GENEL-PUBLIC

March 29, 2017 Equity Research Elektronik Consumer Durables Reinitiating coverage

Good story but too crowded a trade The stock has had a good run on the back of better than HOLD expected December quarter financials and broker upgrades. Any further gains in share price would demand Share price: TL6.69 material improvement in margins and strong delivery by the management. We would wait for better entry points. Target price: TL6.81 We reinitiate with a Hold rating. Expected Events  Strong top line but margin outlook is mixed. We expect Vestel to post double-digit sales growth both in 2017 and 2018 driven 31 March – 4Q GDP Results (+) largely by its exports business. The landmark brand licensing 4 April – Turkey March 2017 CPI (+) agreement with Toshiba should boost sales. As for margins, the 3rd week of April – White goods sector data (+) pressure fueled by raw material pricing and currency volatility is likely to continue in 2017. EBITDA margin is indeed set to fall 1.8ppt this year. The tax relief is currently helping the business but Key Data the cut in consumption tax will last only thru April. Margin and earnings outlook look considerably better in 2018, on our Ticker VESTL assumptions, as (1) the contribution of white goods to revenues grows as the new washer and dryer units become operational, (2) Share price (TL) 6.69 operating leverage starts working to Vestel’s favor offsetting some 52W high (TL) 7.96 of the pressure on margins. 52W low (TL) 5.45 Market Cap (TLm) 2,244  Valuation and recommendation. The shares are currently Market Cap (USDm) 613 trading at 24.7x and 12.7x on 2017 and 2018 earnings, respectively. At below 5x both in 2017E and 2018E, the multiples Free float (%) 22.46 are less demanding on EV/EBITDA. Our target price model values Consensus TP (TL) 7.59 the common equity at TL6.81 a share versus TL6.69, the current Consensus rating 75% B / 25% H / 0% S price. We reinitiate with a Hold rating. 3M ADV (USDm) 12.0

 Upside/downside risks to our call. Resumption of SCT relief, a HY EPS (2017E) 0.27 larger contribution from Toshiba agreement, moderation in raw Consensus EPS (2017E) 0.77 material prices, and strong Euro are among the key upside risks to our call. The downside risk sources include stiff competition Share Performance vs. BIST100 globally coupled with rising raw material prices, and any

unanticipated deterioration in consumer confidence either in 8.0

Turkey or Europe. 7.5

7.0 Per Share Data & Multiples 2013 2014 2015 2016 2017E 2018E 6.5

EPS (TL) -0.30 0.29 0.18 0.50 0.27 0.52 6.0 5.5 BVPS (TL) 4.01 4.09 4.69 5.48 5.78 6.22 5.0

DPS (TL) 0.00 0.00 0.00 0.00 0.00 0.13 4.5 Price BIST 100 (Rebased)

P/E (x) -22.3 22.8 37.2 13.2 24.7 12.7 4.0

05.16 01.16 02.16 03.16 04.16 06.16 07.16 08.16 09.16 10.16 11.16 12.16 01.17 01.17 03.17 EV/Sales (x) 0.7 0.5 0.4 0.4 0.4 0.3 EV/EBITDA (x) 10.3 5.6 4.6 4.6 5.0 4.1 Source: Halk Invest estimates Analyst: Mehtap İLBİ [email protected] Istanbul: +902123148730

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Table of Contents

 Investment Case 3

 Investment Positives

 Investment Negatives

 Why are we below the consensus?

 Valuation and Target Price Methodology 6

 Company Overview 10   Sector Overview 11

 Forecasts & Financials 14

Consensus EPS (TL)

0.85 2017 0.80

0.75

0.70

0.65

0.60

0.55

0.50

07.16 12.16 02.16 03.16 04.16 05.16 06.16 08.16 09.16 10.16 11.16 01.17 02.17

Source: Bloomberg

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Investment Case

Investment Positives

 Stability in operating margins can be achieved in the mid to long-term. Vestel Elektronik has been taking substantial initiatives in order to provide a profitable as well as sustainable growth since 2013. These initiatives include (1) improved product/price mix, (2) shift sales towards mid to high-end products, (3) upgrading stores, (4) expanding dealer network, (5) entering into new sales channels (mass merchandisers and technology retailers), (6) improving after-sales services, and (7) creating a renewed brand strategy for the domestic market. For the export markets, entering into the long-term brand licensing agreements with global brands (like Sharp and Toshiba) and applying cost reduction actions to improve its cost base are the main initiatives taking by the Company. Actually, we have seen positive results of this strategy for the last few years and if the Company continues to adhere to the strategy, operating margins can be stabilized at appropriate levels in the mid to long-term.

 The upward revision of our forecasts. We revised our forecasts for white goods sector’s domestic sales. We now expect the sector’s domestic sales (based on wholesale data) to increase by 4.2% y-o-y to 7.78 million units in 2017 compared to 5.4% y-y growth recorded in 2016 while we maintain our growth estimate of 6.7% for exports. Accordingly, we have revised our forecasts for Vestel Elektronik. We now expect the Company’s consolidated revenues to increase by 15% y-o-y to TL11bn in 2017, higher than our previous estimate of 10.6% growth and 7.4% EBITDA margin which is also higher than our previous forecast of 6.7%.

 Focus on mid to high-end products. The Company has increased its focus on mid to high-end products in line with its profitable and sustainable growth strategy and we have already seen the positive results of the strategy in its operational performance. The Company’s EBITDA increased by a CAGR of 31% between 2013-2016 while EBITDA margin reached to 9.2% in 2016 from 6.3% in 2013.

 New washing machine and dryer plant investment. The Company’s subsidiary ‘Vestel Beyaz Eşya’ has taken a decision to invest in a washing machine and dryer plant in Manisa Organized Industrial Zone. The facility will produce washing machines and dryers with a production capacity of 750k units/year for each and the investment is planned to be completed by June 2018. We believe the Company to achieve more stability in operating margins by increasing the weight of white goods sales in total revenues with the contribution of this investment.

 Brand licensing agreements with globally well-known trademarks. Vestel Elektronik has signed brand licensing agreements with globally well-known trademarks to enhance its competitive position in Europe. We expect the brand licensing agreements (with Sharp in white goods and with Toshiba in TVs) to contribute positively to Vestel Elektronik’s sales revenues. If the Company continues to add new brand licensing agreements, revenues can be further supported.

 Key upside risks to our forecasts; stabilizing TL against the U.S. dollar along with further appreciation in EUR/TL can reduce the pressure on operating margins which is mainly stemming from rising raw material prices.

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Investment Case

Investment Negatives

 Raw material prices are on an upward trend. Global commodity prices have been rising mainly on the back of Donald Trump’s victory in the U.S. presidential election, held on November 8, 2016. Trump’s promises, which had focused on infrastructure investments, were the main reason for this movement. In fact, Vestel Elektronik’s operating margins were not affected by rising raw material prices (steel & plastics in the white goods segment) thanks to favorable raw material hedges entered into in 1Q16. However, due to the absence of such favorable hedges in 2017, rising raw material prices will most likely put pressure on gross margin of the white goods segment particularly in the first half of 2017.

 Weaker demand for TVs. Not only domestically but also globally, TV demand is significantly sensitive to the international sporting activities (especially for football). In the absence of sporting activities this year, we expect TV demand to be weak, however, the demand is likely to strengthen both in Turkey and abroad next year, thanks to the FIFA World Cup which is going to be held in Russia between 14 June and 15 July 2018.

 Open cell prices also are rising. Open cell (panel) is the main input of TV production. Panel prices have been increasing since the late 3Q16 due to tight supply conditions (average price of a typical 40" LCD TV open cell has risen to $141 in February 2017 from $103 in August 2016). Furthermore, TL depreciation against the U.S. dollar has been putting pressure on production cost, as cell purchases are mostly made in dollars by the Company. This may continue to put pressure on gross margin of the consumer electronics segment unless the increase in costs is reflected in selling prices with the same degree in a weaker demand environment for TVs.

 TL depreciation against the U.S dollar creates risks on the bottom-line. The Company has a net short FX position of US$327mn as of the end-2016, which increased from US$23mn in the end-9M16, therefore USD/TL movements are highly important for the Company’s bottom-line. We think that the currency volatility will continue until the constitutional referendum will be held on April 16, 2017, and this will keep creating uncertainty on the Company’s bottom-line.

 We expect an increase in capex and net debt position. On the capex side, we expect a net capex of TL484mn in 2017, higher than the previous year’s net capex of TL364mn, due to the new washing machine and dryer plant investment. Accordingly, we forecast the Company’s net debt position to increase to TL2.3bn in 2017 from TL1.83bn in 2016 and this will cause a 0.75 ppt increase in net debt/EBITDA ratio to 2.82x in 2017 from 2.07x in 2016. The Company announced that the new washing machine and dryer plant investment will be realized with a capex of c.€70 million including the cost of land which is already purchased by Vestel Beyaz Eşya and talks have been continuing with financial institutions for debt financing. Higher financing cost related to this investment may create risks on the bottom-line.

 Key downside risks to our forecasts; (1) weaker demand both in Turkey and abroad, (2) increasing competition particularly in the domestic market, (3) further rise in raw material prices (steel and plastics in the white goods segment, and open cell (panel) in the TV segment), (4) further deterioration in consumer confidence and TL against the U.S. dollar, are the key downside risks to our forecasts.

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Investment Case

Why are we below the consensus?

 Our revenue estimate is in-line with consensus. We expect the Company to record a 15% y-o-y growth in consolidated revenues to TL11bn in 2017 (from TL9.54bn in 2016) which is in-line with the consensus estimate. We think that the consensus estimate for revenues includes the positive effects of the special consumption tax relief as we have included.

 Deterioration in operating margins is inevitable. We estimate the Company’s EBITDA to decrease by 7.5% to TL816mn in 2017 from TL882mn in 2016 while the consensus estimate points a TL832mn EBITDA which is slightly higher than our estimate. The Company’s operating margins were not affected by rising commodity prices which has begun with Donald Trump’s victory in the U.S. presidential election, held on November 8, 2016, thanks to the favorable raw material hedges in 2016. However, there are no hedges like last year for the time being, therefore we expect rising raw material prices and TL volatility against the U.S. dollar (because raw material purchases are mainly made in dollars by the Company) will cause some deterioration in operating margins in 2017, as we think that the Company will not be able to pass the cost pressures to selling prices to the same degree due to the tough competition both in domestic and abroad. Accordingly, we forecast the Company’s EBITDA margin to decline by 1.8 ppt to 7.4% in 2017 from 9.2% in 2016, slightly lower than the consensus estimate of 7.6% based on Bloomberg.

 The difference in net profit estimates is higher. Our estimate for the Company’s net profit is markedly lower than the consensus estimate. We forecast the Company to record a net profit of TL90mn with a 46.4% y-y decrease in 2017, in contrast to a 45% y-o-y increase according to the consensus based on Bloomberg. We think this difference between our estimate and the consensus on net profit side is attributable to non-operational expenses including FX losses and interest expenses in addition to a slightly lower operational performance. The Company has a net short FX position of US$327mn as of the end-2016, which increased from US$23mn in the end-9M16, therefore USD/TL movements are highly important for the Company’s bottom-line.

Our forecasts vs. Bloomberg consensus for 2017E

Vestel Elektronik Halk Invest estimates Bloomberg consensus Difference

Revenue (TL mn) 10,975 11,008 -0.3%

EBITDA (TL mn) 816 832 -1.9%

EBITDA margin (%) 7.4 7.6 -0.1ppt

Net profit (TL mn) 90 243 -62.9%

Sources: Bloomberg, Halk Invest estimates

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Valuation & Target Price Methodology

 Reinitiating coverage with a Hold rating. Our 60.0 target price of TL6.81 for Vestel Elektronik is based 12-mnt Forward P/E (x) 3-yr avg. 1-yr avg. on a weighted average of DCF valuation (90%) and 40.0 peer group comparison (10%). We used the following parameters in our DCF valuation; 11.5% 20.0 risk-free rate, 5.75% equity risk premium, 1.07x beta, and 5% terminal growth rate. These 0.0 parameters led to an average WACC of 15.7% in our DCF valuation. For the peer group comparison, -20.0 we used international and domestic peers with the

arithmetic average of EV/EBITDA multiples for -40.0

06.13 09.13 12.13 03.14 06.14 09.14 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 2017E and 2018E. 03.13 Sources: Vestel Elektronik, Halk Invest estimates  Vestel Elektronik is trading at discounts to its global peers based on our forecasts for 2017 with 4.96x EV/EBITDA and 0.37x EV/Sales, implying 24.7% and 29.1% discounts, respectively. Despite these 7.0 12-mnt Forward EV/EBITDA (x) 3-yr avg. 1-yr avg. multiples look attractive, we prefer to be cautious 6.0 for the stock with a low confidence for the short- term outlook due to rising raw material prices and 5.0 currency volatility. For the coming years, we 4.0 believe the Company to achieve more stability in operating margins by increasing the weight of white 3.0 goods sales in total revenues with the new washing 2.0 machine and dryer plant investment. However, we will wait for the Company to see whether it will 1.0

succeed it in a globally challenging environment,

12.13 09.15 03.17 06.13 09.13 03.14 06.14 09.14 12.14 03.15 06.15 12.15 03.16 06.16 09.16 12.16 therefore we now reinitiate coverage with a Hold 03.13 rating and a 12-mnt target price of TL6.81. Sources: Vestel Elektronik, Halk Invest estimates

 Key upside/downside risks to our call; (1) possible incentives to support the use of energy efficient products and measures to decrease the 0.6 consumption of imported products by the 12-mnt Forward EV/Net sales (x) 3-yr avg. 1-yr avg. government, (2) new brand licensing agreements, 0.5 (3) potential projects related to LED lighting business and further market share gains in 0.4 smartphone business, are among the upside risks 0.3 to our call. On the other hand, (1) weaker demand

both in Turkey and abroad, (2) increasing 0.2 competition particularly in the domestic market, (3) further rise in raw material prices, (4) further 0.1

deterioration in consumer confidence and TL

03.13 09.13 12.13 03.14 06.14 09.14 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 against the U.S. dollar, are among the downside 06.13 risks to our call. Sources: Vestel Elektronik, Halk Invest estimates

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Valuation & Target Price Methodology

Peer Comparison EV/Sales (x) EV/EBITDA (x) P/E (x)

Company BBG code 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Whirlpool Corp WHR US 0.8 0.8 0.8 7.3 6.8 6.5 11.9 10.9 9.7

Gorenje Velenje GRVG SV 0.5 0.4 0.4 6.6 5.9 5.4 23.2 13.9 11.6

Electrolux AB ELUXB SS 0.6 0.6 0.5 6.7 6.4 6.0 15.3 14.1 12.9

LG Electronics 066570 KS 0.3 0.3 0.3 5.6 5.0 4.5 27.6 12.6 10.7

Haier Electronics 1169 HK 0.6 0.5 0.4 9.8 8.3 7.3 16.7 14.5 12.8

Arcelik ARCLK TI 1.2 1.0 0.8 10.6 9.0 7.8 13.6 13.4 11.5

Average 0.6 0.6 0.6 7.8 6.9 6.3 18.1 13.2 11.5

Median 0.6 0.5 0.5 7.0 6.6 6.2 16.0 13.7 11.5

Vestel Elektronik VESTL TI 0.4 0.4 0.3 4.6 5.0 4.1 13.2 24.7 12.7

Premium/Discount -23.9% -29.1% -32.6% -34.4% -24.7% -33.9% -17.4% 80.8% 10.3%

Sources: Halk Invest estimates for Vestel Elektronik, Bloomberg consensus for the rest

10 30 Arçelik 25 8 Vestel Elektronik Whirlpool 20 6 Velenje Electrolux Gorenje Velenje LG LG 15 Haier Vestel Elektronik 4 Arçelik 2017E P/E (x) P/E 2017E 10 Whirlpool

2017E EV/EBITDA (x) EV/EBITDA 2017E 2 5

0 0 0% 5% 10% 15% 20% 0% 10% 20% 30% 40% 50% 60% 70%

2-YR EBITDA CAGR 2-YR Earnings CAGR

Sources: Halk Invest estimates for Vestel Elektronik, Bloomberg consensus for the rest

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Valuation & Target Price Methodology

Blended Valuation - VESTL 12-mnt Target Value (TL mn) Weight Weighted Value

DCF 2,032 90% 1,828

Peer Comparison 4,559 10% 456

Target Mcap (TL mn) 2,284

# of shares (mn) 335

12-mnt Target Price (TL) 6.81

Current Share Price (TL) 6.69

Upside/Downside potential 1.8%

Source: Halk Invest estimates

Peer Comparison - VESTL TL mn EV/EBITDA (x) Fair Value (TL mn) Weight Weighted Value

2017E EBITDA 816 6.6 5,377 50% 2,689

2018E EBITDA 983 6.2 6,129 50% 3,064

EV (TL mn) 5,753

(-) Net debt (TL mn) 1,830

(-) Minorities (TL mn) 60

(+) Others (TL mn) 12

Fair Value (TL mn) 3,875

Cost of Equity 17.6%

12-mnt Target Mcap (TL mn) 4,559

# of shares (mn) 335

12-mnt Target Price (TL) 13.6

Current Share Price (TL) 6.69

Upside/Downside potential 103%

Source: Halk Invest estimates

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Valuation & Target Price Methodology

DCF Valuation 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Revenues 10,975 12,218 13,392 14,569 15,787 17,106 18,533 20,076 21,747

Growth (y-o-y) 15.0 11.3 9.6 8.8 8.4 8.4 8.3 8.3 8.3

Gross profit 2,267 2,580 2,812 3,009 3,261 3,508 3,772 4,067 4,377

Gross margin (%) 20.7 21.1 21.0 20.7 20.7 20.5 20.4 20.3 20.1

Operating expenses 1,787 1,970 2,137 2,302 2,470 2,649 2,841 3,070 3,293

Opex margin (%) 16.3 16.1 16.0 15.8 15.6 15.5 15.3 15.3 15.1

EBIT 479 611 675 707 792 859 930 996 1,084

EBIT margin (%) 4.4 5.0 5.0 4.9 5.0 5.0 5.0 5.0 5.0

Depreciation 337 372 397 427 440 430 461 513 553

EBITDA 816 983 1,072 1,134 1,232 1,289 1,391 1,509 1,637

EBITDA margin (%) 7.4 8.0 8.0 7.8 7.8 7.5 7.5 7.5 7.5

(-) Taxes@EBIT 81 104 115 120 135 146 158 169 184

(-) Change in working capital 138 85 60 45 54 43 37 35 27

(-) Capex 484 508 534 560 588 618 649 681 715

Capex / Net sales (%) 4.4 4.2 4.0 3.8 3.7 3.6 3.5 3.4 3.3

Free cash flow 112 285 363 409 455 482 547 623 711

WACC (%) 15.8 15.8 15.8 15.7 15.7 15.7 15.7 15.7 15.7

Terminal growth rate (%) 5.0

PV of FCFs (forecast period) 1,774

PV of Terminal Value 1,830

EV (TL mn) 3,605

(-) Net debt (end-2016) 1,830

(-) Minorities (TL mn) 60

(+) Others (TL mn) 12

Fair Value (TL mn) 1,727

Cost of equity (%) 17.6

12-mth Target Mcap (TL mn) 2,032

# of shares (mn) 335

12-mth Target Price (TL) 6.06

Current Share Price (TL) 6.69

Upside / Downside Potential (%) -9.4

Source: Halk Invest estimates

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Company Overview

 Vestel Elektronik produces and sells white goods, Shareholding Structure TVs, and digital products for domestic and foreign markets (mainly for Western Europe). White goods operations are carried out by its subsidiary Vestel Others (free float) Beyaz Eşya (trading on the BIST100 under the 22.5% VESBE ticker). The main shareholder of the Company is Zorlu Holding, which has a presence in Zorlu Holding A.Ş. (free float) Zorlu Holding A.Ş. various sectors such as home textile, energy, real 13.1% 64.4% estate, and mining.

 Europe’s largest industrial complex under a single roof. The Company’s production base is Source: Vestel Elektronik called ‘Vestel City’ which is Europe’s largest industrial complex under a single roof with a total area of 1.1 million sqm including 600k sqm enclosed space. Production capacity includes 10 million units/year for TV segment, 9.4 million units/year for white goods and 4 million units/year for digital products, resulting in a total production capacity of 23.4 million units/year with capacity utilization ratios of 82% in TV and 73% in white goods segments in Vestel City as of the end-2016.

 Besides TV & white goods segments, the Company has been producing LED lighting products since 2011 and launched smartphones in the domestic market in the second half of 2014. Although the share of these product groups is quite low in total revenues, they offer high growth potential for the Company thanks to their low penetration rates in Turkey. Vestel City

 Gaining market share in both Europe and Turkey despite tough competition. Vestel Elektronik operates in Europe mainly as an Original Design Manufacturer (ODM), offering design and manufacturing services to globally well-known companies. The Company is one of the top three producers in TV segment and one of the top five producers in white goods segment in Europe. Domestically, the Company is the leading TV producer and the third player in white goods segment (Arçelik is the leading white goods producer with a market share of c.50%). Source: Vestel Elektronik

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Sector Overview

 SCT relief on domestic white goods sales. 54% 15% According to White Goods Manufacturers’ Domestic White Goods Sales (y-o-y chg.) Turkey GDP (y-o-y chg. rhs.) Association of Turkey, domestic white goods sales 44% 11% (based on wholesale data) increased by 5.4% y-o-y 34% to 7.47 million units in 2016 despite unfavorable 7% demand conditions including weak consumer 24% confidence and currency volatility etc. At the 3% beginning of the year, we had thought domestic 14% -1% white goods sales to be weaker than the last year’s 4% with a growth rate of 3.2% y-o-y in 2017, however,

both strong January figures and the cut in Special -6% -5%

2010 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016

Consumption Tax (SCT) to 0% from 6.7% on white 2017E goods until the end-April have been supporting Sources: WGMA, TURKSTAT, Halk Invest estimates domestic demand. Before the SCT relief, which became effective on February 3, 2017, domestic white goods sales displayed a strong growth on an annual basis in January 2017. Domestic white 4.1 goods sales (based on wholesale data) increased TRY Basket by 24.6% y-o-y to 538.4k units in January. When 3.6 we look at the February figures there was a strong performance thanks to the SCT relief where 3.1 domestic white goods sales increased by 42.1% y- 2.6 o-y to 699.45k units in February 2017. As we think

the strong demand will continue until the end of the 2.1 SCT relief, we revised our growth estimate for

domestic white goods sales to 4.2% for this year 1.6

07.10 11.10 03.11 07.11 11.11 03.12 07.12 11.12 03.13 07.13 11.13 03.14 07.14 11.14 03.15 07.15 11.15 03.16 07.16 11.16 03.17 from our previous growth estimate of 3.2%. 03.10 Source: Bloomberg  House sales to be supportive of domestic white goods demand. House sales increased by 4% to 1.34 million units in 2016. In Turkey, the demand for white goods is generally affected by the 85 demographic factors such as young population, Turkey Consumer Confidence Index 80 marriage-divorce rate, and urbanization etc. We expect the white goods demand to be supported by 75 house sales which have been encouraging with significant incentives given by the government to 70

banking and construction sectors (such as 65 discounts on interest rates and increasing number of installments in housing financing). The 60 citizenship right granted to foreigners who 55

purchase real estate worth at least $1mn and keep

03.10 11.10 03.11 07.11 11.11 03.12 07.12 11.12 03.13 07.13 11.13 03.14 07.14 11.14 03.15 07.15 11.15 03.16 07.16 11.16 03.17 it for at least 3 years may encourage foreigners to 07.10 purchase houses in Turkey. Source: Bloomberg

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Sector Overview

 As a result of these incentives and low base effect 900 150 of last year (house sales to foreigners decreased Domestic White Goods Sales Turkey House Sales (rhs.) 140 by 20.3% in 2016), possible increase in house 800 130 demand from foreigners may support the white 700 goods sales. Additionally, possible incentives by 120

the government to support the use of energy 600 110 (000 units) (000 efficient and domestically manufactured products to 100 500 limit imported goods which comprise 11.5% of total 90 domestic sales as of 2016 and possible extension 400 80 of the SCT relief, could act as catalysts for the

domestic white goods demand. 300 70

08.13 02.13 05.13 11.13 02.14 05.14 08.14 11.14 02.15 05.15 08.15 11.15 02.16 05.16 08.16 11.16 02.17 Sources: WGMA, TURKSTAT  Despite the positive outlook for the domestic white goods demand, there are also significant downside risks. We think the temporary cut in the SCT will support the demand in the first half of the year 900 2.4 (mainly in the first quarter and slightly in the second Domestic White Goods Sales House sales numbers to foreigners (rhs.) quarter) by front-loaded demand which most likely 800 2.1 will not continue in the second half of the year. Additionally, ongoing weakness in consumer 700 1.8 confidence, currency volatility and rising raw 600 1.5

material prices which should lead to increases in (000 units) (000 selling prices may put pressure on domestic 500 1.2 demand. 400 0.9

 Consumer confidence remains weak despite 300 0.6

05.13 08.13 11.13 02.14 05.14 08.14 11.14 02.15 05.15 08.15 11.15 02.16 05.16 08.16 11.16 02.17 improvement in March. In Turkey, consumer 02.13 confidence index increased by 3.15% to 67.8 in Sources: WGMA, TURKSTAT March 2017 compared to 65.73 recorded in February 2017. Despite this improvement in March figures, there is still weakness in consumer confidence when we compare the quarters’ figures where the index decreased by 2.3% to the average 55% 5% of 66.82 in 1Q17 from the average of 68.42 in White Goods Exports (y-o-y chg.)

1Q16. Furthermore, we think the weakness in 45% European Union GDP (y-o-y chg. rhs.) 3% consumer confidence is likely to continue until the constitutional referendum to be held on April 16, 35% 1% 2017. 25%

-1%  Maintain our growth estimate of 6.7% y-o-y for 15% export volumes. Turkish white goods sector -3% 5% displayed an accelerated export growth of 8.1% in

terms of volumes last year. We think that Europe -5% -5%

2006 2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

will likely experience improving demand conditions 2002 2017E thanks to the recovery in the economy. Sources: WGMA, Bloomberg, Halk Invest estimates

12 GENEL-PUBLIC GENEL-PUBLIC

Sector Overview

70% 15%  On the other hand, the UK’s Brexit process has White Goods Imports (y-o-y chg.) been creating uncertainty for the Turkish white Turkey GDP (y-o-y chg. rhs.) 50% goods producers. Due to the Brexit uncertainty and 10%

high base effect of last year, we forecast export 30%

volumes of the Turkish white goods sector to 5%

increase by a relatively slower rate of 6.7% in 2017. 10% Further recovery in the European economy, 0% moderate ‘Brexit’ process and more contributions -10% from other countries, are the key upside risks to our

export forecasts. -30% -5%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2017E  Focus on regional diversification to intensify. Sources: WGMA, TURKSTAT, Halk Invest estimates Besides the European markets, Asian and African countries offer significant growth opportunities for the Turkish white goods producers due to high population and low penetration rates. For example, the leading Turkish white goods producer Arçelik 750 China Domestic Cold Rolled Steel Sheet Spot Average Price has a presence in these regions. Arçelik has 700 ($/metric tonne)

recently acquired ‘Dawlance’ which is the leading 650

white goods brand in Pakistan. We think Dawlance 600 acquisition to enhance its presence in international markets in the mid-term. Additionally, after the 550 lifting of international sanctions, Iran has come into 500 prominence with growth opportunities for the 450

Turkish white goods producers. 400

350

08.16 04.15 05.15 06.15 07.15 08.15 09.15 11.15 12.15 01.16 02.16 03.16 04.16 05.16 07.16 09.16 10.16 11.16 12.16 01.17 03.17  Expecting weak demand for TVs. Not only 03.15 domestically but also globally, TV demand is Source: Bloomberg significantly sensitive to the international sporting activities (especially for football). In the absence of sporting activities this year, we expect TV demand to be weak, however, the demand is likely to strengthen both in Turkey and abroad next year, thanks to the FIFA World Cup which is going to be 160% 4% TV prices (average, m-o-m chg.) held in Russia between 14 June and 15 July 2018. 140% Turkey CPI (m-o-m chg. rhs) 3% 120%  Further hikes in selling prices may lead to more 100% 2% deterioration in TV demand. Open cell (panel) is 80% 1% the main input of TV production and panel prices 60%

are rising since the late 3Q16 due to tight supply 40% 0% conditions. Additionally, production costs have 20% been increasing due to TL depreciation against the -1% U.S. dollar for Turkish TV producers. Because of 0%

these factors, there should be increases in selling -20% -2%

06.11 10.16 10.11 02.12 06.12 10.12 02.13 06.13 10.13 02.14 06.14 10.14 02.15 06.15 10.15 02.16 06.16 02.17 prices of TVs which may cause additional pressure 02.11 on TV demand. Source: TURKSTAT

13 GENEL-PUBLIC GENEL-PUBLIC

Forecasts & Financials

2,500 70%  Net loss mainly on TL depreciation and TV & Electronics Revenues (TL mn) Growth (y-o-y)

derivative financial instruments in 4Q16. Vestel 50% Elektronik recorded a TL98.7mn net loss in 4Q16, 2,000 lower than our estimate of TL106.5mn net loss, 30% 1,500 compared to a TL141mn net profit recorded in 10% 4Q15, mainly on the back of net FX losses of 1,000 TL147mn in 4Q16 compared to TL78.4mn net FX -10%

gains recorded in 4Q15 and a net loss of 500 TL177.7mn due to derivative financial instruments -30%

in 4Q16 compared to TL2.8mn net gains in 4Q15 in 0 -50%

addition to the increase in net interest and

4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 commission expenses to TL45mn in 4Q16 from 1Q10 Source: Vestel Elektronik TL26.2mn in 4Q15.

 No surprises in revenues. The Company’s consolidated revenues decreased by 7.6% y-o-y to TL2.78bn in 4Q16, broadly in-line with our estimate

of TL2.85bn for the quarter. By segments, 1,200 90% revenues in the consumer electronics segment White Goods Revenues (TL mn) Growth (y-o-y) declined by 19.8% y-o-y to TL1.76bn in 4Q16, 1,000 70% mainly on the absence of Fatih smart board 800 50% contribution, contraction in TV export volumes after the EuroCup, and the high base impact of 4Q15 600 30% when revenues increased by 42.9% y-o-y in the quarter. On the other hand, revenues in the white 400 10%

goods segment increased by 25.7% to TL1.01bn in 200 -10% 4Q16 mainly thanks to a strong growth in domestic

volumes on the back of the pulled forward demand 0 -30%

2Q12 1Q13 4Q13 4Q10 3Q11 3Q14 2Q15 1Q16 4Q16 on price hike expectations stemming from TL 1Q10 depreciation and market share gains, and export Source: Vestel Elektronik volumes along with positive currency effect on export revenues stemming from TL depreciation against the euro.

 Stronger operational performance than our estimate. The Company displayed a stronger 30% operational performance than our estimate in TV & Electronics Gross Margin White Goods Gross Margin 4Q16. The Company’s EBITDA increased by 37.7% to TL287mn, higher than our estimate of 25% TL200mn, mainly due to increase in consolidated 20% gross margin to 23.7% in 4Q16 from 18.5% in

4Q15. The improvement in consolidated gross 15% margin mainly stemmed from a 6.9 ppt y-o-y

increase in gross margin of the consumer 10% electronics segment thanks to increasing export margins and lagged inventory impact while gross 5%

margin of the white goods segment increased by

2Q15 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 1Q16 4Q16 1.7 ppt y-o-y. Source: Vestel Elektronik

14 GENEL-PUBLIC GENEL-PUBLIC

Forecasts & Financials

1,300 13%  As a result, the improvement in consolidated gross Working capital (TL mn) margin led to a 3.4 ppt y-o-y increase in EBITDA 1,100 WCR/Sales 11% margin to 10.3% in 4Q16, stronger than our 900 9% estimate of 7%. 700 7%  Improvement in net debt and WCR/Sales ratio. 500 5%

The Company’s net debt position contracted to 300 3% TL1.83bn in 4Q16 from TL2.41bn in 3Q16 which led to an improvement in WCR/sales ratio declining 100 1%

to 6% in 4Q16 from 11.5% in 3Q16, mainly thanks -100 -1%

4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 to the collection of the remaining receivables from 1Q10 the Fatih Project. Source: Vestel Elektronik

2,500 350 14.0% EBITDA (TL mn) Net debt (TL mn) 300 12.0% EBITDA margin 2,000 250 10.0%

1,500 200 8.0%

150 6.0% 1,000

100 4.0% 500 50 2.0%

0 0 0.0%

1Q10 1Q16 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 4Q16

1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 Source: Vestel Elektronik Source: Vestel Elektronik

VESTL (TL mn) 4Q16 4Q15 3Q16 y-o-y chg. q-o-q chg. Halk Invest estimates

Net sales 2,776 3,004 2,117 -7.6% 31.1% 2,850

Gross profit 658 555 424 18.4% 55.3% 545

Gross margin 23.7% 18.5% 20.0% 5.2ppt 3.7ppt 19.1%

Operating expenses 453 417 357 8.7% 26.9% 428

Opex/Sales 16.3% 13.9% 16.9% 2.4ppt -0.5ppt 15.0%

EBITDA 287 208 149 37.7% 92.5% 200

EBITDA margin 10.3% 6.9% 7.0% 3.4ppt 3.3ppt 7.0%

Net profit (excl. minorities) -99 141 90 - - -107

Net margin -3.6% 4.7% 4.3% -8.2ppt -7.8ppt -3.7%

Sources: Vestel Elektronik, Halk Invest estimates

15 GENEL-PUBLIC GENEL-PUBLIC

Forecasts & Financials

 The positive impact of the SCT relief on VESTL - Revenues by Regions (2016)

domestic sales. We expect the special MENA & Russia Other consumption tax relief to support revenues in the 6% 1%

white goods segment of the Company in the first Eastern Europe half of 2017, however, we forecast revenues in this 9% segment to be weak in the second half of the year.

Western Europe 49%  As a result of the upward revision in our estimate Turkey for domestic white goods sales of the sector for 35% 2017 and the recent currency movements, we have revised our forecasts for Vestel Elektronik. We now

expect the Company’s consolidated revenues to Source: Vestel Elektronik increase by 15% y-o-y to TL11bn in 2017, higher than our previous estimate of 10.6% growth. By segments, we expect a revenue growth of 15.9% in the TV & electronics segment and a 13.7% revenue growth in the white goods segment in 2017. On the VESTL - Revenues by Segments (2016) other hand, we expect the Company’s consolidated revenues will record a CAGR of 9.6% between 2016-2025E (our forecast period) mainly on the back of the white goods segment with a CAGR of White Goods 11.4% in revenues while we forecast a lower 40% CAGR of 8.3% in revenues of the consumer TV & Electronic Devices electronics segment in that period. 60%

 The importance of the sales channel strategy. Main sales channel of the Company is the dealer network, consisting of nearly 1,250 exclusive Vestel Source: Vestel Elektronik sales points in Turkey as of 9M16. The dealer network is beneficial for the Company with its prevalence, proximity to customers, lower operational and personnel expenses, and consumer financing opportunities provided by the 15,000 35% dealers. The Company has also upgraded its Net sales (TL mn) 12,500 Growth (y-o-y) stores and closed down inefficient dealer stores to 25% improve customers’ satisfaction and brand 10,000 awareness. In addition to these efforts, the 15% Company has entered into new sales channels to 7,500 enhance its market share. One of the channels is 5% 5,000 mass merchandisers channel which accounts for -5% 15% of the Company’s domestic sales volumes in 2,500 the white goods segment and 25% of the TV 0 -15%

segment as of 9M16. We think the channel will

2010 2011 2012 2013 2014 2015

2017E 2018E 2019E 2020E continue to support sales revenues along with the 2016E dealer network in the domestic market. Sources: Vestel Elektronik, Halk Invest estimates

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Forecasts & Financials

 Brand licensing agreements with globally well- Revenue breakdown by segments known trademarks. Vestel Elektronik has signed 80% TV & Electronics Segment White Goods Segment brand licensing agreements with globally well- 70% known trademarks to enhance its competitive position in Europe. One of the agreements has 60%

been done between Vestel Elektronik’s subsidiary 50% Vestel Ticaret and which had a limited product offering in Europe in white goods. 40% Vestel Ticaret acquired the exclusive rights to 30% develop, manufacture, distribute and sell white 20%

goods in Europe under the Sharp brand. The

2010 2011 2012 2013 2014 2015 2016

2018E 2019E 2020E agreement has become effective at the beginning 2017E of 2015 and will last for 5 years. Sources: Vestel Elektronik, Halk Invest estimates

 Furthermore, Vestel Ticaret has signed an VESTL - Domestic Market - White Goods Sales by Sales Channels (Units) agreement with Toshiba Visual Solutions Dealer Network Mass Merchandisers Technology Retailers Corporation to manufacture, sell, market and 0%1% 0%1% 1% 1% 1% 2% 2% 2% 3% 4% 4% 5% 4% 4% 2% 8% 10% distribute TVs under the license of Toshiba brand in 14% 12% 11% 12% 12% 13% 12% 12% 15% 15% 15% Europe. The agreement has become effective at the beginning of this year and will last for 5 years.

We expect the brand licensing agreements with

99% 99%

91%

90%

86%

86% 86%

86%

85%

84%

83% 83% 83% 81% Sharp and Toshiba to contribute positively to Vestel 80% Elektronik’s sales revenues. If the Company continues to add new brand licensing agreements,

its revenues can be further supported.

4Q13 2Q14 2Q13 3Q13 1Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 1Q13  High-potential business. The Company has Source: Vestel Elektronik started to produce LED lighting products in 2011. In this business, the Company has a strategic alliance with one of the leading firms (the US Cree) and comprises 20% of the domestic market as the VESTL - Domestic Market - TV Sales by Sales Channel (Units)

market leader. LED lighting products can be Dealer Network Mass Merchandisers Technology Retailers

4%

8% 8%

9% 10%

preferred by the government to reduce energy 5%

13% 13%

14%

16% 16%

19%

6%

21%

22%

24%

27% 11%

consumption thanks to its energy saving feature 14%

26%

22%

21%

24%

20%

21% 16%

along with increasingly more affordable prices. 25%

22%

28% 19%

91%

86% 78%

 Considering the government’s target to replace all 77%

66%

65%

64%

64%

63% 63% 63%

56%

54% 53% conventional street lights, which are estimated at 50% nearly 6-7 million units, with the LED lighting

products, Vestel Elektronik comes into prominence

2Q15 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 3Q15 4Q15 1Q16 2Q16 3Q16 as the leading local company for the potential 1Q13 projects. Source: Vestel Elektronik

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Forecasts & Financials

4,500 24%  Increasing share in the smartphone market. The Gross profit (TL mn) 4,000 Company operates in the domestic smartphone Gross margin 22% 3,500 market with its ‘Venus’ brand launched in the 20% second half of 2014 and will likely be exported to 3,000 the European markets in the coming period. 2,500 18% Thanks to the relatively low prices compared to 2,000 16% 1,500 imported brands and the deal with telecom 14% operators, the market share of Venus has reached 1,000 12% to 6-7% in the domestic smartphone market as of 500

the end-2016. Further market share gain is an 0 10%

2011 2012 2013 2014 2015

upside risk to our revenue estimate for the 2010

2022E 2016E 2017E 2018E 2019E 2020E 2021E 2023E 2024E 2025E consumer electronics segment. Sources: Vestel Elektronik, Halk Invest estimates

 We expect operating margins to decline this year, despite being partly offset by a strong

revenue growth. Due to rising raw material prices 3,500 17% (steel & plastics in the white goods segment, and Operating expenses (TL mn) Operating exp./Net sales 3,000 open cell (panel) in the TV segment) and 16% depreciation of TL against the U.S. dollar, we 2,500 15% expect some deterioration in operating margins this 2,000 year. Accordingly, we forecast a 1.5 ppt y-o-y 14% decline in consolidated gross margin to 20.7% in 1,500 13% 2017 from 22.2% in 2016. 1,000

12% 500  By segments, we expect gross margin in the TV & 0 11%

electronics segment to decrease by 0.84ppt to

2010 2011 2012 2013 2014 2015

2018E 2017E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 19.7% in 2017 from 20.5% in 2016 while a 2.51ppt 2016E decrease in gross margin of white goods segment Sources: Vestel Elektronik, Halk Invest estimates to 22.1% in 2017 from 24.6% in 2016. On the other hand, we expect consolidated gross margin to stabilize at the level of c.20% in our forecast period.

1,800 10%  On the EBITDA side, we forecast EBITDA margin EBITDA (TL mn) 1,600 EBITDA margin to decline by a 1.8 ppt y-o-y to 7.4% in 2017 from 8% 9.2% in 2016, due to the decrease in consolidated 1,400 1,200 gross margin, even if the pressure is partly offset 6% by a strong revenue growth. However, we believe 1,000 800 EBITDA margin to stabilize at around 7.5% in our 4% forecast period thanks to the Company’s strategy 600 which includes focusing on mid to high-end 400 2% products and increasing the share of the white 200

goods segment in total sales with the new washing 0 0%

2010 2011 2012 2013 2014 2015

2022E 2025E 2017E 2018E 2019E 2020E 2021E 2023E 2024E machine and dryer plant investment which is 2016E planned to be completed by June 2018. Sources: Vestel Elektronik, Halk Invest estimates

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Forecasts & Financials

 Focus on mid to high-end products. The VESTL - Domestic Market - Washing Machine Sales by Loading Capacity (TL)

Company has increased its focus on mid to high- 5 & 6 kg 7 & 8 kg 9 & 10 kg end products in line with its profitable and sustainable growth strategy. For example, the 34% Company has increased the share of upper 42% 44% segment products in the TV segment (4K, smart TVs etc.). For the white goods segment, the share 45% of washing machines with the higher loading 41% 42% capacity has increased. In fact, we have already seen the positive results of the strategy in the 21% Company’s operational performance. The 17% 13% Company’s EBITDA increased by a CAGR of 31% 2014 2015 2016 between 2013-2016 with an EBITDA margin Source: Vestel Elektronik reached 9.2% in 2016 from 6.3% in 2013.

 In terms of profitability, the white goods segment has relatively stable profit margins than the TV & VESTL - Washing Machine Exports by Loading Cap. (EUR) electronics segment thanks to its balanced cost 4-5 kg 6-7 kg 8-11 kg structure. In the white goods segment, 85% of the 10% 14% cost of production comes from raw materials and 17% 45% of raw material purchases are made in TL, 47% 29% in euros and 26% in dollars. In TV & 45% 55% electronics segment, 91% of the cost of production comes from raw materials and 92% of the

purchases are made in dollars. Besides the 43% 41% balanced cost structure of the white goods 28% segment, the Company uses hedging tools to 2014 2015 2016 control the cost of raw materials (for steel and Source: Vestel Elektronik plastics). In the TV production, there are no hedging opportunities for open cell (panel) requirements because global suppliers generally avoid fixing prices. For this reason, it is important to increase the share of white goods sales in total revenues to ensure stability in operating margins in Vestel's Flat TV Unit Sales - Screen Size Distribution the mid to long-term. <19" 19" 20"/24" 26"/28" 32" >32"

9% 6% 9% 10% 14% 19%  New washing machine and dryer plant 25% 25% 26% 40% 41% 45% 30% investment. The Company’s subsidiary ‘Vestel 34% 9% 14% 8% 40% Beyaz Eşya’ has taken a decision to invest in a 9% 17% 6% 11% 23% washing machine and dryer plant in Manisa 33% 35% 23% 3% 35% Organized Industrial Zone. The facility will produce 25% 27% 30% 2% 21% 33% 2% washing machines and dryers with a production 20% 1% 14% 22% 21% 16% 15% 19% capacity of 750k units/year for each and the 12% 8% 1% 5% 2% 1% 0% investment is planned to be completed by June 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018. Source: Vestel Elektronik

19 GENEL-PUBLIC GENEL-PUBLIC

Forecasts & Financials

 We expect the share of the white goods segment in VESTL - Raw Material Purchases in TV segment (2016) total revenues will gradually increase to the level of T-Con Board c.45% in our forecast period (from 39.5% in 2016) 2% with the new washing machine and dryer plant Coated Film Others Sheets 23% investment. 2% Raw Material- Metal Cell 1% 52%  If TL stabilizes, the pressure on profitability to Led Bar 3% decrease. The Company has a net short FX Raw Material- Plast/Straf position of US$327mn as of the end-2016, which 3% TFT Display Panel increased from US$23mn in the end-9M16, 3% IC/Integrated therefore USD/TL movements are highly important 11% for the Company’s bottom-line. TL depreciation Source: Vestel Elektronik against the U.S. dollar will most likely put pressure on the Company’s bottom-line with increasing FX losses. However, TL may stabilize after the constitutional referendum, which will be held on April 16, 2017, and this may reduce the currency related pressure on the Company’s bottom-line. VESTL - Currency Breakdown of Purchases in TV & Electronics (2016)  We expect an increase in capex due to the new EUR 2% TRY investment. On the capex side, we expect a net 6% capex of TL484mn in 2017, higher than the previous year’s net capex of TL364mn, due to the new washing machine and dryer plant investment. Accordingly, we forecast the Company’s net debt position to increase to TL2.3bn in 2017 from USD 92% TL1.83bn in 2016 and this will cause a 0.75 ppt increase in net debt/EBITDA ratio to 2.82x in 2017 from 2.07x in 2016. Source: Vestel Elektronik

225 2.0% 3,200 6.0 Net profit (TL mn) Net debt (TL mn) 175 Net margin 1.5% 2,800 Net debt /EBITDA (x) 5.0 1.0% 2,400 125 4.0 0.5% 2,000 75 0.0% 1,600 3.0 25 -0.5% 1,200 2.0 -25 -1.0% 800 1.0 -75 -1.5% 400

-125 -2.0% 0 0.0

2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

2016E 2017E 2018E 2019E 2020E 2016E 2017E 2018E 2019E 2020E Sources: Vestel Elektronik, Halk Invest estimates Sources: Vestel Elektronik, Halk Invest estimates

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Forecasts & Financials

Profit & Loss (TL mn) 2013 2014 2015 2016 2017E 2018E

Revenue 6,218 7,767 9,250 9,540 10,975 12,218

COGS -5,133 -6,197 -7,292 -7,426 -8,709 -9,638

Gross profit 1,084 1,570 1,958 2,114 2,267 2,580

Operating expenses -929 -1,116 -1,373 -1,554 -1,787 -1,970

EBITDA 394 724 880 882 816 983

Depreciation -238 -271 -295 -321 -337 -372

EBIT 156 454 585 561 479 611

Net financial income -239 -18 -238 -206 -255 -268

Net other income 19 -309 -272 -197 -112 -118

Profit before tax -103 126 74 164 119 232

Tax 9 -22 -6 21 -20 -39

Profit after tax -93 104 69 185 99 192

Minority interests -6 -7 -9 -17 -9 -18

Net profit -100 97 60 168 90 175

Growth (%) 2013 2014 2015 2016 2017E 2018E

Revenue -11.5 24.9 19.1 3.1 15.0 11.3

Gross profit 29.3 44.8 24.7 8.0 7.2 13.8

EBITDA 242.8 84.0 21.5 0.3 -7.5 20.4

EBIT -313.4 191.2 28.9 -4.1 -14.5 27.4

Net profit -9.9 -197.6 -38.8 181.3 -46.4 94.2

Margins (%) 2013 2014 2015 2016 2017E 2018E

Gross margin 17.4 20.2 21.2 22.2 20.7 21.1

EBIT margin 2.5 5.8 6.3 5.9 4.4 5.0

EBITDA margin 6.3 9.3 9.5 9.2 7.4 8.0

Net margin -1.6 1.3 0.6 1.8 0.8 1.4

Source: Halk Invest estimates

21 GENEL-PUBLIC GENEL-PUBLIC

Forecasts & Financials

Balance Sheet (TL mn) 2013 2014 2015 2016 2017E 2018E

Current Assets 3,510 4,867 6,248 6,024 7,224 8,010

Cash and cash equivalents 351 619 728 1,264 1,256 1,440

Trade receivables 1,628 1,932 2,767 2,435 2,992 3,298

Inventories 1,268 1,723 2,203 1,818 2,358 2,583

Other current assets 263 593 549 507 618 688

Non-current assets 2,127 2,455 3,088 3,627 4,082 4,438

Long-term trade receivables 99 118 140 123 163 181

Financial assets 2 7 8 12 12 12

Tangible fixed assets 1,376 1,365 1,529 1,643 1,771 1,871

Intangible assets 433 482 543 593 655 692

Total assets 5,637 7,321 9,336 9,651 11,307 12,447

Current Liabilities 3,674 4,576 5,857 5,377 6,543 7,144

Short-term financial debt 561 451 741 860 956 1,041

Trade payables 2,816 3,720 4,537 3,683 4,820 5,334

Non-current liabilities 617 1,375 1,905 2,435 2,826 3,217

Long-term financial debt 439 1,198 1,720 2,233 2,606 2,984

Minority interest 83 45 49 60 69 87

Total Shareholders' Equity 1,345 1,371 1,574 1,839 1,938 2,087

Total Liabilities and Shareholders' Equity 5,637 7,321 9,336 9,651 11,307 12,447

Net debt 649 1,031 1,733 1,830 2,305 2,584

Leverage Indicators 2013 2014 2015 2016 2017E 2018E

Debt / Equity (x) 0.7 1.2 1.6 1.7 1.8 1.9

Net debt / Equity (x) 0.5 0.8 1.1 1.0 1.2 1.2

Net debt / Total assets (x) 0.1 0.1 0.2 0.2 0.2 0.2

Net debt / EBITDA (x) 1.6 1.4 2.0 2.1 2.8 2.6

Current ratio (x) 1.0 1.1 1.1 1.1 1.1 1.1

Profitability Indicators (%) 2013 2014 2015 2016 2017E 2018E

ROA -1.9 1.5 0.7 1.8 0.9 1.5

ROE -7.9 7.5 4.2 10.2 4.9 9.0

Source: Halk Invest estimates

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Forecasts & Financials

Per Share Data & Ratios & Multiples 2013 2014 2015 2016 2017E 2018E

EPS (TL) -0.30 0.29 0.18 0.50 0.27 0.52

BVPS (TL) 4.01 4.09 4.69 5.48 5.78 6.22

DPS (TL) 0.00 0.00 0.00 0.00 0.00 0.13

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 2.0

Capex / Net sales (%) 4.3 5.0 3.6 3.8 4.4 4.2

Net working capital / Net sales (%) 0.7 1.6 4.4 2.5 3.5 3.8

P/E (x) -22.3 22.8 37.2 13.2 24.7 12.7

EV/Sales (x) 0.7 0.5 0.4 0.4 0.4 0.3

EV/EBITDA (x) 10.3 5.6 4.6 4.6 5.0 4.1

Working Capital Indicators 2013 2014 2015 2016 2017E 2018E

Receivable days 91 84 93 100 100 99

Inventory days 81 88 98 99 99 98

Payable days 176 192 207 202 202 202

Cash conversion cycle -4 -21 -16 -4 -4 -6

Operating cycle 172 172 191 198 198 196

Source: Halk Invest estimates

23 GENEL-PUBLIC GENEL-PUBLIC

Halk Invest Rating Definitions

We rate a stock BUY if we see 15% or more upside in shares. Any upside between 1% and 15% merits a HOLD rating. We rate a stock SELL if our target value is below the current market value.

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Banu Kivci Tokali Serhan Yenigün Alpogan Sabri Erdogan Head of Research Energy & Utilities Head of Financial Markets Chief Economist Strategy +90 (212) 314 8182 [email protected] [email protected] [email protected]

Ilknur Turhan Mehtap Ilbi Nazan Ozdemir Generalist, Consumer, European and US Institutions Building Materials Consumer Staples +90 (212) 314 8184 [email protected] [email protected] [email protected]

Abdullah Demirer Furkan Okumus Arzu Arioz Industrials, Consumer, Asia and MENA Mid-caps Consumer Discretionary +90 (212) 314 8137 [email protected] [email protected] [email protected]

A.Cuneyt Mehmetoglu Industrials, Base Metals [email protected]

Disclaimer

This report has been prepared by Halk Yatırım Menkul Değerler A.Ş. (“Halk Invest”), solely to provide information to the recipient as of the date of issue and are subject to changes without prior notice. The comments, estimates and recommendations included herein do not constitute an offer or an invitation to buy or sell any security. The advice given in this document is not a part of investment advisory activity. Investment advisory services are given according to the investment advisory contract, signed between the authorised institution and the client. The information presented in this report has been obtained from published information and other sources which Halk Invest considers to be reliable. Halk Invest does not accept any liability or responsibility for the accuracy or completeness of any such information. The opinions discussed in this report may not be appropriate for all investors. Transactions in securities, instruments or investments to which it refers to can involve high risks, therefore it is highly recommended that investors make their own investment decisions based on their specific investment objectives, financial positions and risk profiles. Halk Invest and its affiliated organisations and persons may, from time to time, take position on any of the securities covered herein and may buy or sell those securities or their derivative securities either on their own account and / or on behalf of their clients. All information in this document remains as the property of Halk Invest and must not be reproduced under any circumstances, not to be copied or made available to any person other than the recipient.

24 GENEL-PUBLIC