Company Update Aviation Industry May 21, 2021

TAV Airports Holding

Almaty International Airport becomes TAV

Airport’s first owned airport

R. Fulin Önder Equity Research Analyst [email protected] MARKET PERFORM

The consortium formed by TAV Airports and VPE Capital has finalized TP: TRY 26.30 the share transfer of Almaty Airport as of end-April 2021. Almaty Airport is now owned by the consortium, of which TAV Airports is an 85% Previous TP: 23.00 shareholder. The Kazakhstan Infrastructure Fund under the Upside potential: 11% management of VPE Capital holds the remaining 15% stake. The purchase price has been revised down to US$365mn at the closing of the deal, from US$415mn previously, with an earn-out schedule for the remaining US$50mn - TAV Airports and VPE Capital had previously agreed to acquire 100% shares of Almaty Airport and its associated jet fuel and catering businesses for an EV of US$415mn on May 7, 2020. The previously agreed purchase price was revised down to TRY US$ US$365mn at the closing of the deal, taking into account the traffic Close 23.60 2.82 decrease at the airport due to the COVID-19 pandemic. The parties have rather inked an “earn-out” schedule (Fig. 1) for the payment of the BIST 100 1,450 173 remaining US$50mn of the previously agreed on price. The payments to US$/TRY(CB Bid Rate): 8.3689 be made according to this “earn-out” schedule will be subject to traffic recovery at Almaty Airport reaching certain thresholds. The ultimate 52 Week High: 26.74 3.66 threshold number is set as 28,883 flights, determined according to the 52 Week Low : 13.79 1.66 average of total of international and cargo ATMs during 2018 & 2019. Bloomberg/Reuters Ticker: TAVHL.TI / TAVHL.IS According to this earn-out schedule, if, for example, the total number of international and cargo ATM at the airport reaches 23,107 flights in 2021E (i.e., 80% of the 28,883 flights threshold), a US$40mn payment Number of Shares (Mn): 363 will be made to the seller by the consortium. And if this figure were to Current Mcap (Mn): 8,573 1,024 increase further to 25,995 in 2022 (i.e. to 90% of the 28,883 threshold), Free Float Mcap (Mn): 4,115 492 an additional US$5mn payment would be made. The earn-out payment matrix differs for each year by the rate of traffic recovery, and will be paid in full in 2030, regardless of traffic. 1 M YoY YtD TAV Airports will be consolidating this asset fully starting from 2Q21E TRY Return (%): 26.7 27.7 10.8 - Almaty Airport will be TAV Airport’s first owned airport; TAV Airports US$ Return (%): 22.7 3.5 -1.8 will be fully consolidating this asset in its financials starting from 2Q21E. BIST 100 Relative (%): 19.4 -10.0 12.9 Unlike the Group’s other terminal operations that have concession periods and/or are BOT projects, Almaty Airport has perpetuity with no Avg. Daily Vol. (TRY Mn): 191.1 rent payments and no concession renewal risk. The airport had served Avg. Daily Vol. (US$ Mn): 25.4 c.3.6mn PAX in 2020 (2019:6.4mn); yet its strength actually lies in its fuel and cargo businesses, whereby it had generated US$119mn revenues with an EBITDA margin of c.17% in 2020 (2019: US$206mn & Beta 0.90 33%, resp.). These correspond to c.13% of TAV Airports’ total PAX, c.34% Volatility (Stock) 0.42 of its revenues and 77% of its EBITDA in the respective year, 2020 (2019: Volatility (BIST 100) 0.23 7%, 25% & 22%, resp.). The consolidation of Almaty Airport in TAV Airports’ financial statements from 2Q21E onwards thus increases our 2021E revenue and EBITDA estimates by c.27% to €478mn and by c.20% Shareholder Structure % to €143mn, from €377mn and €119mn previously, respectively. Groupe ADP 46.1 The acquisition impacts our valuation positively; we revise our 12M Tepe Insaat 5.1 TP to TRY 26.30/sh and maintain our “Market Perform” rating –While Sera Yapı 1.2 we evaluate the purchase price as fair considering the US$200mn Free Float 47.6 investments to build a new international terminal to increase capacity Total 100.0 up to 14mn PAX p.a. from 7mn PAX p.a. currently, we also note that at 18.3x 2020A EV/EBITDA and at c.11.0x 2021E EV/EBITDA on our estimates, it compares favorably with TAV Airports’ peer median of 30.0 170 33.8x and 17.6x, respectively. We value Almaty Airport at €240mn; our 27.5 155 valuation, which is a blend of the Group’s SoTP and relative valuation 25.0 140 to its peers, thus yields a 12M TP of 26.30/sh for TAV Airports Holding. We maintain our “Market Perform” rating on the Group shares amid the 22.5 125 current volatile and relatively unpredictable environment for air travel 20.0 110 demand due to the COVID-19 pandemic, while noting the upside risks 17.5 95 mainly as possible compensation for loss of traffic from other (non- 15.0 80 Turkish) airports that it operates. 12.5 65 2019 2020 3M 2020 3M 2021 2021E 2022E 10.0 50 P/E 4.39 NM 3.15 NM NM NM May-18 Jan-19 Sep-19 May-20 Jan-21 P/BV 1.22 0.92 0.71 0.74 0.89 0.93 EV/EBITDA* 6.69 131.99 5.04 NM 8.96 10.00 Share Price (TRY) BIST 100 Rel. EV/Sales 2.94 5.64 2.08 5.49 2.69 2.31 Net Sales (€ mn)* 749 301 118 61 478 527

Net Profit (€ mn) 373 (285) (56) 62 7 (42) EPS (€) 1.03 (0.78) (0.15) 0.17 0.02 (0.11)

Şeker Invest Research May 21, 2021

Almaty Airport’s inclusion in our valuation – Almaty Airport currently has a capacity of 7mn PAX p.a., and with the completion of the US$200mn worth investments for a new terminal building over the next 30 months, its capacity is expected to reach 14mn PAX p.a. ultimately. The airport had served c.3.6mn PAX amid the COVID-19 pandemic in 2020 (2019:6.4mn). We expect it to be able to reach its 2019 PAX levels in 2023E. Almaty Airport’s passenger fees and other passenger traffic-related commercial income are relatively lower when compared to TAV Airport’s other terminal businesses, yet its strength actually lies in its fuel, cargo and ground handling businesses, which comprise nearly 75-80% of the airport’s total annual revenues. Almaty Airport thereby generated US$119mn revenues with an EBITDA margin of c.17% in 2020 (2019: US$206mn & 33%, resp.). We see potential of improvement in passenger fees and commercial income, and expect the airport’s revenues recovering by c.37% in 2021E and by c.22% in 2022E, and exceeding 2019 levels by 2023E. We also presume the airport’s EBITDA margin recovering gradually to reach c.30% by the end of our projection span, from 16.8% in 2020 (2019: 33.5%). Almaty Airport has perpetuity with no rent payments and no concession renewal risk; hence with a terminal growth rate assumption of 1% and a WACC of 9.8%, we value the airport’s operations at US$290mn (€240mn), including debt to be incurred at the SPV, which contributes c.€204mn to our SoTP valuation for the Group.

The consortium (SPV) formed by TAV Airports and VPE Capital has financed US$200mn of the payment for the acquisition of Almaty Airport with equity, and TAV Airports provided bridge financing to the SPV for the remainder of the acquisition, which will be paid back to TAV Airports upon the closure of loan funding. The SPV has received approval from the IFC and the EBRD to finance c.50% of the acquisition with a 15-year maturity loan having a 3-year grace period; the expected closing for the loan funding is Q3 2021.

Figure 1: Earn-out schedule

2021 2022 2023 2024 2025 2026+

Traffic recovery threshold 70% 35 35 35 21 14 0 compared to the average 80% 40 40 40 24 16 0 of 2018 & 2019 90% 45 45 45 27 18 0 international & cargo ATM 100% 50 50 50 30 20 0 (28,833 flights) required 125% 50 50 50 50 50 50 to make additional earn-

out payment

Source: TAV Airports Holding

Figure 2: Almaty Airport, Summary figures

2017 2018 2019 2020 2021E 2022E

International PAX (mn) 2.7 2.8 3.0 0.8 1.8 2.8

Domestic PAX (mn) 3 2.8 3.4 2.8 3.1 3.2 Revenues (US$ mn) 171 189 206 119 163 200 EBITDA (US$ mn) 47 51 69 20 36 49 EBITDA margin 27% 27% 33% 17% 22% 24% Net income (US$ mn) 26 27 45 5 12 19 Net income margin 15% 14% 21% 4% 8% 9% Source: TAV Airports Holding; combined results, 2020 results not audited, local GAAP; Seker Invest Research estimates

Aviation Industry | TAV Airports Holding P a g e | 1 May 21, 2021

Figure 3: Valuation summary

(TRY m) Value Weight Weigted value SoTP 9,496 60% 5,698 Peer Comparison (2021E EV/Sales, EV/EBITDA & PE) 9,654 40% 3,861 Target Value 9,559 # of shares 363 Target Price (TRY/sh.) 26.30 Mcap 8,573 Upside Potential 11% Source: Seker Invest Research

Risks - TAV Airports had applied to the State Airports Authority (DHMI) of Turkey regarding the force majeure conditions created by the pandemic-related restrictions as per its operating contracts, and accordingly, in February 2021, the DHMI has extended the operating periods of Antalya, Ankara, Gazipasa-Alanya, Izmir and Milas-Bodrum for two more years, and deferred the concession rent payments for these airports, that would normally be made in 2022E, to be 2024E. Similarly, TAV Airports has submitted the necessary applications to the aviation authorities in each country in which it operates, in order to be compensated for the loss of revenues based on its contracts. Depending on the type of each contract, compensation is expected to take the form of an extension of its concession period, rent postponement, or other methods. These, when realized, may pose upside risks to our valuation. On the other hand, slower-than-expected recovery in air passenger traffic due to a setback in the rollout of COVID-19 vaccines and a greater than expected impact of variants/mutations, or the emergence of any other pandemic leading to lockdowns and flight restrictions, natural disasters, geopolitical tension, etc., leading to lower than expected growth comprise the main downside risks to our valuation.

Aviation Industry | TAV Airports Holding P a g e | 2 May 21, 2021

Figure 4: Income statement (€ mn)

YoY % YoY % Income statement (€ m) 1Q 2020 1Q 2021 2019 2020 change change

Total revenue 118.5 60.6 -48.9% 749.2 301.4 -59.8% Aviation income 22.0 8.1 -63.2% 186.7 51.6 -72.4% Ground handling income 28.5 18.0 -36.7% 188.7 92.4 -51.0% Commission from the sale of duty-free goods 4.8 1.5 -69.4% 45.3 14.9 -67.1% Catering services income 19.5 8.4 -57.0% 110.8 39.4 -64.5% Income from car parking operations 3.8 1.9 -51.1% 18.7 6.9 -63.2% Area allocation sublease and advertising 7.8 2.9 -62.7% 42.3 16.0 -62.1% Bus services income 2.5 1.2 -52.9% 12.4 5.7 -53.8% Income from lounge services and loyalty card 13.4 1.9 -85.6% 68.3 17.2 -74.8% Software sales 5.4 6.3 16.2% 30.0 21.5 -28.4% Other operating revenues 10.7 10.4 -2.9% 45.9 35.8 -22.0% Operating expenses Cost of catering inventory sold -6.2 -2.6 -57.9% -34.4 -12.1 -64.8% Cost of services rendered -15.7 -8.2 -47.5% -80.8 -37.8 -53.2% Personnel expenses -50.7 -30.7 -39.3% -227.0 -145.3 -36.0% Concession rent expenses -0.2 0.0 n.m. -3.5 0.0 n.m. Other operating expenses -30.7 -22.7 -26.2% -131.1 -95.0 -27.5% Other operating income 1.1 0.0 -104.0% 7.9 11.4 44.8% Depreciation and amortization and impairment expenses -16.3 -10.2 -37.2% -99.3 -96.2 -3.1% Equity pick-up -19.6 -19.3 -1.4% 33.4 -76.8 n.m. EBIT -19.8 -33.3 68.2% 214.5 -150.4 n.m. Net finance income/expense -20.7 110.6 n.m. -95.0 -124.3 30.8% Income tax expense -5.8 -15.0 158.9% -38.7 -3.5 -91.0% Profit from continuing activities -46.2 62.3 n.m. 80.8 -278.1 n.m. Profit from discontinued operations -8.3 -0.7 -91.5% 299.7 -6.8 n.m. Profit for the period, attributable to: Owners of the company -56.1 62.2 n.m. 373.1 -284.9 n.m. Non-controlling interest -1.5 0.6 n.m. -7.4 0.0 n.m. Source: TAV Airports Holding, Seker Invest

Aviation Industry | TAV Airports Holding P a g e | 3 May 21, 2021

Figure 5: Balance Sheet (€ m)

Balance sheet (€ m) 3M 2020 1H 2020 9M 2020 12M 2020 3M 2021 TOTAL ASSETS 3,844 3,640 3,685 3,555 3,492 Total current assets 1,322 1,148 1,225 1,085 997 Cash and cash equivalents 785 676 732 604 657 Restricted bank balances 44 24 35 25 82 Trade receivables 106 91 99 73 82 Due from related parties 27 27 28 30 29 Inventories 9 9 7 7 7 Financial assets 0 50 50 50 50 Other receivables and current assets 351 271 274 295 89 Prepaid concession expenses, current portion 0 0 0 0 0 Total noncurrent assets 2,522 2,492 2,459 2,470 2,495 Noncurrent trade receivables 45 41 36 31 26 Noncurrent due from related parties 2 2 2 2 2 Equity accounted investees 375 352 344 337 325 Goodwill 138 138 138 137 137 Property and equipment 194 192 191 182 179 Intangible assets 13 13 11 12 11 Airport operation right 1,568 1,572 1,559 1,569 1,624 Right of use assets 60 60 57 66 61 Prepaid concession expenses, noncurrent portion 0 0 0 0 0 Derivative financial instruments 0 0 0 0 0 Deferred tax asset 22 20 18 32 21 Other Non-Current Assets 104 103 102 101 109 TOTAL EQUITY AND LIABILITIES 3,844 3,640 3,685 3,555 3,492 Total liabilities 2,670 2,562 2,671 2,620 2,467 Total current liabilities 1,052 987 996 1,282 641 Bank overdraft 2 0 0 0 1 Loans and borrowings 704 730 733 712 204 Trade payables 45 46 52 46 41 Due to related parties 1 1 1 307 309 Derivative financial instruments 0 0 0 0 0 Current tax liabilities 92 7 13 3 2 Provisions 5 3 3 4 5 Other liabilities 191 188 182 199 71 Deferred income 14 12 10 10 9 Provision for employee benefit 0 0 0 0 0 Other current provisions 0 0 0 0 0 Total noncurrent liabilities 1,618 1,575 1,676 1,338 1,825 Long term borrowings 627 578 660 620 1,037 Trade payables 0 0 0 0 0 Reserve for employee severance indemnity 18 15 15 16 16 Due to related parties 308 301 304 0 0 Derivative financial instruments 39 39 39 35 32 Other Liabilities 589 604 616 639 709 Deferred tax liabilities 20 22 26 13 16 Deferred income 17 16 16 15 15 Other non-current provisions 0 0 0 0 0 EQUITY 1,173 1,078 1,014 935 1,025 Total equity attributable to equity holders 1,159 1,067 1,001 923 1,014 Share capital 162 162 162 162 162 Share premium 220 220 220 220 220 Translation reserves -47 -47 -64 -67 -69 Legal reserves 31 31 31 122 122 Other reserves -4 -4 -4 -30 -30 Treasury reserves 0 0 0 -4 -4 Cash flow hedge reserve -78 -77 -76 -61 -30 Purchase of shares of entities under common control 40 40 40 40 40 Retained earnings 890 891 891 540 602 Profit/loss for the period -56 -150 -201 Minority interest 14 11 13 12 11 Source: TAV Airports Holding, Seker Invest

Aviation Industry | TAV Airports Holding P a g e | 4 May 21, 2021

Historical Recommendations and target prices 33

28 OP OP OP OP OP MP OP 23 OP MP OP OP MP MP OP OP OP MP 18 OP OP OP MP MPMP 13 MP

8

Jul-18 Jul-19 Jul-20

Jan-19 Jan-20 Jan-21

Sep-18 Sep-19 Sep-20

Nov-18 Nov-19 Nov-20

Mar-19 Mar-20 Mar-21

May-18 May-19 May-20 May-21

Closing Price (TRY)

Source: Finnet, Seker Invest

Date Rec Target Price (TRY) 2-May-16 Market Perform (MP) 19.00 4-Jul-16 Market Perform (MP) 17.00 28-Jul-16 Outperform (OP) 15.10 7-Nov-16 Outperform (OP) 16.40 27-Jan-17 Outperform (OP) 17.90 20-Feb-17 Outperform (OP) 18.25 26-Apr-17 Outperform (OP) 18.25 23-Jun-17 Outperform (OP) 21.20 24-Jul-17 Outperform (OP) 23.10 25-Oct-17 Outperform (OP) 23.10 22-Jan-18 Outperform (OP) 25.55 22-Feb-18 Outperform (OP) 26.10 30-Apr-18 Outperform (OP) 27.10 15-May-18 Outperform (OP) 27.15 9-Jul-18 Outperform (OP) 27.00 27-Jul-18 Outperform (OP) 33.60 9-Oct-18 Outperform (OP) 35.10 30-Oct-18 Outperform (OP) 30.50 15-Jan-19 Outperform (OP) 33.30 14-Feb-19 Outperform (OP) 33.30 26-Apr-19 Outperform (OP) 30.30 7-Jun-19 Outperform (OP) 28.60 24-Jul-19 Outperform (OP) 28.60 9-Oct-19 Outperform (OP) 26.00 25-Oct-19 Outperform (OP) 31.50 14-Jan-20 Outperform (OP) 33.15 10-Feb-20 Outperform (OP) 33.15 13-Apr-20 Market Perform (MP) 21.10 24-Apr-20 Market Perform (MP) 21.10 13-Jul-20 Market Perform (MP) 21.90 27-Jul-20 Market Perform (MP) 19.60 23-Oct-20 Market Perform (MP) 16.50 18-Jan-21 Market Perform (MP) 22.50 17-Feb-21 Market Perform (MP) 25.30 1-Mar-21 Market Perform (MP) 26.90 28-Apr-21 Market Perform (MP) 23.00 21-May-21 Market Perform (MP) 26.30

Basis for 12m equity ratings

Outperform: The total return is expected to exceed the return of the BIST100 by more than 10%. Underperform: The total return is expected to fall below the return of the BIST100 by more than 10%. Market Perform: The total return is expected to be in line with the return of the BIST100.

Aviation Industry | TAV Airports Holding P a g e | 5 May 21, 2021

ŞEKER INVEST RESEARCH

Şeker Yatırım Menkul Değerler A.Ş. TEL: +90 (212) 334 33 33 Buyukdere Cad. No:171 Metrocity Fax: +90 (212) 334 33 34 A Blok Kat 4-5 34330 SİSLİ /IST E-mail: [email protected] TURKEY Web: http://www.sekeryatirim.com/english/index.aspx

For additional information, please contact:

Research

Kadir Tezeller Head +90 (212) 334 33 81 [email protected] Burak Demirbilek Utilities, Pharmaceutical, Defense Industry +90 (212) 334 33 33-128 [email protected] Sevgi Onur Banks +90 (212) 334 33 33-150 [email protected] R. Fulin Onder Aviation, Cons. Dur., Telecom, Iron & Steel, Oil&Gas +90 (212) 334 33 33-245 [email protected] Engin Degirmenci Glass, Cement +90 (212) 334 33 33-201 [email protected] A. Can Tuglu Food & Beverages, Retail, Automotive +90 (212) 334 33 33-334 [email protected] Fatih Tomakin Technical Analyst +90 (212) 334 33 33-251 [email protected]

Economy & Politics

Abdulkadir Dogan Economist +90 (212) 334 91 04 [email protected]

Institutional Sales

Batuhan Alpman Head +90 (212) 334 33 70 [email protected] Hakan Tezguler Trader +90 (212) 334 91 01 [email protected] Deniz Keskin Trader +90 (212) 334 33 36 [email protected] Feriha Sarı Trader +90 (212) 334 33 88 [email protected]

DISCLAIMER

I, Fulin Önder, hereby certify that the views expressed in this research accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

This report has been prepared by Şeker Yatırım Menkul Değerler A.Ş. (Şeker Invest, Inc.). The information and opinions contained herein have been obtained from and are based upon public sources that Şeker Invest considers to be reliable. No representation or warranty, express or implied, is made that such information is accurate or complete and should not be relied upon, as such. All estimates and opinions included in this report constitute our judgments as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors as they believe necessary. Şeker Invest may, from time to time, have a long or short position in the securities mentioned in this report and may solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) for any company referred to in this report and may, to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis upon which it is based, before its publication. This report is for the use of intended recipients and may not be reproduced in whole or in part or delivered or transmitted to any other person without the prior written consent of Şeker Invest. By accepting this document you agree to be bound by the foregoing limitations.

Copyright © 2021 Şeker Invest, Inc.

Aviation Industry | TAV Airports Holding P a g e | 6