March 30, 2021

The state of play has changed dramatically since 2016. The Turkish telco market has largely achieved mobile broadband migration in the last 4 years with 76.5% of subscribers currently using LTE (dubbed 4.5G) while total mobile penetration reached 99.6% as of the end of 2020/3Q. With one of the most advanced mobile infrastructures in the world (GSMA Mobile Connectivity Infrastructure Score=81), the sector is now pushing for growth in services beyond core which include a range of B2C and B2B services, such as pay TV, media and advertising, IoT, cloud, security, financial and lifestyle services, and solutions for vertical industries. Turkcell has been leading the way in going digital. The company’s substantial investments in network infrastructure transformation will help monetize a wide range of services prior to the expected 5G deployment in the next 3 years. Recent investments in Open RAN, private virtual networks and infrastructure (LTE- Advanced and NB-IoT) for launching enterprise verticals should also leverage the company’s existing assets in transition to 5G and support management’s efforts in revamping Turkcell’s business model towards 5G- enabled services. Wireless services have become less cyclical and more affordable. According to the International Union (ITU) figures, the Turkish telco companies offer very affordable wireless services with mobile-voice and mobile-data basket costing about 0.9% of GNI p.c. annually in 2019 (vs. developed and developing country averages of 1.2% and 9.5%, respectively). Most notably, the average monthly price of broadband mobile data usage in Turkey has plummeted to TL3.6 per GByte/user in 2020 from avg. TL6.5 in 2014-2017 on the back of a sharp rise in mobile data usage. Our analysis shows that income elasticity of mobile data spending in Turkey has declined significantly to avg. 1.2 in 2017-2020 from avg. 3.0 in 2011- 2016, hinting at higher pricing power for operators (see page 13). Strong revenue growth driven by digital services. With mobile data revenues currently accounting for 85% of total revenues (vs. 30% in 2015), pushing for higher digital business revenues has become a strategic goal for Turkcell. As a result of the strategic shift in Turkcell’s business model, digital consumer (TV+, BiP, Fizy,LifeBox), digital business and fintech (PayCell) services revenues have grown exponentially at 70% CAGR in 2017-2020, accounting for 25% of the total increase in revenues. Our forecasts suggest that Turkcell’s revenues can comfortably grow at 16% CAGR in 2020-23E (vs. consensus 12% CAGR) largely driven by 27% CAGR in digital services revenues representing 20% of revenues as of end-2025E (vs. 11.5% as of end- 2020). CAPEX will continue to remain high, but for a good reason. We expect Turkcell’s CAPEX (ex-license fees) in network infrastructure (including fiber) to hover at ~18% of revenues in the next 3-5 years (vs. avg. 25% in 2017-2020). In our view, these investments are essential for capitalizing on existing infrastructure assets and will help lock in on 5G-enabled services after 5G deployment. Despite heavy CAPEX investments, with Debt/EBITDA (ex-TFC) of 0.7x as of end-2020, Turkcell’s leverage is significantly lower than its EMEA/MENA peer median of 1.4x. We see the company’s FCF generation (including rental expenses) robust at ~15% of total revenues in 21E-23E, which should push down financial leverage (Net Debt/EBITDA) to 0.25x by end- 23E. High profitability supported by strong FCF/EBITDA. We expect EBITDA margins to stabilize at about 40-42% in medium term (17% CAGR EBITDA in 2020-23E) implying an avg. FCF/EBITDA of 40% in 21E-23E (vs. avg. 40% in 2017-20) on the back of high data usage and rapidly growing digital services revenues. On our estimates, Turkcell will continue to deliver high profitability with an avg. ROE of ~23% in 21E-23E (vs. 21.8% as of end-2020) compared to consensus EMEA/MENA peer median of 17% as of end-2020. We forecast 22% CAGR growth in net income (vs. cons. avg. 18%) in 2020-23E. In our view, consensus is underestimating the positive impact of digital services on sales and margins, and thus on net earnings growth. Turkcell is grossly undervalued after the sell-off. The stock is trading at cons. 2.6x 22E EV/EBITDA compared to 4.6x for EMEA/MENA peers with half the median leverage and 30% higher ROE. With substantially lower regulatory risks (and mostly priced in), unjustified corporate governance concerns (TWF is the majority shareholder), and an expected DPS pay-out of avg. 50% of EPS in 21E-23E, we initiate coverage on Turkcell with a target price of TL21.3 and BUY rating, offering 45% upside. March 30, 2021

◼ ◼ ◼ ◼

◼ ◼ ◼ ◼

◼ ◼

◼ ◼

2 March 30, 2021

Source: Company data, INFO RESEARCH estimates *Mobile Revenues/Total no. of mobile subs **Retail and Business Fixed Broadband Revenues/Total no. of subscribers

3 March 30, 2021

Valuation

Revenues 21,115 25,136 29,104 34,024 39,375 44,917 50,084 55,814 58,828 Growth rate 14% 19% 16% 17% 16% 14% 12% 11% EBITDA 8,750 10,406 12,248 14,386 16,785 19,494 21,367 23,960 22,355 EBITDA margin 41.4% 41.4% 42.1% 42.3% 42.6% 43.4% 42.7% 42.9% 38.0% Operational CAPEX -4,539 -4,703 -5,608 -6,746 -6,900 -7,998 -8,562 -9,172 -8,824 Capex /Revenues -21.5% -18.7% -19.3% -19.8% -17.5% -17.8% -17.1% -16.4% -15.0% Rental Payments -583 -1,232 -1,573 -2,060 -2,019 -2,047 -2,164 -2,289 -2,500 Change in WC -277 450 -39 148 -20 152 49 134 144 Tax -495 -786 -387 -1,257 -1,527 -1,915 -2,281 -2,712 -2,858 FCF 2,856 4,136 4,641 4,471 6,318 7,686 8,410 9,922 8,317 Discount factor 0.89 0.77 0.66 0.57 0.49 0.42 Discounted FCF 3,991 4,857 5,089 4,794 4,871 Risk rate 18% Equity risk premium 7% Beta (x) 0.90 Cost of equity 24% Cost of debt after tax 14% Share of Debt 60% Tax Rate 22% WACC 16% Terminal growth rate 5% PV of FCF (2021-25) 23,602 PV of Terminal value 32,785 Target EV 56,387 Net Debt 9,726 Minority Interest 170 P/E (x) 7.6 6.4 5.3 4.2 EV/EBITDA (x) 3.6 3.1 2.6 2.3 Target equity value 46,831 P/Sales (x) 1.1 1.0 0.8 0.7 EV/Sales (x) 1.5 1.3 1.1 1.0 Current Price (TRY/s) 14.70 FCF/EV (x) 10.4% 10.1% 14.2% 17.3% EV/Subscriber (USD) 124 127 123 120

Source: Company data, INFO RESEARCH estimates 4 March 30, 2021

VOD SJ Vodacom 12.8 12.1 6.9 6.5 2.8 2.7 6.3 20.1 8 4 6 0.70 15.2 MTN SJ MTN Group 11.3 9.9 3.6 3.4 1.5 1.4 4.1 15.0 10 3 3 1.31 16.8 MTSS RX Mobile TelSys 9.2 8.6 4.8 4.6 2.1 2.0 9.4 7 4 4 2.17 18.3 ZAIN KK Zain Kuwait 14.1 13.2 6.5 6.2 2.6 2.5 5.2 12.3 10 3 2 1.44 18.8 HTO GA Hellenic Telecom 13.2 12.0 5.5 5.4 2.1 2.1 4.1 24.4 11 -2 3 0.82 20.5 ORDS QD Ooredoo QPSC 14.1 11.9 3.8 3.8 1.7 1.6 3.6 6.4 1 2 3 1.88 20.2 CPS PW Cyfrowy Pol 12.2 11.8 7.0 6.9 2.5 2.4 3.5 9.2 5 2 3 2.89 9.0 RTKM RX 9.3 8.1 4.2 4.0 1.5 1.5 4.9 17.1 18 4 6 2.47 23.7 TTKOM TI TTKOM 5.1 4.3 2.6 2.4 1.2 1.1 7.6 33.6 28 10 10 1.25 23.2 TELEC CP O2 Czech 13.2 13.5 6.8 6.9 2.3 2.3 8.1 54.6 0 0 0 1.02 13.5 VEON NA VEON Ltd 5.1 4.0 3.4 3.3 1.5 1.5 0.0 17.1 20 3 4 2.53 22.3 PLY PW PLAY Comm. 10.4 10.4 6.3 6.1 2.2 2.2 4.3 65.0 3 3 3 2.61 11.0 HT CZ Hrvatski Telekom 17.2 15.8 4.0 4.2 1.7 1.7 4.2 6.5 8 0 -2 -0.94 0.0 OPL PW 27.6 18.2 5.4 5.1 1.4 1.4 0.0 2.4 86 1 0 2.51 17.0 TKG SJ Telkom SA 9.4 7.9 2.8 2.6 0.8 0.7 1.2 8.5 12 3 7 1.17 17.9 MTELEKOM HB 9.8 9.6 3.9 3.8 1.3 1.3 5.0 6.1 2 1 1 1.85 16.8 ETEL EY Telecom Egypt 3.8 3.5 3.4 3.1 1.1 1.1 2.3 12.1 16 5 10 1.65 34.6 DIGI RO Digi NV 22.9 7.1 3.8 3.6 1.4 1.3 1.9 29.6 nm 8 6 2.61 27.6 STC AB Saudi Telecom 20.0 19.2 9.7 9.4 3.7 3.5 3.5 17.1 5 4 5 -0.35 21.6 SAFCOM KN Safaricom PLC 22.4 19.8 11.9 10.6 6.1 5.5 1.2 51.3 9 5 4 0.15 0.0 ETISALAT UH Emirates Telcom 19.9 19.5 7.1 6.9 3.6 3.5 5.8 18.4 2 2 1 -0.14 13.5

TCELL TI 6.3 5.6 2.9 2.6 1.2 1.1 2.5 21.9 18 12 13 0.75 19.3

Source: Bloomberg, Factset via EquityRT

8

7

6

5

4

3

2

1

0

2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2021

Peer (median) TCELL

Source: Bloomberg consensus estimates Source: Bloomberg consensus estimates

5 March 30, 2021

VODACOM 3.3 4.1 3.6 2.8 MTN Group 38.8 18.9 37.5 41.6 MTS -8.5 -3.3 -7.9 -8.1 ZAIN KUWAIT 4.6 1.2 4.4 5.1 HELLENIC TELECOM. -2.8 3.6 -2.7 -1.1 OOREDOO -1.4 -5.3 -6.1 -3.0 SA -7.2 -2.7 -10.4 -8.9 ROSTELECOM 7.5 -4.3 8.3 7.4 TURK TELEKOM -30.9 -19.9 -27.7 -27.5 O2 C.. -0.3 -1.0 0.7 -0.5 VEON LTD 3.5 -2.1 5.0 4.5 PLAY COMM. 20.8 2.9 0.0 21.3 HT D.D. 0.4 1.8 1.7 0.0 ORANGE POLSKA SA -5.7 -1.3 -5.1 -6.3 Telkom SA SOC 28.9 -0.5 26.1 30.7 MAGYAR TELEKOM 2.0 -3.7 4.4 3.2 TELECOM EGYPT -7.2 -5.3 -3.9 -7.5

Source: Bloomberg DIGI COMMUNICATIONS .V. -8.6 -7.0 -6.9 -8.9 *Bloomberg WACC estimates SAUDI TELECOM CO. 13.2 2.2 13.2 13.2 SAFARICOM PLC 12.6 0.0 12.8 12.5 EMIRATES 25.1 4.7 23.4 26.0 2.0 -1.0 1.7 2.8 -18.7 -15.8 -16.0 -16.6

Source: EquityRT

6 March 30, 2021

TURKCELL Overview

Last year marked the end of Turkcell’s multi-year market share Turkcell’s total number of subscribers (mobile and fixed) losses since the late 1990s

Source: ICTA, INFO RESEARCH estimates Source: ICTA, ITU, INFO RESEARCH estimates 7 March 30, 2021

Source: ICTA, INFO RESEARCH estimates Source: ICTA, ITU, INFO RESEARCH estimates

Source: ICTA Source: ICTA 8 March 30, 2021

Turkcell’s market share in fixed broadband internet services doubled in 2013-2020. Turkcell offers fixed broadband services via its subsidiary Superonline, which is one of the oldest ISPs in Turkey, with 3.3 mn subscribers and 20% market share (xDSL, Fiber, IPTV, Cable) as of the end of 2020 (Exhibit 15). Fiber broadband subscribers account for half of Superonline total customer base, while the fast growing IPTV segment represents about 25% of total subscribers (vs. 5% in 2014) (Exhibit 17). Superonline offers bundled virtual pay tv services (OTT) via its TV+ brand which hosts more than 150 channels (including live national channels) and several pay TV packages. The OTT (Over-The-Top) services are an important part of Turkcell’s strategic focus areas (digital services, digital business services and fintech services). By targeting a well-defined audience with content, Turkcell aims to build more brand loyalty, reduce churn and customer acquisition costs, thereby increasing their wallet share. We expect double digit growth rates in Turkcell's fixed broadband subscriber base in 2020-2025E. Our forecast model suggests that Turkcell's total number of fixed broadband subscribers will grow at a CAGR of 12% in 2020-25E, reaching 5.8 mn by the end of 2025E (Exhibit 14).

Superonline: Market Share Evolution

Source: ICTA, INFO RESEARCH estimates Source: ICTA, ITU, INFO RESEARCH estimates *includes xDSL, Fiber, IPTV, Cable **includes xDSL, Fiber, Metro, FR, PLC, ATM connections

9 March 30, 2021

Source: ICTA, INFO RESEARCH estimates Source: ICTA, INFO RESEARCH estimates *includes xDSL, Fiber, Metro, FR, PLC, ATM connections

10 March 30, 2021

Source: ICTA Source: ICTA, ITU

Source: ICTA, ITU Source: ICTA, ITU

Source: ICTA Source: ICTA

11 March 30, 2021

Source: ICTA, ITU Source: ICTA, ITU

12 March 30, 2021

Source: ICTA, TurkStat, INFO Research estimates Source: ICTA, TurkStat, INFO Research estimates

Source: ITU Source: ITU

13 March 30, 2021

‐

Source: ITU Source: ITU

Global Broadband Affordability Indicators

Source: ITU

14 March 30, 2021

Implied Blended (mobile+fixed) ARPU

Source: ICTA, INFO RESEARCH estimates Source: ICTA, ITU, INFO RESEARCH estimates 15 March 30, 2021

12.8 8.6 9.7 9.1 5.5 3.0

2008-2015 2015-2020

Source: ICTA, INFO RESEARCH estimates Source: ICTA, INFO RESEARCH estimates

Source: Company data, INFO RESEARCH estimates Source: company data, INFO RESEARCH estimates

16 March 30, 2021

Source: ICTA Source: ICTA

Source: ICTA Source: ICTA

Source: ICTA Source: ICTA

17 March 30, 2021

Source: ICTA Source: ICTA

Source: ICTA Source: ICTA

Turkey: VOD Market Shares (2020)

1.6mn 0.5mn 16% 5%

3.5mn 36%

4.2mn 43%

Source: ICTA 18 March 30, 2021

Source: Company data, ICTA, INFO RESEARCH estimates

19 March 30, 2021

Turkcell: CAPEX by Business Segment

Source: ICTA, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates *Vodafone figures as of 3Q20 4 quarter trailing sum

Source: Company data, Bloomberg, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

20 March 30, 2021

Source: ICTA

Prices paid for spectrum in the 2100 MHz band (2010-2015) Selected

(USD/MHz/pop)

Source: Analysys Mason Source: Plum Consulting 21 March 30, 2021

22 March 30, 2021

Source: Company data, INFO RESEARCH estimates

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

23 March 30, 2021

51.5 50.4 49.4 49.0 49.0 49.0 49.0

165 210 233 262 293 308 337 15% 27% 11% 12% 12% 5% 10% 817 837 960 1,068 1,164 1,206 1,251 15% 2% 15% 11% 9% 4% 4%

Source: Company data, INFO RESEARCH estimates

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

24 March 30, 2021

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

Turkcell: Financial Leverage

Source: Company data, CBT, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

25 March 30, 2021

Turkcell; ROE Forecasts Turkcell: Net Income Forecasts

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

In our view, consensus is underestimating the positive impact of digital services on sales and margins

26 March 30, 2021

DISCLAIMER & DISCLOURES

27