Equity Markets
Sector update
Haluk Akdogan Turkey London (44 20) 7767 6650 [email protected]
Turkish financials Valuation revisited, targets raised
Banks 1 September 2006
Revisions to target prices W e revisit our valuations and revise our targets following: Old TP New TP Change (1) a modest improvement in the discount rate; and (2) the (YTL) (YTL) (%) use of lower rates, for the first time, for banks with foreign Akbank 7.10 7.78 9.6 Aksigorta 4.75 6.05 27.4 partners. No changes to forecasts and ratings. Denizbank 7.87 8.15 3.6 Finansbank 4.03 4.13 2.4 Fin Fin Kir 6.75 6.75 0.0 Garanti 6.33 6.59 4.1 Valuation model revisited. We revise our valuation model assumptions Isbank 8.99 9.82 9.2 Sabanci 7.10 7.10 1.1 and make two changes. Firstly, we have lowered the discount rate across the TEB 21.15 21.83 3.2 board to incorporate the improvement in the inflationary outlook. Secondly, TSKB 3.72 4.62 24.1 Vakifbank 6.99 7.44 6.4 for the first time we introduce lower discount rates for the banks with foreign Yapi Kredi 2.45 2.48 1.1 strategic partners. _
Target prices raised. We raise our target prices accordingly. The changes are generally modest. The important TP revisions are to Akbank ING ratings and share prices (+9.6%), Isbank (+9.2%), Vakifbank (+6.4%) and Garanti (+4.1%). The Rating Price Upside (YTL) (%) revision to Isbank’s TP is also due to an upward revision of the valuation of Akbank Hold 7.85 -0.9 equity participations. Aksigorta Buy 5.20 16.3 Denizbank Hold 14.2 -42.6 Ratings remain the same. All recommendations are unchanged. We Finansbank Hold 5.75 -28.3 Fin Fin Kir Buy 3.94 30.0 see better value with mid caps; both TEB and TSKB are trading at Garanti Buy 4.26 54.6 compelling multiples. Garanti Bank is attractively priced and its interest in Isbank Buy 8.40 16.9 Sabanci Buy 5.35 32.7 Halkbank is likely to be a near-term driver of the shares. Overall, we have TEB Buy 13.60 60.5 eight Buys (Aksigorta, Finans Finansal Kiralama, Garanti, Isbank, Sabanci, TSKB Buy 2.56 80.3 Vakifbank Buy 6.60 12.7 TEB, TSKB and Vakifbank) and four Holds (Akbank, Denizbank, Finansbank, Yapi Kredi Hold 2.86 -13.4 and Yapi Kredi Bank). Priced at close 29/08/06 All recommendations are unchanged. Important note on our ratings. Our ratings on Denizbank (Hold) and Finansbank (Hold) are temporarily aligned to their respective tender prices – YTL15.02 and YTL5.97 at the current US dollar exchange rate. The tender offers should be launched by December 2006 in both cases. The target prices we display opposite reflect our 12-month investment opinions on the shares.
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SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION Turkish financials September 2006
Contents
Share price performance 3
Valuation update 4
Valuation table 5
Akbank – Hold 6
Aksigorta – Buy 7
Denizbank – Hold 9
Finansbank – Hold 10
Finans Finansal Kiralama – Buy 12
Garanti Bank – Buy 13
Isbank – Buy 14
Sabanci Holding – Buy 16
TEB – Buy 18
TSKB – Buy 19
Vakifbank – Buy 20
Yapi Kredi Bank – Hold 21
Disclosures Appendix 22
2 Turkish financials September 2006
Share price performance
Fig 1 One-month share price performance
20 10 0 -10 -20 -30 -40 -50
k k n nk n nk B a Ba ba b TEB ti Is TSK Akba 00 index Denizbank 1 Vakif Finansbank i Kredi Bank ISE Garan Yap
Source: Bloomberg
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Fig 2 Three-month share price performance
0 -10 -20 -30 -40 -50 -60
k nk n nk nk B a a Ba ba b b TEB Is TSK 00 index Ak 1 Vakif Denizbank Finansbank ISE Garanti Yapi Kredi Bank
Source: Bloomberg
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Fig 3 Twelve-month share price performance
120 100 80 60 40 20 0 -20 -40
k k B nk nk EB a a T SK b ndex Ban b Ban T i ti Is Ak 00 di Denizbank 1 ran Finansbank a i Kre ISE G p Ya
Source: Bloomberg
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3 Turkish financials September 2006
Valuation update
There is good value in Fig 4 Turkish banks PER 2007F (x) mid caps; Garanti is our
top pick among the 15 large caps; the 12.4 12 10.5 acquisition stocks are 9.8 trading at rich multiples 9 7.9 7.9 7.3 7.0 6.2 6 4.8 4.7
3
0
k n ranti TEB Isba TSKB Industry Akbank Ga Yapi Kredi Vakifbank Denizbank Finansbank
Source: Company data, ING estimates
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The industry average Fig 5 Turkish banks P/BV 2007F (x) P/BV is distorted by
Finansbank and 4 Denizbank; Akbank 3.1 3.0 appears reasonably 3 2.5 valued 1.9 1.9 2 1.5 1.5 1.4 1.3 1.0 1
0
bank TEB iz Isbank TSKB Industry Akbank Garanti Yapi Kredi Vakifbank Den Finansbank
Source: Company data, ING estimates
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Denizbank looks pricey Fig 6 Turkish banks P/BV in context, 2006F (x) but the tender call
should drive the share 5.0 price; Finansbank also Denizbank appears rich but not as 4.0 Finansbank expensive; TEB comes Yapi Kredi out as the winner 3.0 Akbank Garanti 2.0 Vakifbank TEB Fortis Isbank Isbank the bank 1.0 TSKB
0.0 0 5 10 15 20 25 30
Source: Company data, ING estimates
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4 Turkish financials September 2006
Valuation table
Fig 7 Turkish banks valuation update
Akbank Denizbank Garanti Finansbank Isbank TEB TSKB Vakifbank Yapi Kredi
Recommendation HOLD HOLD BUY HOLD BUY BUY BUY BUY HOLD
EPS (YTL) 2004 0.46 0.39 0.21 0.15 0.32 0.44 0.16 0.49 -0.03 2005 0.65 0.63 0.34 0.28 0.49 1.03 0.33 0.42 -1.58 2006F 0.68 0.37 0.40 0.35 0.63 1.75 0.31 0.62 0.11 2007F 1.08 1.14 0.69 0.60 1.05 2.89 0.54 0.92 0.27
DPS (YTL) 2004 0.12 0.00 0.00 0.00 0.06 0.16 0.00 0.00 0.00 2005 0.15 0.00 0.00 0.00 0.10 0.11 0.00 0.00 0.00 2006F 0.20 0.06 0.02 0.03 0.17 0.26 0.00 0.08 0.00 2007F 0.20 0.04 0.02 0.04 0.16 0.44 0.00 0.12 0.00
BVPS (YTL) 2004 2.83 2.70 1.50 0.84 3.88 5.15 1.27 1.57 2.45 2005 2.89 3.31 1.86 1.12 4.91 6.13 1.85 3.33 0.88 2006F 3.40 3.61 2.20 1.42 5.42 7.53 2.10 3.74 0.96 2007F 4.21 4.52 2.78 1.92 6.26 9.84 2.53 4.33 1.13
PER (x) 2004 16.9 36.6 19.9 37.5 26.0 30.8 16.3 13.5 -92.1 2005 12.0 22.4 12.6 20.5 17.3 13.2 7.7 15.8 -1.8 2006F 11.5 38.2 10.6 16.2 13.3 7.8 8.1 10.6 25.6 2007F 7.3 12.4 6.2 9.7 8.0 4.7 4.8 7.2 10.5
P/BV (x) 2004 2.8 5.3 2.8 6.9 2.2 2.6 2.0 4.2 1.2 2005 2.7 4.3 2.3 5.1 1.7 2.2 1.4 2.0 3.2 2006F 2.3 3.9 1.9 4.1 1.5 1.8 1.2 1.8 3.0 2007F 1.9 3.1 1.5 3.0 1.3 1.4 1.0 1.5 2.5
Div yield (%) 2004 1.6 0.0 0.0 0.0 0.8 1.2 0.0 0.0 0.0 2005 2.0 0.0 0.0 0.0 1.1 0.8 0.0 0.0 0.0 2006F 2.5 0.4 0.4 0.5 2.0 1.9 0.0 1.3 0.0 2007F 2.6 0.3 0.5 0.6 1.9 3.2 0.0 1.9 0.0
NIM (%) 2004 8.0 5.8 5.1 7.1 5.9 4.9 6.1 6.0 3.1 2005 5.6 5.7 5.4 7.7 5.0 4.9 4.7 4.7 4.4 2006F 5.2 4.9 5.0 8.4 5.1 4.9 4.6 5.1 4.9 2007F 5.5 5.9 5.8 8.4 5.0 5.6 4.5 5.5 5.5
RoE (%) 2004 18.1 17.3 15.7 20.8 9.3 9.3 13.9 40.1 -1.4 2005 23.9 20.8 19.9 28.0 11.2 18.0 21.2 19.0 -92.1 2006F 21.7 10.7 19.8 27.9 12.2 25.6 15.9 17.6 12.1 2007F 28.3 28.1 27.6 35.6 18.0 33.3 23.2 22.9 26.0
ROA (%) 2004 3.2 2.1 1.8 2.6 1.8 1.0 2.4 3.1 -0.3 2005 3.1 2.5 2.3 3.2 1.8 1.8 3.5 1.9 -12.4 2006F 3.0 2.0 2.3 4.3 2.2 2.4 3.7 2.4 0.7 2007F 3.3 2.6 2.9 4.2 2.4 3.0 3.5 2.7 1.6
Pricing date 29/08/06 Source: Company data, ING estimates
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5 Turkish financials September 2006
Akbank – Hold
Akbank – a shortlist of names interested in buying a minority stake A minority stake of up to Sabanci Holding is looking for a partner for Akbank. Mrs Güler Sabanci, the 20% is for sale; hence chairwoman of the holding, is quoted as saying it has put together a shortlist of names. no control premium; a She expects to complete the sale of the stake within months. We are not prepared to tender call is unlikely second-guess whether and when Sabanci will finally sell a portion of Akbank. We would highlight two points:
• The sale would not trigger a tender offer to Akbank minorities if the stake being sold is more than 25%.
• If Sabanci is preparing to sell a minority stake, then the acquisition price should exclude a control premium. Thus, the valuation of a minority stake should not be as rich as the acquisition values of Finansbank or Denizbank.
Operational update The balance sheet is As for its operations, Akbank has cut its exposure in loans. The securities portfolio now turning defensive; but is comprises 36% of assets versus 34% at end 1Q06 as Akbank tailors its asset mix to the timing right? take advantage of higher yields on bonds. The growth in the securities portfolio comes at the expense of market share losses in loans. It appears that the bank has lost market share in both local and foreign currency loans during 2Q06 as the balance sheet has become more defensive. Having grown in exposure in the past three years, particularly to consumers, this sudden change in portfolio is somewhat surprising even though we understand the merits of increasing liquidity.
If cutting the rates down to as low as 13% in home loans was wrong in 2005, so is raising them to 27% now.
Valuation update Our new target price is YTL7.78 versus YTL7.10 previously. Figure 5 outlines the valuation and target price methodology.
Fig 8 Akbank – valuation and target price
Valuation input Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 46.2 46.2 42.0 38.2 34.7 31.6 Foreign partner dummy (0 or 1) 0.0 0.0 0.0 0.0 0.0 0.0 Rf (%) 14.7 13.4 9.8 8.6 7.6 7.1
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 13.4 9.8 8.6 7.6 7.1 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.2 1.2 1.2 1.2 1.2 1.2 Cost of Equity (%) 14.0 16.5 12.8 11.4 10.3 9.7 Return on Equity (%) 22.9 21.7 28.9 26.3 23.5 20.4 Q (x) 2.21 2.29 2.65 2.66 2.61 2.50 BVPS (YTL) 2.89 3.40 4.21 5.11 6.08 7.07 Target price (YTL) 7.78
Source: Company data, ING estimates
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6 Turkish financials September 2006
Aksigorta – Buy
We raise our target price, now aligned to NAV We are raising our target price to YTL6.05 versus YTL4.75 previously. The shares are likely to track Akbank closely as Aksigorta carries 6.2% of Akbank in its books. This stake makes up nearly two-thirds of Aksigorta’s NAV; indeed, a 10% rise in Akbank’s share price raises Aksigorta’s NAV by 6.3%, on our assumptions. We reiterate our BUY rating.
Share price: YTL5.20 Fig 9 Aksigorta – NAV breakdown NAV: YTL6.06 TP: YTL6.05 Other 5% Rating: Buy
Insurance business 26%
Akbank 62% Akcansa + Cimsa 7%
Source: Company data, ING estimates
_ Fig 10 Aksigorta NAV
Valuation Price Shares Value of Stock Ticker Reference 29/8/06 outstanding Market cap Stake held stake held Per share As % of NAV (YTL)(m) (US$m) (%) (US$m) (YTL)
Akbank AKBNK MV 7.85 2,200,000 11,673 6.62 772.7 3.74 61.7 Akçansa AKCNS MV 7.80 191,447 1,009 7.47 75.4 0.36 6.0 Cimsa CIMSA MV 8.65 121,306 709 2.57 18.2 0.09 1.5 Yunsa YUNSA MV 1.54 29,160 30 1.49 0.5 0.00 0.0 Listed total 866.8 4.19 69.2 Ak Emeklilik 3x share capital 60 99.41 59.6 0.294.8 Temsa Dogus Oto 216 2.75 5.9 0.03 0.5 Insurance business 5x 2006 EPS 320 100.00 320.0 1.55 25.6 NAV 1,252.4 6.06 100.0 Aksigorta AKGRT 5.20 306,000 1,075 5.20 85.9
Source: Company data, ING estimates
_ A recap of June 2006 financials Dividends and capital There were no major surprises in the 1H06 operating performance. The non-life gains drive earnings division generated YTL16m in technical income, up 22% over 1H05. The life business remains insignificant. The 1H06 income statement is boosted by dividends from participations (+23% YoY) and capital gains. The net income at YTL44m more than doubled.
The balance sheet is hit by marked-to-market losses in equity participations. The book value is down 12% YoY.
7 Turkish financials September 2006
Non-life technical Fig 11 Aksigorta financials summary as at June 2006 (YTLm) income is better but 1H06 1H05 Change (%) Aksigorta would have reported only a marginal Balance sheet summary Financial assets 1,386 1,449 -4.3 profit without capital Other assets 536 585 -8.5 gains and dividends Assets total 1,922 2,034 -5.5 ST technical provisions 176 129 36.3 Other current liabilities 128 78 65.1 Current liabilities total 305 207 47.1 LT technical provisions 57 57 -0.8 Other LT liabilities 5 5 5.0 LT liabilities total 62 62 -0.3 Total liabilities 367 269 36.2 Equity 1,555 1,765 -11.9
Income statement summary Non life technical income 16 13 21.6 Life technical income (0) (0) -49.9 Technical income total 16 13 23.3 Capital gains 12 11 11.3 Dividends 30 24 22.8 Other (13) (29) -55.1 Net income 44 18 141.0
Source: Company data, ING estimates
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8 Turkish financials September 2006
Denizbank – Hold
Denizbank – awaiting Dexia rights issue Majority share transfer Dexia filed applications on 3 July 2006 to obtain regulatory approvals in Turkey. The could take place late application filed with the BRSA (Banking Regulation and Supervision Agency) seeks October followed by a approval for the direct transfer of management control of Denizbank A.Ş. and tender offer in subsidiaries. If the BRSA approves the application, the majority share transfer will November or December follow and a tender call timetable will be announced. Dexia is expected to make a rights issue by October to finance the purchase. The tender call could be launched in November or December.
Unaware of any MAC clause We are unaware of any MAC clauses in Dexia-Zorlu Holding’s share transfer agreement. If there is one, this may relate to changes in book value in that any decline in shareholders’ equity, possibly after March 2006 (the deal is priced on end-of-March book value), exceeding a certain percentage could trigger a Dexia walk-away. Again, there is no public information as such.
June financials in line The 1H06 accounts came in as expected. The book value erosion in US dollar terms is with guidance 13.5% between 1Q06 and 2Q06 and, as such, in line with management guidance.
Valuation update Trading 6% below the Following the changes to our model, we raise our target price to YTL8.15 versus tender price, we see YTL7.87 previously. Figure 9 outlines the valuation and target price methodology. The trading upside but our shares are currently trading 6% below the tender price. The spread is likely to narrow rating remains a HOLD in the run-up to the Dexia rights offer.
We continue rating Denizbank a HOLD even though our 12-month forward target price suggests significant downside; this is because we have temporarily aligned our rating to the tender price.
Fig 12 Denizbank – valuation and target price
Valuation input Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 47.7 47.7 43.4 39.4 35.8 32.6 Foreign partner dummy (0 or 1) 1.0 1.0 1.0 1.0 1.0 1.0 Rf (%) 13.9 12.6 9.3 8.1 7.2 6.8
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 12.6 9.3 8.1 7.2 6.8 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.1 1.1 1.1 1.1 1.1 1.1 Cost of Equity (%) 13.9 15.7 12.2 10.9 9.9 9.3 Return on Equity (%) 21.3 10.8 28.7 23.7 25.9 24.2 Q (x) 2.15 2.26 2.91 2.97 3.20 3.19 BVPS (YTL) 3.31 3.61 4.52 5.45 6.68 8.08 Target price (YTL) 8.15
Source: Company data, ING estimates
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9 Turkish financials September 2006
Finansbank – Hold
Finansbank – majority share sale is complete and minorities almost there Majority share transfer National Bank of Greece (NBG) has confirmed the completion of the majority share is complete transfer. Fiba Holding has delivered to NBG the shares corresponding to a 46% stake. NBG’s statement has also confirmed that two separate tender calls will be launched, one for Finansbank minorities (44.3% excluding Fiba Holding’s 9.68%) and a second one for Finans Leasing (Finans Finansal Kiralama) minorities (approximately 20%). NBG should now file tender call applications with the Capital Market Board (CMB) in Turkey.
Potential adjustment to tender price if 18 August BV falls short If 18 August BV is below In a second statement, NBG has warned that there may be an adjustment to the 31 December BV minus tender price if Finansbank’s IFRS consolidated book value as at 18 August (the day US$100m, tender price majority share transfer took place) comes in below the December 2005 equity minus will be adjusted US$100m. We estimate flat to a slight improvement in equity between December and downwards August and hence no adjustment to tender price.
Fig 13 Finansbank book value arithmetics
Dec-05 Mar-06 Jun-06 18 Aug-06
(YTLm) BRSA 1,397 1,469 1,506 1,545 IFRS Consolidated 1,708 1,796 1,841 1,889
(US$m) BRSA 1,035 1,094 949 1,062 IFRS Consolidated 1,265 1,337 1,160 1,298 YTL/US$ used in translation 1.3497 1.3430 1.5870 1.4552
Assumptions: All assets (Turkish and foreign alike) are equally profitable. The BRSA and IFRS ROEs are the same. Finansbank earned a uniform 20% ROE between 30 June and 18 August 2006. The figures highlighted are estimates. Source: Company data, ING estimates
_ Fig 14 Finansbank potential BV adjustments and tender price
10% 15% 20% 25% 29%
No of shares (m) 1,250 1,250 1,250 1,250 1,250 IFRS BV 2005 (US$m) 1,265 1,265 1,265 1,265 1,265 18 August 2006F BV + US$100m 1,250 1,200 1,154 1,112 1,081 Change in tender value (US$m) (15) (65) (111) (153) (184) Change in tender price (US$) (0.012) (0.052) (0.089) (0.122) (0.148) Adjusted tender price (US$) 4.028 3.988 3.951 3.918 3.892
We report BV estimates as at 18 August 2006 under five scenarios (10-29% decline in BV between 31 December 2005 and 18 August 2006). The last line displays tender price after adjustment. Source: Company data, ING estimates
_ Valuation and revision to target price Trading in a tight range Following the revisions to our Turkish banks valuation model, we raise our target price to tender price, to YTL4.13, up from YTL4.03 previously. The implied tender price is YTL5.97 (the Finansbank does not equivalent of US$4.04 at the current exchange rate). Following the majority share offer value to longer- transfer between Fiba Holding and NBG, the shares are trading in a tighter range to term investors tender price. We believe the valuation is rich for a long-term equity investor. Figure 12 outlines the valuation and target price methodology.
10 Turkish financials September 2006
Fig 15 Finansbank - valuation and target price
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 44.6 44.6 40.5 36.8 33.5 30.4 Foreign partner dummy (0 or 1) 1.0 1.0 1.0 1.0 1.0 1.0 Rf (%) 14.2 12.9 9.4 8.2 7.3 6.8
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 12.9 9.4 8.2 7.3 6.8 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.0 1.0 1.0 1.0 1.0 1.0 Cost of Equity (%) 13.5 15.6 12.0 10.6 9.6 9.0 Return on Equity (%) 29.4 28.3 36.3 29.6 25.6 22.1 Q (x) 2.83 2.91 3.28 3.15 3.06 2.91 BVPS (YTL) 1.12 1.42 1.92 2.47 3.06 3.68 Target price (YTL) 4.13
Source: Company data, ING estimates
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11 Turkish financials September 2006
Finans Finansal Kiralama – Buy
The spread has narrowed following NBG’s tender call confirmation NBG has confirmed the The NBG announcement has removed uncertainty concerning the tender offer to tender offer Finans Finansal Kiralama minority shareholders. We now know NBG will launch a tender offer to Finans Finansal Kiralama (FFKRL) shareholders as we expected. The shares should trade close to the 90-day trade average, the CMB floor in tender offers.
The 90-day trade average The minority offer is likely to drive the stock and the share price should be aligned to the tender price. No tender price has been announced yet but we do know that it should be at least the 90-day trade average on the day before the tender. The 90-day average as of 29 August is YTL3.98 versus the current share price of YTL3.94.
Valuation and rating We maintain our BUY rating with an unchanged 12-month target price of YTL6.75, consistent with a 2007F P/BV of 2.0x. However, we expect the shares to trade close to the 90-day average until the details of the tender offer are announced.
12 Turkish financials September 2006
Garanti Bank – Buy
Halkbank prospects We welcome the interest Garanti has stated it is interested in acquiring Halkbank, which has been recently put in Halkbank, which up for sale by the privatisation administration. Among the top five banks in Turkey by would bring Garanti capacity, Halkbank would bring different markets and products to Garanti’s existing both new regions and business. Halkbank is a major player in the low-end SME market, its historical products business. In addition, Halkbank has presence where Garanti is either weak or not present at all. The privatisation administration expects to conclude the sale within months and Garanti appears to be seriously interested. The activity and newsflow related to a Halkbank sale are likely to intensify from September onwards.
Operations Market share gains in The erosion in book value as reported in 1H06 results relates to losses on marketable corporate loans, losses securities. Part of these losses should be reversed in 3Q06. Loan growth is looking in consumer loans good. The bank continues to gain market in foreign currency (mostly corporate) loans: 21.0% in June versus 20.5% in March. On the other hand, there is a marked slowdown in Garanti’s consumer loans. During 2Q06, the bank’s market share fell 40bp to 11.8% in consumer loans and 50bp to 21.9% in credit cards. Corporate loan growth overall offset market share losses in consumer. NPLs were down to 2.6% from 3.7% in 1Q. Growth in foreign currency loans has reduced the open position.
The loans to deposits ratio jumped to 93% in June from 83% in March as Garanti had lagged the sector on deposit growth but outperformed on loans. With increasing leverage, Garanti could benefit from potential rate cuts from 4Q06 on. We expect an improvement in NIM during 3Q06.
Valuation and target price adjustment Following the revisions to our valuation methodology, we raise our target price to YTL6.59 from YTL6.33 previously. Our rating remains a BUY. On our assumptions, the shares are trading at 1.5x P/BV and 6.2x PER 2007F.
Fig 16 Garanti Bank – valuation and target price
Valuation input Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 48.6 48.6 44.2 40.2 36.5 33.2 Foreign partner dummy (0 or 1) 1.0 1.0 1.0 1.0 1.0 1.0 Rf (%) 13.8 12.5 9.3 8.1 7.2 6.8
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 12.5 9.3 8.1 7.2 6.8 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.1 1.1 1.1 1.1 1.1 1.1 Cost of Equity (%) 13.8 15.5 12.1 10.8 9.8 9.3 Return on Equity (%) 31.3 25.1 34.5 30.2 28.8 26.6 Q (x) 2.93 3.00 3.49 3.52 3.60 3.56 BVPS (YTL) 1.86 2.20 2.78 3.44 4.22 5.13 Target price (YTL) 6.59
Source: Company data, ING estimates
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13 Turkish financials September 2006
Isbank – Buy
Sisecam may be sold but nothing imminent We would welcome any Maintaining the non-core assets in the portfolio could prove increasingly more difficult. stake sale in Sisecam We could envisage the bank divesting some of these businesses over the next three but would not get too years but do not expect miracles. We do not see Isbank selling control in Sisecam. exited about it; selling Indeed, there is nothing new in the CEO’s recent comment concerning a potential sale Sisecam is not easy in Sisecam. If an SPO to sell 15% is on the agenda, timing remains uncertain; we would be surprised if an equity offering took place before 2H07.
Recap of 1H06 and operations update The balance sheet is in The book value erosion is largely due to marked-to-market losses in bond (c.YTL1bn) a better shape with and equity portfolios (c.YTL1.2bn). We would not read too much into Isbank's June recovery in both bond equity as the book has gained back approximately YTL1bn in July with a recovery in and equity portfolios the market values of its equity participations and a drop in bond yields. The P&L impact of 2Q rate hikes has been modest because the losses on marketable (available for sale) securities are booked in the balance sheet. Provisions have jumped 28%. Net interest margin excluding the currency loss is unchanged. Following the aggressive rate hikes, Isbank has lost market share in home and car loans. In corporate and other consumer categories, including credit cards, there are market share gains. Overall, the bank has increased its market share in Turkish lira loans. Management is now guiding up its full-year NIM while others (notably Akbank) expect their margins to decline in 2H06.
Valuation and target price revisions Our new TP is YTL9.82 Following the changes to our model, we raise our target price to YTL9.82 versus versus YTL8.99 YTL8.99 previously. We value Isbank’s banking business at YTL8.23 and other assets previously at YTL1.59 per share. Figure 14 outlines the valuation and target price methodology for the bank. The valuation of non-core assets is displayed in Figure 15. We reiterate our BUY rating.
Fig 17 Isbank – valuation and target price
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 39.3 39.3 35.7 32.5 29.5 26.8 Foreign partner dummy (0 or 1) 0.0 0.0 0.0 0.0 0.0 0.0 Rf (%) 15.5 14.0 10.1 8.7 7.7 7.3
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 14.0 10.1 8.7 7.7 7.3 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.2 1.2 1.2 1.2 1.2 1.2 Cost of equity (%) 14.0 17.2 13.1 11.6 10.5 9.9 Adj bank only return on equity (%) 17.1 16.8 24.2 24.3 23.9 23.9 Q (x) 1.92 2.06 2.51 2.69 2.83 2.93 BVPS (YTL) 4.91 5.42 6.26 7.25 8.40 9.76 Of which bank-only (YTL) 3.52 3.99 4.69 5.52 6.50 7.66 Target value for the bank (YTL) 8.23 Target value for equity stakes (YTL) 1.59 Target price (YTL) 9.82
Source: Company data, ING estimates
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14 Turkish financials September 2006
Fig 18 Isbank Group NAV
Price 29/8/06 Shares Book value Market value Stake Stake Per share Target (YTL) (m)(YTLm) (YTLm) (%) (YTLm) (YTL)(YTL)
Is Genel Finansal Kiralama 2.37 50,000 119 27.8 33 0.02 0.02 Is Yatririm Menkul Degerler 95.18 95 92.0 88 0.04 0.05 Is GYMO 2.60 329,966 858 42.2 362 0.18 0.22
Is Portfoy Yonetimi AS 4.98 10 50.0 5 0.00 0.00 Is Dublin Financial Services 0.20 0 100.0 0 0.00 0.00 Arap-Turk Bank 48.90 98 20.0 20 0.01 0.01 Is GMBH 82.83 166 100.0 166 0.08 0.09 TSKB 2.56 200,000 512 40.5 207 0.11 0.12 Takasbank 9.47 19 4.9 1 0.00 0.00 Anadolu Sigorta 2.44 150,000 366 35.5 130 0.07 0.08 Milli Reasurans 240.79 482 76.6 369 0.19 0.21 Anadolu Hayat 4.18 150,000 627 62.0 389 0.20 0.22 Financials total 882 0.45 0.51
Celikord As 33.63 50 48.0 24 0.01 0.01 Turk Pirelli Lastikleri 83.91 126 25.8 32 0.02 0.02 Cayirova Cam 40.39 61 31.6 19 0.01 0.01 Sisecam 4.42 423,500 1,872 66.1 1,237 0.63 0.69 Asmas Agir Sanayi 20.43 20 97.5 20 0.01 0.01 Etitas Elektrik AS - 29.3 - - - Camis Madencilik AS 66.45 100 78 - - Mipas Mumessillik AS 36.91 55 99.98 55.36 0.03 0.03 Antgida Gida Tarim 92.15 92 99.89 92.05 0.05 0.05 Bayek Tedavi ve Saglik Hiz 116.05 116 68.13 79.06 0.04 0.04 Is Net Elektronik 30.68 31 95.00 29.14 0.01 0.02 Avea Iletisim Hiz. AS 654.95 655 14.03 91.89 0.05 0.05 Camis Yatirim Holding AS 56.54 57 99.97 56.52 0.03 0.03 Trakya Yatirim Holding AS 99.74 100 65.34 65.17 0.03 0.04 Anadolu Turizm Ins. AS 12.23 12 99.96 12.22 0.01 0.01 Balikesir Pamuklu Dokuma AS - - 0.22 - - - Bankalararası Kart Merkezi AS 1.13 2 9.98 0.23 0.00 0.00 Bati Karadeniz Elektr. Dag. AS 2.24 3 65.00 2.19 0.00 0.00 Bergama Pamuk Ipligi San. AS 0.24 0 0.00 0.00 0.00 0.00 Cam Pazarlama AS 6.05 6 0.34 0.02 0.00 0.00 Ege Elektrik AS - - 2.22 - - - Istanbul Altin Rafinerisi AS 0.00 0 0.00 0.00 0.00 0.00 Is Koray Tur. Ins. AS 4.51 5 1.80 0.08 0.00 0.00 Is Merkezleri Yon. AS 1.53 2 86.33 1.32 0.00 0.00 Kredi Kayit Burosu AS 1.69 2 9.09 0.15 0.00 0.00 Kultur Yayinlari Ltd. AS 3.17 3 99.17 3.14 0.00 0.00 Nemtas Nemrut Lim. Isl. AS 106.96 107 99.81 106.76 0.05 0.06 CBT of Turkey 1.15 1 2.33 0.03 0.00 0.00 Halk Bank - - 0.00 - - - Turkiye Petrolleri AO - - 0.00 - - - Vadeli Islemler Egt. Dan. AS - - 8.70 - - - Zepa Tarim Hayv. Uret. Paz. 0.09 0 5.53 0.00 0.00 0.00 Non financials total 1,929 0.98 1.08
Grand total 2,810 1.43 1.59
Isbank 8.40 1,969 8.40 9.82
Source: Company data, ING estimates
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15 Turkish financials September 2006
Sabanci Holding – Buy
Carrefoursa listing is now history but… …with 1.5% float, the Carrefoursa is now a public company as the shares have started trading on the market value is Istanbul stock exchange. The good news is that we will see the company’s financials unreliable with Gima consolidated for the first time: the 9M06 financial statements are due on 14 November 2006. The bad news is that the company is listed in two classes, namely A and B, and each has about 1.5% float. On this liquidity, the share price hardly represents the market value. The valuation gap with Migros remains unjustifiably wide. The stock has already come off the expensive listing highs but there may be further downside.
A minority stake in Akbank is up for sale A 100bp rise in Akbank Akbank remains the single most important asset Sabanci owns, hence changes in share price raises Akbank’s ownership structure will have important implications for the holding company Sabanci’s NAV by shareholders. Sabanci directly owns 34.3% of Akbank. Our calculation shows that a approximately 50bp 100bp rise in Akbank’s share price raises Sabanci’s NAV by approximately 50bp, all else remaining constant. With this, Sabanci Holding share price is likely to be closely aligned to that of Akbank until we know whether a minority stake has been sold. Sabanci Holding shares have lagged Akbank shares in August. The upside to our target price is now 32%. We reiterate our BUY rating with an unchanged 12-month target price of YTL7.10.
NAV update We use the market value of Carrefoursa in our net asset value estimate for Sabanci Holding. Figure 16 displays the contribution of each division to the holding company NAV and Figure 17 reports an up-to-date table.
Share price: YTL5.35 Fig 19 Sabanci Holding NAV mix, as at 29 August 2006 NAV: YTL6.63 Cash Others TP: YTL7.10 Autos/tires 4% 3% Rating: Buy 9%
Cement 8%
Finance Retail, food, 59% tobacco 17%
Source: Company data, ING estimates
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16 Turkish financials September 2006
Fig 20 Sabanci Holding NAV
Valuation Reference Price 29/8/06 Shares Market cap Stake Stake Per share % of NAV (YTL) (m) (US$m) (%) (US$m) (YTL)
Akbank MV 7.85 2,200,000 11,669 34.3 3,999 3.29 49.6 Aksigorta MV 5.20 306,000 1,075 62.0 666 0.55 8.3 Sabank 1.8x 2005F BV 414 35.0 145 0.12 1.8 Finance 4,810 3.96 59.6 Beksa 66 50.0 33 0.03 0.4 Brisa MV 70.50 7,442 354 50.1 178 0.15 2.2 Kordsa International Kordsa Turkey 258 100.0 258 0.21 3.2 Temsa Dogus Oto 216 46.0 99 0.08 1.2 Toyota Dogus Oto 184 65.0 120 0.10 1.5 Automotives/tires 688 0.57 8.5 Çimsa MV 8.65 121,306 709 44.5 316 0.26 3.9 Akçansa MV 7.80 191,447 1,009 32.2 325 0.27 4.0 Cement 641 0.53 7.9 Carrefoursa MV 23.40 113,422 1,793 38.8 695 0.57 8.6 Diasa 1.0x 2006 EV/Sales 173 40.0 69 0.06 0.9 Teknosa 0.7x 2006F EV/Sales 288 51.2 148 0.12 1.8 Gidasa 7x 2005F EPS 49 100.0 49 0.04 0.6 PMTR 25% PER discount to PMCR 1,791 25.0 448 0.37 5.6 Retail, tobacco. food 1,409 1.16 17.5 Olmuksa MV 3.36 32,603 74 43.7 32 0.03 0.4 Enerjisa 0.4x 2005F Sales 90 64.6 58 0.05 0.7 Bossa MV 1.25 108,000 91 50.1 46 0.04 0.6 Yünsa MV 1.54 29,160 30 48.3 15 0.01 0.2 Advansa 60% of SASA 77 92.8 72 0.06 0.9 Other major 223 0.18 2.8 Total before others 7,771 6.39 96.3 Others 10 0.01 0.1 Cash 285 0.23 3.5 NAV 8,066 6.63 100.0 Sabanci Holding 5.35 1,800,000 6,507 5.35 Target price 7.10
Source: Company data, ING estimates
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17 Turkish financials September 2006
TEB – Buy
Significant market share gains On both sides of TEB continues to gain market share on both sides of the balance sheet. The lending balance sheet business is growing and expanding into the consumer segment. The loan book has grown in both Turkish lira and foreign currency loans.
Strong gains in deposits The performance on the funding side is no less impressive. Both lira and non-lira deposits have posted strong growth. The Turkish lira deposits have grown 19% QoQ in 2Q06 versus +7% in the sector. The foreign currency deposits have increased 16% in 2Q06 versus the sector average of -1%. Deposit growth coupled with the recent equity- like funding (BNP subordinated loans) should facilitate further lending. The market share gains are likely to hurt margins in the near term but we see recovery in 2007.
Valuation and target price revision Our new target price is YTL21.83 versus YTL21.15 previously. Figure 18 outlines our target price methodology. We reiterate our BUY rating.
Fig 21 TEB – valuation and target price
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 49.5 49.5 45.0 40.9 37.2 33.8 Foreign partner dummy (0 or 1) 1.0 1.0 1.0 1.0 1.0 1.0 Rf (%) 13.7 12.4 9.2 8.1 7.2 6.8
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 12.4 9.2 8.1 7.2 6.8 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.2 1.2 1.2 1.2 1.2 1.2 Cost of Equity (%) 14.2 15.8 12.4 11.1 10.1 9.5 Return on Equity (%) 17.7 25.3 34.1 29.8 28.2 24.5 Q (x) 2.60 2.90 3.35 3.35 3.38 3.22 BVPS (YTL) 6.13 7.53 9.84 12.44 15.54 18.85 Target price (YTL) 21.83
Source: Company data, ING estimates
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18 Turkish financials September 2006
TSKB – Buy
The worst is over; trading at compelling multiples Leveraged to currency The erosion in book value reported in 1H06 statements is largely due to the marked-to- recovery; expect better market losses on ‘available for sale’ securities and the decline in the market value of quarter in September; equity participations (notably Is Finans). The loan book has registered 18.5% QoQ valuation is the most growth while assets have grown 2% (US dollar based). Currency loss is the single attractive; reiterate BUY most important reason for the sharp QoQ decline in earnings. The income statement is otherwise looking good, as is the balance sheet. The capital ratios are strong. More importantly, TSKB is the best beneficiary of stronger Turkish lira. We believe the worst is over and remain positive on the stock. We reiterate our BUY rating.
Is TSKB a takeover target? Its business mix (investment banking and project loans) makes TSKB an attractive target for strategic investors, in our view. The bank has a strong reputation in the market especially on the investment banking side. Having seen the continued strategic interest in other Turkish banks, we would indeed be surprised if TSKB were left out. We think the bank is an obvious target for international investment banks trying to build business in Turkey.
Valuation and target price adjustments Our new target price is YTL4.62 versus YTL3.72 previously. Figure 19 outlines the valuation and target price methodology.
Fig 22 TSKB – valuation and target price
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 74.1 74.1 67.4 61.2 55.7 50.6 Foreign partner dummy (0 or 1) 0.0 0.0 0.0 0.0 0.0 0.0 Rf (%) 11.5 10.7 8.8 7.9 7.1 6.7
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 10.7 8.8 7.9 7.1 6.7 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.0 1.0 1.0 1.0 1.0 1.0 Cost of Equity (%) 13.4 13.3 11.3 10.3 9.4 8.9 Return on Equity (%) 21.1 15.9 23.6 21.6 21.0 20.5 Q (x) 2.10 2.20 2.53 2.59 2.67 2.73 BVPS (YTL) 1.85 2.10 2.53 3.00 3.54 4.16 Target price (YTL) 4.62
Source: Company data, ING estimates
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19 Turkish financials September 2006
Vakifbank – Buy
Vakifbank – one of the most efficient Turkish banks – deserves better value No.1 on branch Vakifbank is one of the most efficient banks in the system, a fact not very well known efficiency and one of the to investors. The bank has the highest deposits per branch ratio in the system, ahead lowest cost-income of Garanti, Akbank and Isbank. Vakifbank’s loan per branch ratio is also superior, ratios in the system second only to that of Garanti. The cost-to-income ratio is also one of the lowest among its peer. The loan growth both year on year and sequentially (between 1Q06 and 2Q06) is one of the highest in the system.
The deposit growth lags peers because Vakifbank has paid lower rates, improving margins. Given its better capital ratios (running above 20%), we do not see any issue on the funding side of the balance sheet. We see Vakifbank improving its ROE in 2007F to above 20%, and we see no company-specific reason why the ROE should not get better in 2008F.
Valuation and target price update Our new target price is YTL7.44 versus YTL6.99 previously. Figure 20 outlines the valuation and target price methodology. We reiterate our BUY rating.
Fig 23 Vakifbank - valuation and target price
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 38.9 38.9 35.4 32.2 29.2 26.6 Foreign partner dummy (0 or 1) 0.0 0.0 0.0 0.0 0.0 0.0 Rf (%) 15.6 14.1 10.1 8.8 7.7 7.3
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 14.1 10.1 8.8 7.7 7.3 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 1.2 1.2 1.2 1.2 1.2 1.2 Cost of Equity (%) 14.3 17.5 13.3 11.8 10.7 10.1 Return on Equity (%) 21.4 18.3 23.3 22.9 23.1 23.3 Q (x) 1.93 1.99 2.38 2.55 2.71 2.82 BVPS (YTL) 3.33 3.74 4.33 5.02 5.82 6.75 Target price (YTL) 7.44
Source: Company data, ING estimates
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20 Turkish financials September 2006
Yapi Kredi Bank – Hold
Hold reiterated The first post-merger financials (9M06) are expected before 14 November. We will have to revise our numbers to incorporate Koçbank’s contribution. On a standalone basis, we cannot become too excited about the stock following the rally in shares. We maintain our HOLD rating.
Valuation and target price Our new target price is YTL2.48 versus YTL2.45 previously. Figure 21 outlines the valuation and target price methodology.
Fig 24 Yapi Kredi Bank
Valuation inputs Current 2006F 2007F 2008F 2009F 2010F
TRY Long bond (%) 19.2 17.0 11.0 9.3 8.0 7.5 USD Long eurobond (Turkey) (%) 8.1 7.8 7.0 6.4 5.8 5.3 Foreign currency balance sheet (%) 41.8 41.8 38.0 34.5 31.4 28.5 Foreign partner dummy (0 or 1) 1.0 1.0 1.0 1.0 1.0 1.0 Rf (%) 14.5 13.1 9.5 8.3 7.3 6.9
Valuation 2005 2006F 2007F 2008F 2009F 2010F
Risk free rate (%) 10.5 13.1 9.5 8.3 7.3 6.9 MRP (%) 3.0 2.8 2.6 2.5 2.4 2.3 Beta 0.9 0.9 0.9 0.9 0.9 0.9 Cost of Equity (%) 13.3 15.7 12.0 10.6 9.5 9.0 Return on Equity (%) -144.9 12.6 27.0 25.6 24.9 23.4 Q (x) -0.83 2.26 2.87 3.00 3.10 3.10 BVPS (YTL) 0.88 0.96 1.13 1.33 1.56 1.81 Target price (YTL) 2.16
Source: Company data, ING estimates
_ We value YKB at Fig 25 YKB TP (YTL per share) YTL2.16 and Kocbank at Underlying business 2.16 32 kuruş per share; the Dividends 0.00 total is YTL2.48, our new Koçbank’s contribution 0.32 target price Total 2.48 Source: Company data, ING estimates
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21 Turkish financials September 2006
Disclosures Appendix
ANALYST CERTIFICATION The analyst(s) who prepared this report hereby certifies that the views expressed in this report accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report.
IMPORTANT DISCLOSURES Company disclosures and ratings charts are available from the disclosures page on our website at http://research.ing.com or write to The Compliance Department, ING Financial Markets LLC, 1325 Avenue of the Americas, New York, USA, 10019. Valuation and risks: For details of the valuation methodologies used to determine our price targets and risks related to the achievement of these targets refer to the main body of this report and/or the most recent company report available at http://research.ing.com. The remuneration of research analysts is not tied to specific investment banking transactions performed by ING Group although it is based in part on overall revenues, to which investment banking contribute. Securities prices: Prices are taken as of the previous day’s close on the home market unless otherwise stated. Job titles. The functional job title of the person/s responsible for the recommendations contained in this report is equity research analyst unless otherwise stated. Corporate titles may differ from functional job titles. Conflicts of interest policy. ING manages conflicts of interest arising as a result of the preparation and publication of research through its use of internal databases, notifications by the relevant employees and Chinese walls as monitored by ING Compliance. For further details see our research policies page at http://research.ing.com.
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RATING DISTRIBUTION (as of end 2Q06) RATING DEFINITIONS
Equity coverage Investment Banking clients* Buy: Forecast 12-mth absolute total return greater than +15%
Buy 44% 19% Hold: Forecast 12-mth absolute total return of +15% to -5% Sell: Forecast 12-mth absolute total return less than -5% Hold 46% 17% Total return: forecast share price appreciation to target price plus forecast annual Sell 10% 11% dividend. Price volatility and our preference for not changing recommendations too 100% frequently means forecast returns may fall outside of the above ranges at times. Research published prior to 15/12/05: EMEA equities’ ratings were based on US * Percentage of companies in each rating category that are Investment Banking dollar total returns; Western Europe’s were based on: absolute return +25%, Strong clients of ING Financial Markets LLC or an affiliate. Buy; greater than +10%, Buy; +10% to -10%, HOLD; lower than -10%, Sell.
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22 Turkish financials September 2006
23 Turkish financials September 2006
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