TATGD MP 4.40 4.70 7% 98 1.3 10.9 8.1 11.1 8.1 0.6 0.5 21.4% 1.5 pp TAV Airports TAVHL OP 30.66 51.30 67% 1,833 8.1 5.7 3.3 3.7 2.4 1.9 1.4 97.4% 0.7 pp Tekfen Holding TKFEN OP 22.04 26.70 21% 1,342 6.1 - - 3.9 3.1 0.4 0.3 77.3% 0.1 pp Teknosa TKNSA MP 4.77 5.23 10% 86 2.1 - 63.6 6.3 5.5 0.2 0.2 4.0% -0.2 pp TCELL OP 11.48 15.30 33% 4,157 28.3 13.7 9.0 4.5 3.8 1.8 1.5 89.1% -2.5 pp THY THYAO MP 19.10 20.74 9% 4,339 235.5 5.8 3.3 6.2 4.0 1.0 0.7 63.6% 3.0 pp Tofas TOASO MP 21.88 27.10 24% 1,801 6.0 6.0 5.2 5.3 4.0 0.6 0.5 83.4% 0.6 pp Trakya Cam TRKCM MP 4.43 5.10 15% 911 3.1 5.8 6.1 6.4 5.2 1.3 1.1 56.1% -1.4 pp Turk Telekom TTKOM MP 3.69 4.15 12% 2,126 14.7 - 8.3 3.6 3.2 1.4 1.2 73.2% -3.0 pp Turk Traktor TTRAK UP 47.78 38.08 -20% 420 1.1 11.2 8.7 7.9 6.4 0.9 0.7 68.3% -1.5 pp Tupras TUPRS OP 135.50 169.40 25% 5,585 36.5 9.5 6.4 4.8 5.0 0.4 0.3 82.7% 0.2 pp Ulker ULKER OP 17.00 21.40 26% 957 2.8 11.0 9.4 9.1 8.1 1.4 1.2 37.9% 0.0 pp Unye Cement UNYEC MP 3.93 4.26 9% 80 0.0 9.3 7.0 6.9 5.6 1.6 1.2 4.9% 0.0 pp Elektronik VESTL MP 8.18 9.30 14% 452 16.6 - 36.1 5.5 4.4 0.5 0.5 6.7% 0.1 pp Yatas YATAS MP 3.86 4.23 9% 95 2.8 10.8 5.3 4.6 3.3 0.7 0.5 35.1% -3.9 pp Zorlu Enerji ZOREN MP 1.35 1.55 15% 444 6.8 - 2.2 8.6 5.1 2.5 1.9 13.2% 0.7 pp BIST-100 XU100 100,299 118,540 18% 107,855 1,546 8.3 5.7 *: 12M Target, **: 6 months, (mn USD), UR: Under Review

Source: Garanti Securities Estimates

RESEARCH

Disclaimer

This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by Garanti Securities Research Department, to provide its customers with general information regarding the date of issue of the report and are subject to changes without prior notice. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.

The investment information, comments and advices given herein are not part of investment advisory activity. Investment advisory services are provided by authorized institutions to persons and entities privately by considering their risk and return preferences. Whereas the comments and advices included herein are of general nature. Therefore, they may not fit to your financial situation and risk and return preferences. For this reason, making an investment decision only by relying on the information given herein may not give rise to results that fit your expectations.

This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind.

Investor who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. The information in this report has been obtained by Garanti Securities Research Department from sources believed to be reliable. However, Garanti Securities cannot guarantee the accuracy, adequacy, or completeness of such information, and cannot be responsible for the results of investment decisions made on account of this report.

The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors. Investors should be aware that they could even face a loss of their investment. Transactions in futures, options and securities or high-yield securities can involve high risks and are not appropriate for every investor. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, investors may be required to pay more money to support those losses. Thus, before undertaking any transaction with these instruments, investors should be aware of their operation, as well as the rights, liabilities and risks implied by the same and the underlying stocks.

Investors should also be aware that secondary markets for the said instruments may be limited or even not exist. This report is to be distributed to professional emerging markets investors only. This report is for private use only and intended solely for the individual(s). No information in this report may be copied, modified, republished or exploited in anyway without the prior consent of Garanti Securities. Additionally, with respect to our statements above, all our claims and plea rights are covered in the regulations which apply in the countries that this report has been sent to.

Garanti Securities Etiler Mah. Tepecik Yolu Demirkent Sokak No:1 34337 Besiktas, / Turkey Phone: +90 (212) 384-1155

Definition of Ratings

OUTPERFORM (OP) The stock's return is expected to exceed the return of the BIST100 over the next 12 months.

MARKET PERFORM (MP) The stock's return is expected to be in line with the BIST100 over the next 12 months.

UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST100 over the next 12 months.

RESEARCH Fax: +90 (212) 352-4240