10 November 2014 Most- and Least-Preferred Stocks AK Investment Research [email protected]

Most-Preferred Stocks (MPS): We are removing Trakya Cam from our MPS list with a profit-taking motivation following the 16% nominal gain and 9% outperformance vs. the BIST-100 TRI in the last month. We also note that the company posted a lower-than- expected net income in 3Q14 (TRY48mn actual vs. TRY55mn estimated)

Least-Preferred Stocks (LPS): No changes have been made in the LPS list. Most-Preferred Stocks Least-Preferred Stocks Company Ticker Share Price Company Ticker Share Price Albaraka Turk ALBRK 1.59 Akenerji AKENR 1.32 Aselsan ASELS 10.12 Anadolu Efes AEFES 24.50 Cimsa CIMSA 15.50 Hurriyet HURGZ 0.61 Emlak REIC EKGYO 2.38 Isbank ISCTR 5.24 D KRDMD 2.27 Tekfen Holding TKFEN 5.46 Source: Ak Investment Share prices as of November 7, 2014

Performance of the Most-Preferred Stocks Portfolio Total nominal return of our MPS list since the inception on January 6, 2014 is 27.3% and the relative gain versus the benchmark index (BIST-100 Total Return Index) is 9.1%.

Performance since latest update in portfolio Performance since inclusion Share Price Return Date of MPS Ticker 03/11/14 07/11/14 Nominal Relative* inclusion Nominal Relative* Albaraka Turk ALBRK 1.58 1.59 0.6% 3.3% 03/11/2014 0.6% 3.3% Aselsan ASELS 10.45 10.12 -3.2% -0.6% 12/09/2014 7.1% 6.8% Cimsa CIMSA 16.20 15.50 -4.3% -1.8% 17/10/2014 1.0% -2.2% Emlak REIC EKGYO 2.53 2.38 -5.9% -3.4% 03/11/2014 -5.9% -3.4% Isbank ISCTR 5.49 5.24 -4.6% -2.0% 17/10/2014 1.9% -1.2% Kardemir D KRDMD 2.47 2.27 -8.1% -5.7% 03/11/2014 -8.1% -5.7% Tekfen Holding TKFEN 5.49 5.46 -0.5% 2.1% 19/06/2014 5.6% 7.1% Trakya Cam TRKCM 2.93 2.91 -0.7% 1.9% 12/09/2014 11.5% 11.2% Portfolio Return -3.3% -0.8% BIST-100 Total Return Index 116,485 113,491 -2.6% Source: Ak Investment *Relative to BIST-100 Total Return Index (BIST-100 TRI)

Most-preferred-stocks performance: Nominal and Relative to BIST-100 Total Return Index 40.0% 15.0%

30.0% 12.0%

20.0% 9.0%

10.0% 6.0%

3.0% 0.0%

0.0% -10.0%

MPS XU100 TRI MPS relative to XU100 TRI

Source: Ak Investment Source: Ak Investment Most-Preferred Stocks

ALBARAKA TURK ALBRK TI ASELSAN ASELS TI Current Price (TL) 12M Target (TL) Upside Current Price (TL) 12M Target (TL) Upside 1.59 1.90 19% 10.12 12.10 20% 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F PB 0.9 0.7 PE 5.7 5.0 EV/EBITDA 10.6 9.7 PE 17.0 14.8 - We think Albaraka Turk's share price overstates the risk associated with - Aselsan is a defensive play as there are no cut-backs in military the entry of state banks into the market - its 2015F P/E and PB multiples spending in and the region. Aselsan trades at premiums to its are indicating steep 35%-40% discounts to the sector average. peers that we believe are deserved as it is growing faster than the peers. - Given Albaraka's historical one-year P/E and P/B discounts of 20% and 28% to sector averages, respectively, we believe relative downside is - Note that Aselsan’s backlog reached US$4bn with a backlog-to-sales rather limited from here. ratio of 3.6x. Projects from the Defense Undersecratary in the pipeline - Despite the recent 5% downside revision to our 2015 earnings forecast such as Milgem marine vessels, tanks and a new anti-missile for 2015 to TL285mn, our forecasts on Albaraka still implies a solid RoE system ensure that the backlog will remain at least at around current of 16% (vs. 13-14% in the sector) in the coming three years. levels. The anti-missile system contract looks likely to go forward now - Low trading volume in the stock is a drawback. that negotiations have shifted from the Chinese to the French. Majority of financing (advances on orders and R&D funding) is US$ based.

CIMSA CIMSA TI EMLAK REIC EKGYO TI Current Price (TL) 12M Target (TL) Upside Current Price (TL) 12M Target (TL) Upside 15.50 18.60 20% 2.38 3.40 43% 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F EV/EBITDA 6.0 5.8 PE 9.7 9.3 EV/EBITDA 7.2 6.8 PE 9.0 7.7 - Cimsa’s top-line grew by 12% YoY and EBITDA margin rose to 31.4% in - We maintain our positive stance towards Emlak REIC shares with a 12M 9M14 from 24.5% in 9M13, having benefited from strong domestic TP of TL3.40/share, while the 4% dividend yield is also supportive of the prices (both grey and white cement) and muted energy costs. We expect investment theme. Besides, we think that following the recent sell-off in 14% YoY top-line growth and 500 bps EBITDA margin expansion (to 30%) Emlak REIC shares, the stock offers an attractive upside potential as it is in 2014 for Cimsa. trading at a 33% discount to its latest NAV (3Q14) vs. its historical - We expect Cimsa to deliver a CAGR of 9% in revenues and 13% in discount of 15%. EBITDA during 2013-16F. - The Company is highly confident in its guidance of 10,000 units for its - We are now incorporating Afyon plant’s capacity expansion (to 1.5mn 2014 pre-sales (our forecast is in line with the guidance), with the launch ton clinker from 0.45mn tons pa) with a ~US$150mn investment budget of new projects in the pipeline in 4Q14. This suggests that Emlak’s pre- to become operational by 2017. sales performance will gradually gain pace in the coming months with - In addition to its solid operational performance, we believe the new project launches. Note that Emlak’s pre-sales volumes stood at possible developments regarding Sancim acquisition (pending 7,533 units at the end of October. Competition Board’s approval) may positively affect the share performance.

ISBANK ISCTR TI KARDEMIR D KRDMD TI Current Price (TL) 12M Target (TL) Upside Current Price (TL) 12M Target (TL) Upside 5.24 6.40 22% 2.27 2.80 23% 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F PB 0.9 0.7 PE 7.1 6.7 EV/EBITDA 6.5 6.2 PE 8.9 8.5 - Isbank recorded a 3Q14 net profit of TL918mn (up 10.7% QoQ), and - We have lowered our 12M TP for KRDMD from TL3.00 to TL2.80 (23% beat both the market consensus estimate of TL819mn and our own upside). The lower than expected 3Q14 EBITDA margin of 23.4% leads us estimate of TL740mn. to revise down our 4Q14 EBITDA margin forecast of 24.0% to 20.0%. Our 2014F full year EBITDA margin falls from 26.0% to 24.1%. We believe - Besides the release of free provisions and strong trading gains, Isbank’s 2015 will be more challenging for the Company. We have also lowered stellar performance in 3Q14 was also a result of its resilient NIM, our 2015 EBITDA margin forecast to 19.8% from 22.2%. controlled asset quality and respectable commission income generation. - Still so, we maintain our 2016F EBITDA margin of 19.7% and then 19.4% - After 3Q14 results, we have raised our earnings forecasts for 2014 and in the rest of the forecast period. These revisions lead to our new 12- for 2015 by 6% and 5% respectively to TL3,300mn and TL3,520mn. After month target price of TL2.80 (previously TL3.00). We maintain our these revisions, we have upward adjusted our 12-month target price by ‘Outperform’ rating. We continue to have a positive outlook on the stock 3% to TL6.40, which now offers 22% upside. as new investments will bring higher value-added products into the portfolio keeping profitability high in the coming years. Most-Preferred Stocks

TEKFEN HOLDING TKFEN TI Current Price (TL) 12M Target (TL) Upside 5.46 7.26 33% 2014F 2015F 2014F 2015F EV/EBITDA 4.6 4.2 PE 6.8 7.9 - Any positive newsflow from Socar's STAR refinery project (estimated potential contribution of around US$500mn) and TANAP (Initial phase to be composed of 3 lots with a total estimated size of US$1.5-2.0bn) are near-term catalysts.

- Tekfen shares are trading at 2015 P/E of 7.9x compared to international peers' average of 11.6x and local peers' average of 11.5x.

- Following the US$300mn investment by end-2014, Toros Agri will be self-sufficient on sulphuric and phosphoric acid and its fertilizer EBITDA margin would improve to 12.1% in 2015, according to our conservative estimates, compared to last 8 years’ average of 11.6%. Least-Preferred Stocks

Performance of the Least-Preferred Stocks Our LPS list underperformed the benchmark index (BIST-100 Total Return index) by 1.7% since the inception on January 20, 2014.

Performance since latest update in portfolio Performance since inclusion Share price Return Date of LPS 03/11/14 07/11/14 Nominal Relative* inclusion Nominal Relative AKENR 1.16 1.32 13.8% 16.8% 12/09/2014 16.8% 16.5% AEFES 25.75 24.50 -4.9% -2.3% 20/01/2014 11.1% -8.0% HURGZ 0.63 0.61 -3.2% -0.6% 12/09/2014 -1.6% -1.8% Average return 1.9% 4.6% BIST-100 TRI 116,485 113,491 -2.6% Source: Ak Investment *Relative to BIST-100 Total Return Index (BIST-100 TRI)

AKENERJI AKENR TI ANADOLU EFES AEFES TI Current Price (TL) 12M Target (TL) Upside Current Price (TL) 12M Target (TL) Upside 1.32 1.20 -9% 24.50 27.00 10% 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F EV/EBITDA 28.2 10.1 PE n.m. 104.4 EV/EBITDA 13.2 11.3 PE 35.9 27.3 - The market appears to have overestimated the potential contribution of - Anadolu Efes posted TRY21mn net profit in 3Q14, largely below the the Egemer natural-gas-fired power plant (900MW). With the new power consensus estimate of TRY134mn and house call of TRY132mn. generation portfolio, we estimate a 2015 EV/EBITDA of 10.1x for Ak vs. Deviation from our call stemmed partly from weaker than expected 8.7x of EM peers (Bloomberg) and 8.4x for Enerji, a comparable local operational profitability and partly from higher than expected financial peer. expenses. - The pressure on Turkey beer eased off: for the first time since 9 - Although recent equal rate hike in natural gas and electricity prices are quarters, there was no YoY contraction in volumes. positive for natural-gas-fired power plants, Akenerji’s 2015 multiples are - Int’l beer volumes recorded 11.5% YoY decline in Q3 (worst than our not sufficiently attractive to warrant much optimism. estimate), pulling down the cumulative 9M14 volume growth to negative territory (-3% YoY). The operation had surprised us in 1Q14 with 11% YoY volume increase but normalization kicked in faster than our anticipation with a 3% YoY decline in Q2.

HURRIYET HURGZ TI Current Price (TL) 12M Target (TL) Upside 0.61 0.45 -26% 2014F 2015F 2014F 2015F EV/EBITDA 8.3 6.4 PE n.m. n.m. - We have revised our forecasts for 2014 and 2015 downwards leading to a lower 12M TP of TRY0.45 (previously TRY0.67). The very weak results confirm our outlook for Hurriyet’s operations. The newspaper print business is shrinking as digital media becomes more pervasive with the proliferation of mobile devices with broadband capabilities.

- We have revised our 2014 full year revenue figure to TRY732mn from TRY828mn and 2015 from TRY845mn to TRY805mn. EBITDA margin is revised down to 8.1% for 2014 and 2015 from 10.7% and 10.8% Our net loss forecasts become larger at TRY35mn for 2014 (prev. TRY15mn) and TRY36mn for 2015 (from TRY10mn). We maintain our Underperform rating. AK Investment - Research

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