Turkish Equity Strategy - 2H09

TURKISH EQUITY STRATEGY - 2H09

Featuring an exclusive independent view on the Turkish economy by Prof. NOURIEL ROUBINI

“That which does not kill us makes us stronger”

FOREWORD

“That which does not kill us makes us stronger”

Nietzsche’s words summarize Turkey’s recent experience succinctly. Turkey faced the worst during the global crisis in the midst of shrinking credit markets, drying capital inflows and shattering export demand. Coupled with this negative global backdrop, concerns over Turkey’s high external financing requirement, large FX exposure in the private sector and the rising trend in NPLs in the banking sector precipitated a massive sell-off in Turkish assets in late 2008 and early 2009. Fear was the overriding theme then.

However, the Turkish economy proved much more resilient than had generally been believed. The banking system did not face a huge asset deterioration thanks to strong balance sheets not burdened by toxic assets. On the contrary, with declining interest rates Turkish banks posted spectacular earnings in 1Q09. Banks and companies continued to rollover their external debts to a large extent alleviating concerns for further weakness in the currency as well. With the fall in domestic and export demand, industrial production declined considerably, however, thanks to cost control measures and timely government incentives, Turkish industrials did not experience large scale bankruptcies. In other words, Turkish companies muddled through just fine during the worst crisis the world has experienced since the Great Depression of 1929.

Why was Turkey so strong? The answer is simple - experience. Turkey has a long history of frequent crises. All these crises have taught Turkish banks to be only conservatively aggressive when the times are good to avoid the pain when the times turn bad and Turkish industrials to be as flexible as possible at all times. Therein lies the real strength of the Turkish case. Having come out of the last crisis relatively unscathed as well, Turkey is now even stronger.

The resilience of Turkish industry and its banking sector is acknowledged and acclaimed by a large investment community as well. This was the main reason behind the rally we have seen at the ISE since the beginning of March. In our 2009 strategy report sent in January, we have correctly envisaged that the interest rates would continue to edge lower with the expected decline in inflation and a more stable exchange rate; and investors would start buying the potential recovery. Our market call was to buy on weakness, which proved highly rewarding considering 85% dollar return on the ISE since 9 March 2009.

FOREWORD

We foresee real and lasting recovery in domestic demand conditions in 2010 and forecast a 3% growth in Turkish economy. We predict that with a relatively stronger growth impetus, inflation is likely to edge higher to 6.5% after hitting a low of 4.5% at end-2009. Interest rates, in line with the upward move in inflation rate and the stretch on the fiscal side, are likely to increase to an average of 14.5% in 2010. Please note that this benign economic outlook we envisage rests on the assumption of a continuing improvement in global backdrop. Any major setback on the global front would inevitably create a downside risk to this outlook.

Meanwhile, the prospects for an IMF deal continue to be a hot topic. In our projections, we used a working assumption of a no IMF deal in 2009. We do not expect to see much short-term impact from a no deal scenario since with a lower private sector debt service amid an easier global credit and capital inflow environment, Turkey is unlikely to experience much difficulty in her balance of payments in 2010. We believe, this lack of urgency coupled with a preference to have freedom over fiscal stance in the face of ongoing economic slowdown and high unemployment were the main reasons behind government’s reluctance to sign an agreement so far. However, Turkey will still need a roadmap regarding fiscal structural reforms to secure a comfortable mid to long term outlook either in the form of a formal IMF deal or a self initiated program. There is, of course, still hope for an agreement with the IMF, which would result in an improvement on all of the figures we pencilled in this report.

What is next for Turkish equities? We expect to see upward earning revisions gain pace after the announcement of 2Q09 results in August, which will lead to higher target valuations for Turkish companies. Therefore, we expect the up trend in equity prices to be maintained in 2H09 with occasional corrections on the way. Those short-term price weaknesses should be used effectively to build positions in the rest of 2009.

The following pages also feature an independent view on Turkish economy written by Prof. Nouriel Roubini exclu- sively for our report. Mr. Roubini, who has joined the ranks of legends by his extremely accurate predictions on the essence and course of the global crisis, naturally has a more cautious view on both global and the Turkish economy compared to ours.

We hope you enjoy reading our report and wish you an affluent second half to the year.

Garanti Securities Research and ICM

ii A FUTURE BOUNCE IN TURKEY’S STEP

There is no question that Turkey is in for a bumpy ride this year and next, but the economy is in much better shape to weather the global financial crisis than earlier this dec- ade. A sharp recession in 2009 is inevitable. The big question mark now hanging over Turkey’s growth prospects is whether officials can reach a stand-by agreement with the IMF.

In my view, the sooner Turkey finalizes a deal, the better its recovery outlook. Not only would an IMF loan help Turkey finance its current-account deficit and bolster its deteriorating public finances (Turkey’s latest Achilles’ heel), it would also give investors confidence in the ability of Turkish corporates, financial institutions, and its public sector to continue rolling over debt in the face of tight credit conditions. Worryingly, it now looks like an IMF deal is being put off until autumn at the earliest.

Even if a deal is signed, headwinds loom. High unemployment, which lingered above 15% in the February-April period, will have a negative drag effect on consumption, by far the biggest component of GDP. Industrial output has plunged, showing double-digit year- over-year declines for six straight months through April. Meanwhile, weak overseas demand is cutting into exports.

Our outlook forecasts near zero growth through 2010 in the eurozone, Turkey’s biggest export market and its biggest source of foreign investment, meaning a recovery will be painful and slow in coming. What this suggests is that Turkey’s golden era of growth, when the economy grew at an average rate of 7% from 2002 to 2007, will not return for several years.

Roubini Global Economics LLC - 131 Varick Street, 10th flr - New York, New York, 10013, United States - Tel: +212 645 0010 iii www.rgemonitor.com - [email protected] Officials have acted aggressively to minimize the recession by cutting 8% off the policy rate in the eight months to June. The problem is deteriorating public finances could limit the room for further easing. Growing public sector borrowing requirements could force interest rates upward.

All is not doom and gloom. Turkey took care of an important bogeyman by strengthening supervision of its financial sector in recent years. Unlike 2001, the banks appear well- positioned to ride out the downturn. Since retail deposits account for the bulk of Turkish banks’ funding, they are less dependent on difficult-to-access wholesale funding. More- over, the banking system is not dominated by foreign parent banks to the same extent as those in Eastern Europe, which limits the potential for contagion effects. So even though bad loans will rise from their current levels, the banking sector should remain in good shape. This suggests Turkey will experience a shorter recession than those countries ex- periencing severe financial sector distress.

In another bright spot, structural reforms undertaken after the 2001 crisis and favorable demographic trends (with half of the population under the age of 30) make us relatively upbeat about the economy’s long-term growth prospects.

Nouriel Roubini June 2009

Roubini Global Economics LLC - 131 Varick Street, 10th flr - New York, New York, 10013, United States - Tel: +212 645 0010 iv www.rgemonitor.com - [email protected]

CONTENTS

Page Equity Strategy 1 Turkish Economic Outlook 20 Sectors 37 Automotive 38 Aviation 44 Banking 48 Cement 60 Conglomerates 64 Consumer Durables 73 Food & Beverages 77 Food Retail 81 Media 83 Oil 85 Real Estate 89 Steel 92 Telecommunications 95 Valuation Sheets 100

EQUITY STRATEGY

Main Highlights... ISE-100 Index (US$)

54000 • Continue to overweight Turkish equities in an emerging market portfolio… 45000

• Expect a strong rebound in 2Q09 earnings… 36000

• Recent rise in bond yields - only a technical correction... 27000 • Turkish equities still cheap after a 3.5 month rally... 18000 • Economic recovery gathering momentum... 9000 • Low interest rate/stable currency environment to persist...

01.07 03.07 05.07 07.07 10.07 12.07 02.08 05.08 07.08 09.08 12.08 02.09 05.09 • Buy Isbank, Halkbank, TEB, Ford Otosan, TAV, Koc Holding, Source: ISE and Sise Cam...

ISE-30 Quarterly Earnings* (TLmn) In this report, we turn to a “question and answer format” to address

some of the critical questions investors may have and discuss the key 7,500 forces that will shape the Turkish equity market in 2H09 and 2010. 6,000 Q. Turkish equities have enjoyed an amazing rally, yielding an impressive 85% US$ return since 9 March 2009, the start of the 4,500

global rally. For all the fundamentals driving the prices, do you 3,000 think this rally has been too quick and come too soon? 1,500 A. Turkish equities had been in an oversold state at the beginning of the year amid concerns over the high external financing requirement, 0 FX exposure in the private sector, and a rapid rise in NPLs in the bank- 1Q08 2Q08 3Q08 4Q08 1Q09 ing sector. Most of these concerns started waning in a short period of *: Holdings are excluded time as both the Turkish economy and companies coped with the crisis Source: ISE

EQUITY STRATEGY

well. 1Q09 earnings performance, especially in the banking sector, sur- ISE-100 Forward Looking P/E prised the market on the upside. Thus, the recent recovery in stock 20 prices has been mainly on the back of a shift in the market sentiment from a very depressed state to the one driven by fundamentals. Opti- 16 mism is also building up around the 2Q09 earnings performance. Ana- 12 lysts have already started revising up their FY09 earnings estimates. 8 These revisions are likely to create further upside potential going forward. While a technical correction may be on the cards in the near 4 term, we believe Turkish equities are neither overbought nor expensive 0 at this stage.

01.03 05.03 09.03 01.04 05.04 09.04 01.05 05.05 09.05 01.06 05.06 09.06 01.07 05.07 09.07 01.08 05.08 09.08 01.09 05.09 Q. It looks as if a lot of good news has already been priced in. Source: Garanti Securities Estimates What could drive equity prices to higher levels going forward?

A. As we said above, what we have seen so far is more like valuations Banks P/BV catching up with the “reality”. The gap between the perception and the reality is closing. Going forward, the key force behind the valuations will 4.0 be earnings revisions thanks to the sooner-than-expected pick-up in 3.3

domestic consumption. Both Turkish banks and industrials have en- 2.6 joyed a strong rebound in demand in 2Q09 on the back of positive macro conditions driven by lower interest rates and a stronger Turkish 2.0 Lira. They will continue to benefit from similar conditions during the rest 1.3 of 2009. We expect that earnings revisions will gather pace after the 0.7

2Q09 earnings announcements in August 2009. 0.0

The current valuations still fail to reflect this benign outlook despite the 01.02 05.02 09.02 01.03 05.03 09.03 01.04 05.04 09.04 01.05 05.05 09.05 01.06 05.06 09.06 01.07 05.07 09.07 01.08 05.08 09.08 01.09 05.09

three and a half month rally. With a P/BV of 1.3x and a P/E of 8.4x Source: ISE

EQUITY STRATEGY

based on 2009 prospective earnings (see page 52), Turkish banks are External Financing Requirement (US$bn) still among the cheapest in the EM universe. Industrials are trading at a 2008 1Q09 2009E 2010E 9.6x P/E based on 2009 forecasts, still representing a discount to their Outflow s 84.6 11.8 61.5 63.4 Current Account Deficit 41.4 1.2 11.0 29.0 peers in other EMs. We believe this discount will close fast as Turkey Debt Service (MLT) 43.2 10.7 50.5 34.4 will be among the first to emerge from the crisis. Public 11.0 1.5 8.2 8.4 Private 32.2 9.2 42.3 26.0 The key risk factor seems to be another down-leg in global markets Inflow s 82.7 10.6 56.5 58.4 FDI (net) 15.0 1.9 6.0 9.0 triggered by renewed recession fears. While Turkish equities would in- Portfolio (equity; net off port.assets) -3.5 -1.6 2.0 3.0 evitably be affected from a sell-off, we believe they would still continue Borrow ing (MLT) 63.4 5.5 39.5 37.1 outperforming their peers in both developed and other developing Public 6.0 -1.4 7.6 8.4 Private 57.4 6.8 31.9 28.7 countries. Short Term (net) 4.0 -2.1 3.0 3.3 Others 3.8 6.9 6.0 6.0 Q. How would the Turkish markets be affected by the failure to Reserve Accumulation (inflow -outflow ) -1.9 -1.2 -5.0 -5.0 hammer out an IMF deal? Source: Treasury, Turkey Data Monitor,Garanti Securities

A. Frankly, we expect no sustained weakness in financial markets in External Debt Roll-over Ratio (Private Sector) case of a no-IMF deal scenario provided the global markets remain supportive (see page 26). The key role of an IMF deal would be to 300% 246% meet Turkey’s large external financing requirement in 2009. As of 250% 224% 1Q09, both Turkish government and companies have done a great job 210% 200% 178% 159% in terms of meeting their foreign debt obligations. The good news is 148% that there will also be a marked decline in private sector’s external debt 150% 108% 102% service to around US$26bn in 2010 from US$42bn in 2009. Although 100% 82% 74%

this will be offset to some extent by a rise in the current account deficit 50% (CAD), Turkey should still cope reasonably well in terms of financing its 0% external debt requirements considering the expected recovery in global 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 sentiment and a pick-up in portfolio/FDI inflows to EMs in 2010 (see page 32). Thus, the combination of a proven track record in finding for- Source: Turkey Data Monitor, Garantii Securities

EQUITY STRATEGY

eign debt and significantly lower debt obligations of the private sector in Budget (TLbn) 2010 will help reduce the significance of an IMF deal for the external 2008 2009P January-May debt repayments. Old Revised 2008 2009 Expenditure 229.5 259.1 259.1 86.0 106.9

Q. Still, the consensus view is that the lack of an IMF deal would Non-interest 175.0 201.6 202.9 66.4 80.8 Interest 54.5 57.5 56.2 19.6 26.1 mean further deterioration on the fiscal side. What is your view? Revenues 215.4 248.8 211.6 84.0 86.2 Tax 174.7 202.1 170.0 70.1 66.2 A. There is already some deterioration on the fiscal side. The budget Non-Tax 40.7 46.7 41.6 11.2 17.1 deficit for the first five months of the year has reached TL21bn, com- Budget Balance -14.1 -10.3 -47.5 -2.1 -20.7 paring unfavorably with the official FY09 target of TL48bn (5% of GDP) Primary Surplus 40.4 47.2 8.7 17.5 5.4 (see page 25). Part of the blame should be placed on the economic re- as of GDP (%) cession and the consequent decline in tax revenues. However, the Budget Balance -1.8 -0.9 -5.0 n.a n.a Primary Surplus 3.5 4.2 0.9 n.a. n.a. main culprit seems to be a dramatic rise in non-interest expenditures.

The consensus believes that fiscal discipline will be weak without an Source: SPO, Finance Ministry IMF deal and therefore sees the deal as the key to keep expenditures under control. Also, higher deficits are likely to lead to increased bor- Budget (%) rowing requirement for the Treasury, which is likely to crowd out the local credit markets for the private sector. This could be contractionary in 10 6.4 6.7 the longer term as private sector plays a much bigger role in economic 4.3 growth in Turkey. While we agree largely with the consensus on the 5 significance of the deal for fiscal discipline, we disagree on two fronts: 0 -0.7 -0.5 First, the expected recovery in 2010 GDP will limit the deterioration in -1.8 -2.0 -5 the budget balance thanks to the consequent improvement in tax col- Budget Balance / GDP -10 lection. Secondly, the share of foreign investors in local currency bond Primary Balance / GDP -9.3 market is now at a five year low at 12%. With a higher participation -15 from foreigners, Treasury may have a relaxed hand in 2010. Thus, the 1Q06 1Q07 1Q08 1Q09* deterioration in fiscal balance, if remains in manageable limits, is unlikely to disrupt the positive economic outlook. Source: SPO, Treasury, Finance Ministry *Estimated GDP for 1Q09

EQUITY STRATEGY

Q. Commodity prices have also started to increase. How do you Energy Prices vs. Current Account think the Turkish economy - which is still in a fragile state - cope 49 98 100 CA Def icit 42 90 up with higher commodity prices? (US$bn)

35 70 80 A. It is fair to expect that higher energy prices will shift Turkey’s inflation 66 72 60 28 70 Net Energy and current account deficit to higher levels. However, we expect the im- 55 Import 21 60 pact to be limited under our current average oil price assumptions. We (US$bn) 14 50 Oil price now assume an average oil price of US$60/bbl for 2009, edging up to (US$/bbl)- 7 40 US$70/bbl in 2010. However, we had already penciled this in our 6.5% rhs inflation forecast for 2010, which is in line with the CBT’s inflation target 0 30

(see page 27). We predict a CAD of US$29bn in 2010, with a sharp 2005 2006 2007 2008 2009E 2010E rise from our US$11bn forecast for 2009. With a more supportive global environment and a lower private sector external debt service, Turkey is Source: CBRT, Garanti Securities unlikely to experience an external financing problem. Forward Looking Inflation (%)

Q. When combined with higher commodity prices, do you think 12 the economic recovery you envisage could reverse the downtrend 10 in inflation in 2010? 8 CBT's target A. Inflation is likely to edge higher next year as a result of the expected 6 pick-up in growth and rising commodity and food prices. The Turkish 4 economy has enjoyed a steady decline in inflation so far in 2009, with Current inflation Garanti Securities' 2 the annual rate of CPI inflation declining from 10.1% at the end of 2008 May 2009: 5.2% estimate to 5.2% in May-09. The main drivers behind lower inflation have been 0 very weak demand conditions hindering any pass-through from the de- valuation of Turkish Lira, high inventory levels, a rapid decline in com- 04.09 06.09 08.09 10.09 12.09 02.10 04.10 06.10 08.10 10.10 12.10 modity prices and one-off price adjustments (in natural gas). Some of Source: CBRT, Garanti Securities

EQUITY STRATEGY

these drivers may work in a reverse direction in 2010. Commodity Expected Inflation & Interest Rates (annual, %) prices are likely to continue their ascent. Furthermore, having rid their high inventories, manufacturers will begin to pass higher production 17.5 Benchmark-lhs 10.0 9.0 costs to final product prices. As a result, the declining trend in inflation 16.5 Inf lation 8.0 may come to a halt some time around end-2009. We project that the 15.5 rate of CPI inflation will start to edge back upwards after hitting a re- 7.0 cord low of 4.5% by end-2009, and climb to 6.5% at end-2010. 14.5 6.0 5.0 13.5 Q. So given the budget and inflation dynamics, how do you think 4.0 12.5 local currency bond yields will sustain the down trend in 2010? 3.0 11.5 2.0 A. Turkish local bond market has rallied so far in 2009 driven by strong appetite from domestic banks. The benchmark yield has declined to a 01.09 03.09 05.09 07.09 09.09 11.09 01.10 03.10 05.10 07.10 09.10 11.10 record low 11.5% in May-09 from over 20% in Dec-08. However, the Source: Garanti Securities continuing deterioration in fiscal discipline and the expected pick-up in Macro Summary inflation seems to have reversed the down trend. An increasing conviction that the Central Bank is nearing the end of its easing cycle is also 2007 2008 2009E 2010E seen as another reason behind the steeper yield curve we have seen GDP (US$bn) 663.0 740.0 635.0 665.0 recently. In our view, these concerns have already caused some dis- GDP Grow th (real, %) 4.50 1.10 -3.50 3.00 C/A Deficit (US$bn) -38.00 -41.40 -11.00 -29.00 tress in the bond market, leading to an upward correction in yields to Current Account Deficit (% GNP) -5.70 -5.60 -1.7 -4.4 12.5-13% level. Nevertheless, we do not foresee further rise in yields in CPI (year-end) 8.40 10.00 4.50 6.50 the near term as low cost of funding determined by the CBT’s policy Benchmark Rate (avg) 18.50 19.27 13.60 14.50 rate will continue to lure local banks into the bond market. (see page Benchmark Rate (eop) 16.50 16.50 13.50 15.00 29) Real Interest Rate (avg) 11.20 11.00 6.50 7.50 Policy Rate (eop) 15.75 15.00 8.50 10.00 In 2010, the course of the bond yields will be determined by inflation US$/TL (eop) 1.16 1.51 1.55 1.65 Budget Deficit/GNP (%)* -1.60 -1.70 -5.00 -3.80 and the budget balance. Higher inflation and the Treasury’s rising borrowing requirement are likely to place some upward pressure on yields. Source: CBRT, TurkStat, Garanti Securities

EQUITY STRATEGY

While this may push the local currency yields up to 14-15% level, this is Real Exchange Rate vs TL unlikely to have any significant and lasting impact on the positive out- 1.8 $/TL-lhs RER-CPI based 200 look for Turkish equities. 1.7 190 1.6 Q. The Turkish Lira has held up relatively well through the storm 180 in global markets in 2009. What do you think will happen to the 1.5 170 Turkish Lira next year? 1.4

160 A. Turkish Lira has weakened over the past year in line with other EM 1.3 currencies. We now expect a more relaxed environment for the Lira as 1.2 150

global market sentiment gradually goes back to normal and risk appe- 1.1 140 tite increases. The comfortable external financing environment ahead

will give support to TL. Moreover, FX liquidity in the system remains 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 quite healthy and local households’ FX deposits amounting to a sub- Source: TurkStat stantial US$93bn will continue to act as a buffer against FX volatility. In line with the supportive global environment scenario, we expect the Lira Overview of the WEO Projections to remain strong in 2H09 and 2010. (see page 34) Annual change, % Current Projections

2008 2009 2010 Q. What if global sentiment turns bearish and risk appetite sours World Output 3.2 -1.0 to -0.5 1.5 to 2.5 again? How would Turkey cope with a potential second wave of Advanced Economies 0.8 -3.5 to -3.0 0.0 to 0.5 selling in global markets? US 1.1 -2.6 0.2 Euro Area 0.9 -3.2 0.1 A. The consensus view is that global economic environment will be- Japan -0.7 -5.8 -0.2 come even more supportive for EMs in 2010. We simply stick to this Emerging and Dev. Economies 6.1 1.5 to 2.5 3.5 to 4.5 Central and Eastern Europe 3.2 -0.4 2.5 view. However, if a second wave of global sell-off was to strike, Turkish Developing Asia 7.8 5.5 6.9 markets would suffer along with the other EMs. In this episode however Consumer prices we believe the level of damage would be significantly more limited for Advanced economies 3.5 0.3 0.8 essentially three reasons: First, Turkish banks have proven their ability Emerging and Dev. Economies 9.2 5.8 5.0 Source: IMF, WEO

EQUITY STRATEGY

to deal with the crisis. In fact, they emerged stronger with better than Banks NPL (Monthly)

expected earnings growth so far. With a stronger capital base, they will 5% 15% continue to provide a cushion for the Turkish economy against possible sell-offs in global markets. Secondly, Turkish industrials have all raced 4% 12% to reduce their debt and FX exposure during the crisis in an effort to 3% 9% limit potential damage should the crisis continue deepening. They have 2% 6% also spent the crisis period in reinforcing their balance sheets via cost cutting, inventory rundown and capital increases. As a result, they are 1% 3%

now better positioned and guarded to cope with a new wave of sell-off. 0% 0% Last but not least, Turkish companies will have substantially lower debt service in 2010 as mentioned before. This will not only help reduce 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 their dependency on global markets, but it will also limit the impact on NPL ratio MoM grow th in NPL stock their balance sheets of a potential worsening in global conditions. Source: BRSA Weekly Data

Q. Now that the bond yields have started creeping up again, how Loan Growth (YoY) will the banks resume their earnings growth?

20% A. We believe that the dynamics that led to buoyant earnings growth in 15% 1Q09 are still in effect with one exception: They are only stronger now. In 1Q09, banks benefited from a decline in interest rates in two ways: 10% Marked-to-market gains on their securities portfolio and a decline in 5% their cost of funding. On the other hand they suffered badly from a 0% sharp rise in NPL provisioning. In 2Q09, bond yields have crept back -5% up from record low levels to 12.5-13%. They however are still lower -10% than their end-March levels of 14%-14.5%. More importantly, cost of 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 2009F 2010F 1H09F funding which is a result of the CBT’s policy rate is still at record low TL Loan Grow th FX Loan Grow th (US$ based) levels. Thus, banks still enjoy some marked-to-market gains on securities and low cost of funding. Better news is that banks will have sub- Source: BRSA, Garanti Securities Estimates

EQUITY STRATEGY

stantially lower NPL provisioning in 2Q09 as the rise in NPL ratio over Automotive Domestic Sales Growth (YoY) 60% the period was much more limited than 1Q09. Last but not least, vol- 40% ume growth has begun in May 09 after nearly six months. We expect t c t loan demand to accelerate in 2H09 thanks to low interest rates and the 20% fe u f c e T continuing recovery in global markets. The bottomline is that banks will 0% e C h S T f continue to enjoy solid NIM expansion on the back of low funding costs, o declining NPL provisioning and growth in loan demand. Investors -20% should continue building positions in Turkish banks. (see page 48) -40%

-60% Q. The recent correction in industrials’ share prices appears to be

pricing in a fast recovery. Is this justified? Is there still some up- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 side left? Source: AMA

A. Turkish industrials were hard hit by substantial FX losses and depressed demand conditions in 1Q09. US$/TL started 2009 at 1.52 and White Goods Domestic Sales Growth (YoY) ended 1Q09 at 1.67, causing significant losses to those companies sit- 40% ting on large short FX position. Good news is that part of these losses will be reversed in 2Q09 if US$/TL closes the quarter at the current lev- 20% els (1.50-1.55). We are also observing a rapid pick up in demand in

certain sectors thanks to some one-off incentives such as a major cut 0% in SCT (Special Consumption Tax) rate in the automotive market. How- ever, in general, demand conditions are affected by lower interest rates -20% positively. Thus the combined effect of possible reversal of 1Q09 FX

losses and a sustained pick-up in domestic consumption is likely to -40% lead to a strong rebound in earnings in 2Q09. Industrials are likely to

post earnings growth in 2H09 as well, thanks to the expected rebound 01-07 03-07 05-07 07-07 09-07 11-07 01-08 03-08 05-08 07-08 09-08 11-08 01-09 03-09 05-09 in domestic consumption and the continuing recovery in global mar- Source: WGSA kets.

EQUITY STRATEGY

Q. You seem to have a quite positive outlook for the Turkish econ- Recommended Portfolio omy and companies. Assuming that you are right about your re- Company Strength Upside Potential covery scenario, how should investors play the market going for- Fortis Discount to its book 36% ward? Ford Otosan Export to the US 45% Halkbank Strong earnings potential 30% A. To play for any revival in Turkish market, banks are a must have as- Isbank Comfortable in funding 41% set class. As mentioned previously, at their current valuation multiples, Koc Holding ISE proxy 31% we believe there is still good upside potential in Turkish banks. We Netas Improved profitability 30% Otokar Defense contracts 30% would also recommend having exposure to large cap industrials that Sise Cam Resilient margins 35% would be affected positively by a revival in domestic demand. Our cur- Tat Konserve Growth potential 39% rent top picks are Is Bank (see page 56), Halkbank (see page 55), Teb TAV Growth expectations 35% Bank (see page 57), Ford Otosan (see page 40), TAV (see page 46), TEB Strong fundamentals 34% Koc Holding (see page 67), and Sise Cam (see page 69). Trakya Cam Attractive valuation 29% Turk Telekom Attractive valuation 29%

ISE-100 (end 2009) (YTL) 18% Source: Garanti Securities Estimates

OUR RECOMMENDATED PORTFOLIO

Company Market Cap (TLmn) Closing Price (TL) Target Price (TL) (2009-end) Upside %

Fortis 1,460 1.39 1.89 36% Ford Otosan 2,123 6.05 8.75 45% Halkbank 7,688 6.15 8.00 30% Isbank 13,735 4.46 6.31 41% Koc Holding 6,328 2.62 3.44 31% Netas 160 24.60 32.00 30% Otokar 307 12.80 16.61 30% Sise Cam 1,375 1.25 1.69 35% Tat Konserve 302 2.22 3.08 39% TAV 1,497 4.12 5.55 35% TEB 1,320 1.20 1.61 34% Trakya Cam 723 1.35 1.74 29% Turk Telekom 17,150 4.90 6.34 29% ISE-100 215,317 36,328 42,773 18%

RECOMMENDED STOCKS-HIGHLIGHTS

Ford Otosan (FROTO.IS, Current Mcap: TL2,123mn, Upside Potential: 45%)

Attractive valuation…Ford Otosan trades at an EV/EBITDA of 3.2x and P/E of 5.4x based on 2010 prospects, well below the respective domestic sector average multiples. Exports to the US started in May… Ford will export 35,000 Transit Connect models to the US market in 2009, creating a cushion against the downturn in the European markets. The worst is over… After the new model launch of Transit Connect recently, the Company will regain some of its market share losses.

Fortis (FORTS.IS, Current Mcap: TL1,460mn, Upside Potential: 36%)

The cheapest bank in our coverage... Fortis trades at a significant discount to its peers with its FY10 P/BV multiple of 0.7x. Merger is the most likely scenario… Fortis and TEB recently signed a confidentiality agreement for exchanging information to consider corporate restructuring alternatives. We believe a potential merger between Fortis and TEB is on the cards in 2009, and Fortis will be definitely valued at a higher P/BV than its current 2010F P/BV of 0.7x during a corporate action. Projections... We expect Fortis to grow its earnings by 25% in 2009 backed by the declining interest rates. We also expect Fortis’ earnings to be strong in 2010, due to its high spreads on FX loans.

Halkbank (HALKB.IS, Current Mcap: TL7,688mn, Upside Potential: 30%)

The most comfortable bank in funding… Halkbank is less exposed to the surge in syndication costs as international funding accounts for a negligible 3% of its B/S. Moreover, Halkbank’s wide deposit base constitutes 76% of B/S and the ongoing redemptions of its broad security portfolio ensure robust funding. Asset quality improving… Despite being an SME bank, the rise in Halkbank’s NPL book remained below the sector. The decline in the ratio of the bank’s loans under close monitoring in 1Q09 also hints to an improvement in asset quality for 2Q09. ROAE to remain strong in 2009 and 2010... We expect Halkbank’s NIM to increase by 50bps in 2Q09 on the back of a decline in the bank’s deposit costs. Also declining provision expenses and rising NPL collections will support Halkbank’s bottom-line in 2010.

RECOMMENDED STOCKS-HIGHLIGHTS

Isbank (ISCTR.IS, Current Mcap: TL13,735mn, Upside Potential: 41%)

Compelling valuation… Isbank trades at a discount to other large cap banks, based on its FY09 and FY10 P/BV multiples. Improving asset quality... Isbank’s conservative 100% provisioning coverage policy for NPLs alleviates our concerns of a much worse asset quality deterioration. Strong NPL collections will also serve to boost the bank’s other income in 2009 and 2010. Major beneficiary of declining interest rates… As the bank has a higher duration gap compared to its peers and a wide TL deposit base and AFS securities portfolio, we believe the declining interest rates will be much more reflected in Isbank’s 2Q09 NIM expansion.

Koc Holding (KCHOL.IS, Current Mcap: TL6,328mn, Upside Potential: 31%)

Increased discount to its current NAV… Our 2009-end target Mcap for Koc Holding of US$5.46bn indicates 31% TL based upside potential. The Company also trades at a considerable 18% discount to its current NAV. To recall, recent performance of the stock, suggests that Koc Holding’s current discount to NAV stabilizes at around 10%. Well positioned for corporate actions… With its US$800mn of standalone net cash position, Koc Holding is well positioned to embark on a new acquisition spree. ISE proxy with strong underlying businesses… Provides exposure to Turkey’s growth sectors; banking, energy, automotive and consumer durables with many listed subsidiaries at the ISE.

Netas (NETAS.IS, Current Mcap: TL160mn, Upside Potential: 30%)

Cheap valuation… Netas trades at a discount to its peers with an expected upside potential of 30% in TL terms. Corporate action expected… The parent Nortel Networks has applied for chapter 11 and an announcement regarding the application procedures will be made in July, which we think will act as a catalyst for the stock. A turnaround in telecommunications expected… Liberalization of the market is set to kick in with local loop unbundling gain- ing pace. Mobile number portability which has accelerated competition in the market coupled with heavy investing in the sector will create new business for Netas.

RECOMMENDED STOCKS-HIGHLIGHTS

Otokar (OTKAR.IS, Current Mcap: TL307mn, Upside Potential: 30%)

Defence tenders to keep the stock active… Otokar’s focus on military vehicles will help cushion the Company against the downturn in the commercial vehicle market. National tank project to support revenues... The Ministry of Defence selected Otokar as a major supplier for the development of a national tank, agreeing to pay US$500mn by 2015 for the development of four prototypes. Resilient financials… We project that Otokar’s revenues will remain slightly over their 2008 levels, despite the expected contraction in the sector, thanks to orders taken from the defence industry.

Sise Cam (SISE.IS, Current Mcap: TL1,375mn, Upside Potential: 35%)

Attractive discount to its NAV... Sise Cam is trading at an attractive 35% discount to its current NAV, compared to a historic discount of 20%. Better value than subsidiaries... Sise Cam offers higher upside potential than its listed subsidiaries and also boasts greater liquidity. Another advantage is hidden assets in its unlisted subsidiary, Pasabahce. Better quarters ahead... The SCT rate cut in the automotive and white goods sectors indirectly supports revenues. The 18% and 26% cuts in natural gas prices on February 1 and on May 1 will help improve operating profitability in the upcoming quarters. In addition, a stronger TL in 2Q will provide FX gains.

Tat Konserve (TATKS.IS, Current Mcap: TL302mn, Upside Potential: 39%)

Trading at a discount to its peers... Tat Konserve is trading at a discount to its international peers with its 2010E EV/EBITDA multiple of 6.3x. Bullish growth and sector prospects... Tat Konserve has an investment plan to increase its tomato production capacity at its 58.2% subsidiary Harranova Besi, from the current 130,000 tonnes, to 1mn tonnes by 2013. Increasing operational efficiency… As Harranova’s share in production increases, Tat Konserve’s EBITDA margin will improve by 2pp in 2009.

RECOMMENDED STOCKS-HIGHLIGHTS

TAV Airports (TAVHL.IS, Current Mcap: TL1,497mn, Upside Potential: 35%)

Attractive valuation... TAV is trading at a discount to peers based on 2010E EV/Sales multiple. We believe the 35% underperformance in the past year offers an attractive entry level. The worst quarter of the year is over… 1Q was a low season for air travel and additionally the global economic crisis negatively affected both aircraft and passenger traffic. The operating performance is set to improve in the upcoming quarters. Cash flow under control... We believe TAV will not have any payment issues in 2009 thanks to its rights issue completed in January. In addition, TAV has started negotiations for the sale of a minority stake of its full subsidiary TAV Tunisie.

TEB (TEBNK.IS, Current Mcap: TL1,320mn, Upside Potential: 34%)

Flexible financial structure is set to boost earnings... The announced 1Q09 financials stand as a testament to TEB's resilience. TEB is also trading at attractive multiples when compared to its peers. A potential merger with Fortis is on the cards... We believe a merger between TEB and Fortis is the most likely scenario following Fortis’ acquisition by BNP, as the two banks are strategically complementary of each other with Fortis’ expertise in retail banking and TEB’s expertise in corporate banking. A potential merger will also lead to a re-rating in TEB’s valuation. Highest TL and FX spreads within our coverage banks... The bank’s higher spreads stem from its above sector yields on TL and FX loans and HTM securities, which will positively affect the bank’s bottom-line in 2Q09 and further.

Trakya Cam (TRKCM.IS, Current Mcap: TL723mn, Upside Potential: 29%)

Trading at a discount ... Trakya Cam is trading at a deep discount on the basis of its 2010E EV/EBITDA and P/E multiples, and a slight discount on the basis of its EV/Sales multiple when compared to global glass producers. Resilient EBITDA... Trakya Cam uses natural gas for production and production costs account for nearly 25% of total COGS. Natural gas prices declined 18% on February 1 and 26% on May 1. Combined with a rise in value added products and decline in energy costs in 2009, we expect EBITDA to stay resilient. Stock performance is behind auto and cement stocks… We believe Trakya Cam is now next in line to benefit from a share price bounce, hot on the heels of the recovery in automotive and cement stocks.

RECOMMENDED STOCKS-HIGHLIGHTS

Turk Telekom (TTKOM.IS, Current Mcap: TL17,150mn, Upside Potential: 29%)

Attractive valuation... The stock is trading at a discount compared to its peers with 2010E 5.0x EV/EBITDA and 8.6x P/E multiples. Strong and secured cash flow and dividends... Turk Telekom offers a high dividend yield of 12% accompanied with a cash flow yield of 13% for 2010. Leadership position in the market... Turk Telekom will continue to dominate the fixed-line and ADSL markets in the absence of fierce competition and will continue to grow its mobile business.

OUR RECOMMENDATIONS’ RELATIVE PERFORMANCE TO ISE-100

2009 2008

80% 73% 40% 21% 60% 20%

33% 40% 30% 0%

20% -20%

0% -40% -42% -20% -60% -52% Portfolio Index Relative Portfolio Index Relative

2007 2006

80% 40% 33% 31% 59% 30% 60% 42% 20% 40%

10% 20% 12% -2% 0% 0% Portfolio Index Relative Portfolio Index Relative -10%

COVERAGE LIST AND RECOMMENDATIONS

Target Upside Adjusted Close Market Cap. F/X Adjusted Return on Equity Price Potential P/E P/BV (TL) (TL mn) NIM 2009E (ROE) 2009E Stock Recom.(TL) (TL) 2009E 2009E AKBNK Market Perform 6.85 7.27 6% 20,550 11.2 4.9% 15% 1.6 FORTS Outperform 1.39 1.89 36% 1,460 8.1 7.4% 10% 0.7 GARAN* - 4.12 - - 17,304 10.0 N/A 18% 1.5 HALKB Outperform 6.15 8.00 30% 7,688 5.7 5.9% 27% 1.4 ISCTR Outperform 4.46 6.31 41% 13,735 8.1 5.5% 20% 1.3 TEBNK Outperform 1.20 1.61 34% 1,320 7.1 5.8% 12% 0.8 VAKBN Market Perform 2.21 2.58 17% 5,525 6.4 5.2% 15% 0.9 YKBNK Market Perform 2.23 2.76 24% 9,694 8.6 5.2% 15% 1.2 Average Ortalama 8.3 5.7% 16.3% 1.4 Target Upside Premium (+) / Close Market Cap. Adjusted NAV Price Potential P/EDiscount (-) to Adj. P/BV (TL) (TL mn) (TL mn) Stock Recom.(TL) (TL) 2009ENAV 2009/03 DOHOL Market Perform 0.95 1.16 22% 2,328 21.6 3,673 -36.6% 0.5 DYHOL Underperform 1.33 1.38 4% 823 41.1 686 19.9% 0.6 KCHOL Outperform 2.62 3.44 31% 6,328 4.3 7,670 -17.5% 0.4 SAHOL Market Perform 4.36 5.28 21% 7,848 8.8 12,154 -35.4% 0.4 SISE Outperform 1.25 1.69 35% 1,375 8.6 1,995 -35.0% 0.4 TKFEN Market Perform 3.52 4.36 24% 1,302 15.1 N/A N/A 0.9

COVERAGE LIST AND RECOMMENDATIONS

Target Upside Close Market Cap. Price Potential P/E EV/Sales EV/EBITDA P/BV (TL) (TL mn) Stock Recom.(TL) (TL) 2009E 2009E 2009E 2009/03 AEFES Market Perform 13.60 14.76 9% 6,120 17.3 1.8 7.6 2.5 AKCNS Market Perform 3.36 4.21 25% 643 8.0 1.3 5.0 0.9 ANACM Market Perform 1.54 1.79 16% 533 16.5 1.2 5.4 0.8 ARCLK Market Perform 2.42 2.78 15% 1,597 10.5 0.5 6.4 0.8 ASELS Market Perform 4.38 5.00 14% 515 5.3 0.6 2.2 1.1 ASUZU Market Perform 4.92 5.86 19% 125 50.9 0.5 14.1 0.7 AYGAZ Market Perform 3.42 4.04 18% 1,026 7.5 0.4 2.8 0.7 BIMAS Market Perform 49.50 55.19 11% 3,757 20.0 0.7 13.5 11.7 CCOLA Market Perform 8.75 10.00 14% 2,226 14.6 1.2 7.5 2.0 CIMSA Market Perform 3.94 4.98 26% 532 7.9 1.3 5.3 0.7 CLEBI Market Perform 10.00 11.17 12% 243 4.9 0.9 3.1 3.5 DOAS* - 3.60 - - 396 51.6 0.2 7.1 1.2 EREGL Market Perform 4.36 4.96 14% 5,009 21.6 1.9 10.6 0.8 FROTO Outperform 6.05 8.75 45% 2,123 7.5 0.4 4.0 1.3 HURGZ Market Perform 1.12 1.35 20% 515 7.5 1.0 5.3 0.6 ISGYO Market Perform 1.10 1.33 21% 495 14.7 5.5 9.3 0.1 KRDMD Market Perform 0.53 0.61 14% 319 13.0 0.9 4.9 0.6 NETAS Outperform 24.60 32.00 30% 160 9.6 0.3 2.4 0.6 OTKAR Outperform 12.80 16.61 30% 307 9.6 0.9 6.8 1.9 PETKM Market Perform 6.25 7.00 12% 1,280 23.1 0.5 5.8 0.9 SNGYO Market Perform 3.92 4.70 20% 537 16.8 3.2 75.6 N/A TATKS Outperform 2.22 3.08 39% 302 14.7 0.9 8.6 1.9 TAVHL Outperform 4.12 5.55 35% 1,497 40.6 2.0 8.2 1.9 TCELL Market Perform 8.40 9.80 17% 18,480 7.7 1.6 4.4 2.1 THYAO Market Perform 2.13 2.35 10% 1,864 4.1 0.5 3.7 0.6 TOASO Market Perform 2.64 3.16 20% 1,320 10.0 0.6 6.4 1.2 TRKCM Outperform 1.35 1.74 29% 723 8.7 1.0 3.4 0.6 TTKOM Outperform 4.90 6.34 29% 17,150 8.6 1.9 4.7 3.2 TTRAK Market Perform 5.80 6.69 15% 310 10.1 1.2 13.7 1.2 TUPRS Market Perform 19.20 23.53 23% 4,808 8.1 0.3 4.9 1.6 VESBE Market Perform 2.20 2.37 8% 418 15.2 0.3 3.9 0.9 VESTL Market Perform 1.54 1.80 17% 517 N/A 0.3 3.9 0.7 ISE-IND 27,935 - - - 10.2 0.8 5.7 1.5 ISE100 36,328 42,773 18% 215,317 9.2 0.8 5.7 1.4

19 TURKISH ECONOMIC OUTLOOK

TURKISH ECONOMIC OUTLOOK

Recovery towards 2010… Macroeconomic Indicators

• IMF - No panic over a no-deal scenario: After a year of pro- 2007 2008 2009E 2010E tracted negotiations, Turkish government seems reluctant to sign

an IMF agreement. The major bone of contention remains the fis- GDP (US$bn) 663.0 740.0 635.0 665.0 cal adjustments. However, we do not foresee a crisis even if an agreement is not reached. GDP Grow th (real, %) 4.50 1.10 -3.50 3.00 • Growth - Recovery at last but no boom yet: After a 9% contrac-

tion in 1H09, we expect GDP to grow by 3% in 2H09 and followed C/A Deficit (US$bn) -38.00 -41.40 -11.00 -29.00 by another 3% growth in 2010 thanks to relative improvement in domestic demand. Current Account Deficit (% GNP) -5.70 -5.60 -1.7 -4.4 • Budget - Fiscal deterioration remains a risk factor: Govern-

ment’s TL48bn budget deficit target for FY09 may turn out to be CPI (year-end) 8.40 10.00 4.50 6.50 over optimistic. We expect a deficit to hit TL60bn.

• Inflation - More disinflation in 2H09 followed by a rise in 2010: Benchmark Rate (avg) 18.50 19.27 13.60 14.50 CPI inflation is likely to end 2010 at 6.5% after hitting a record low 4.5% at YE09. Benchmark Rate (eop) 16.50 16.50 13.50 15.00 • Interest Rates - Yields bottomed out in 2Q09: We expect a

gradual increase in yields to continue into next year; we foresee Real Interest Rate (avg) 11.20 11.00 6.50 7.50 an average yield of 14.50% in 2010.

• External Balance - External financing unlikely to be a major Policy Rate (eop) 15.75 15.00 8.50 10.00 source of concern: Despite the expected rise in CAD in 2010,

we do not expect a major problem on the financing side thanks to US$/TL (eop) 1.16 1.51 1.55 1.65 lower external debt service of the private sector and a better credit outlook. Budget Deficit/GNP (%)* -1.60 -1.70 -5.00 -3.80

• FX Market - TL likely to stay strong: The more comfortable ex- E: Garanti Securities Estimate ternal financing picture will give support to TL, going forward. *: Government Projection Source: TurkStat, CBRT, Finance Ministry

TURKISH ECONOMIC OUTLOOK

Growth: Recovery at last but no boom yet... GDP Growth Rate (annual average, %)

• Contraction in 2009: After a 9% contraction in 1H09, we expect 7

economy to grow by 3% in 2H09 based on our assessment of leading 5 growth indicators. We thus foresee a 3.5% contraction in FY09. Note 6.8 3 that, due to delays and lower probability regarding an IMF deal, we 4.4 3.0 now expect a higher contraction in 2009 from our previous 3% fore- 1 1.5 1.1 cast. -1 • Recovery in 2010: We expect to see further growth of 3% in 2010 -3.5 with improving domestic demand conditions. Although, this remains -3 below Turkey’s potential rate of growth, a sustained positive growth -5 path will set the stage for stronger economic growth going forward. 1992-1996 1997-2001 2002-2007 2008 2009E 2010E The economy will have to wait for further improvement in global senti- E: Garanti Securities Estimate ment manifesting itself with strong external demand and capital in- Source: TurkStat, Garanti Securities flows. GNP Composition (by contributions, %) • Higher interest rates unlikely to be a concern for growth: We expect the interest rates to average 14.5% in 2010, inching up from the 12.0 Domestic Demand Foreign Demand 10.0 current 12% levels with the rise in inflation and stretch on the fiscal Change in Stocks GDP side. However, this should not be considered a concern for growth as 8.0 6.0 real interest rates will likely remain around 7.5%, below historic aver- 4.0 ages. 2.0 • Sources of growth: We expect the domestic demand to enjoy a rela- 0.0 tive recovery in 2H09 as compared to 1H09. We also expect a posi- -2.0 -4.0 tive contribution from foreign demand in FY09 thanks to the major im- -6.0 provement in the foreign trade deficit with lower oil prices. The eco- -8.0 nomic growth on the domestic front is likely to be stronger in 2010. 2005 2006 2007 2008 2009E 2010E Thus, we estimate a 4.9% contribution mainly driven by the recovery E: Garanti Securities Estimate in private consumption and investment. On the other hand, we expect Source: TurkStat, Garanti Securities

TURKISH ECONOMIC OUTLOOK

foreign demand to take 2pp off the overall rate of growth, due to the GDP Growth vs Net Capital Inflows expected deterioration in trade balance in 2010. 12.0% 10.0% GDP grow th Net capital inflow s/GDP • Downside / Upside risks to our growth scenario: The magnitude 8.0% of capital inflows will again be a main determinant of economic 6.0% 4.0% growth. A downside risk to our growth scenario in 2010 would be a 2.0% longer than expected squeeze in the availability of funding resources 0.0% to the real sector, in turn precipitating slower economic growth than -2.0% -4.0% our forecasted 3% in 2010. -6.0% -8.0% However there also lies an upside to our base scenario. The ex- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

pected global recovery in 2010 could result in larger capital inflows 2009E

into Turkey and fresh funding to the corporate sector. This in turn may E: Garanti Securities Estimate precipitate a stronger revival in investment and consumption demand, Source: TurkStat, Garanti Securities fuelling a more vigorous level of growth. GNP Composition (by sectors, 2008) • Glimmers of hope in economic indicators: Some of the economic Agriculture indicators - mainly those reflecting consumer and producer attitudes – 9% Industry suggest that the economy is beginning to level out. Consumer confi- 27% dence and consumption tendency figures have all indicated a recovery from the lows seen in the last 5 months. The real sector confidence index has also exhibited a recovery for a fourth straight month. Separately, cuts in the rates of SCT on automotive and white goods will also support domestic sales in 2Q09. With the decline in inventories, we might see some recovery in the industrial production as of Services 3Q09. We can take heart from the recovery of some economic vari- 64% ables from their lows, pointing to a brighter outlook after the massive contraction that the economy experienced in 1H09. Source: TurkStat, Garanti Securities

TURKISH ECONOMIC OUTLOOK

Growth Indicators

IP vs GDP Automotive Domestic Sales (YoY) Cnbc-e Consumption Index 20% 60% 200 15% 40% 10% 185 5% 20% 170 0% 0% -5% 155 -10% -20% -15% 140 -40% -20% IP-YoY change GDP-YoY change -25% -60% 125 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09E Real Sector Confidence Index White Goods Domestic Sales (YoY) Cnbc-e Consumer Confidence Index 40% 130 120 120 105 110 20% 100 90 90 0% 75 80 70 60 -20% 60 45 50 30 -40% 40 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 01.06 03.06 05.06 07.06 09.06 11.06 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 01-07 04-07 07-07 10-07 01-08 04-08 07-08 10-08 01-09 04-09

Source: TurkStat, Garanti Securities, AMA, WGSA, Cnbc-e

TURKISH ECONOMIC OUTLOOK

Fiscal Balance: Remains a risk factor Central Gov’t Budget (TLbn) 2008 2009P January-May • Unfavourable budget realization: The budget deficit jumped to Old Revised 2008 2009 TL20bn for the first 4 months of the year (TL2.1bn a year ago) while Expenditure 229.5 259.1 259.1 86.0 106.9 the primary balance produced a small surplus of TL1.1bn (TL17.5bn Non-interest 175.0 201.6 202.9 66.4 80.8 of the same period a year ago). The government foresees a budget Interest 54.5 57.5 56.2 19.6 26.1 Revenues 215.4 248.8 211.6 84.0 86.2 deficit of TL48bn (5% GDP) and a primary deficit of 0.9% of GDP in Tax 174.7 202.1 170.0 70.1 66.2 FY09. The shortage in tax revenues with the economic slowdown and Non-Tax 40.7 46.7 41.6 11.2 17.1 increase in interest and non-interest expenditures are both to blame Budget Balance -14.1 -10.3 -47.5 -2.1 -20.7 for poor budget realization. Primary Surplus 40.4 47.2 8.7 17.5 5.4 , as of GDP (%) • A higher public debt on the cards: Public domestic debt stock in- Budget Balance -1.8 -0.9 -5.0 n.a n.a creased by TL23bn while the rollover reached 106% YTD. The in- Primary Surplus 3.5 4.2 0.9 n.a. n.a. crease in public domestic debt is likely to continue into 2010, which is Source: SPO 2009 Annual Program, Finance Ministry in line with the global trends. However, Minister Ali Babacan hinted that a new package of fiscal measures may also be on the cards. Domestic Debt Roll-over Ratio (monthly) • High budget deficit leads to higher interest rates: However we 180% 170% don’t expect the interest rates to exceed 15% on average in 2010 160% 144% which is unlikely to be a concern for the growth outlook. However, 140% 120% 108% 106% growth likely to remain under its potential in the coming term amid the 95% 100% 90% 86% 83% higher borrowing requirement. 79% 75% 80% 66% 63%

60% 49% • Fiscal issues to continue to dominate IMF negotiations: The pre- 40% vailing economic recession combined with the forthcoming general 20% election in 2011 are likely to prevent the government from signing an 0% agreement with coercive fiscal adjustments. 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09

Source: SPO 2009 Annual Program, Finance Ministry

TURKISH ECONOMIC OUTLOOK

Box 1: Life with no IMF deal…

We do not expect to see a lasting negative impact from a no-IMF-deal scenario if the economic realizations move in line with our base case scenario, that is, normalization in economic growth getting underway coupled with a more benign global credit outlook.

However, Turkey would still need a roadmap regarding fiscal structural reforms to secure a comfortable mid to long term outlook. We believe if a deal is not signed, the government would be obliged to provide a long term plan to tackle structural issues like social security system even if this impose short-term pains. An IMF deal would largely alleviate concerns on the fiscal side by bringing discipline on expenditures and much needed structural reforms.

On the other hand, concerns over a potential TL weakness have started disappearing with better than expected external debt rollover realizations in 1Q09 and a much better global credit outlook coupled with a lower external debt service of Turkey’s private sector in 2010. We believe this benign picture is the major reason why the government is unwilling to sign an agreement.

Nevertheless, a radical change in global credit environment for the worst - a downside risk factor to our base case scenario - would carry the potential to force Turkey into an agreement to avoid a crisis if the external financing conditions deteriorate beyond hope.

TURKISH ECONOMIC OUTLOOK

Inflation: More disinflation in 2009 followed by a pick up Inflation vs O/N rate (annual, %)

in 2010... 13 CPI-lhs policy rate 24 12 22 • CPI inflation likely to fall to 3.5% by October... We expect inflation 11 20 to continue to slide in the near term and to touch 3.5% YoY in Octo- 10 18 ber thanks to weak economic activity and favorable base effect (no 9 16 8 14 repeat of MoM spike in inflation to 2.6% in Oct-08). 7 12 • ...then start edging higher with economic normalization: These 6 10 record low levels are unlikely to be sustainable as economic recovery 5 8 4 6 takes hold.

• We expect inflation to end 2009 at around 4.5% (market consensus: 07.04 10.04 01.05 04.05 07.05 10.05 01.06 04.06 07.06 10.06 01.07 04.07 07.07 10.07 01.08 04.08 07.08 10.08 01.09 04.09 6%) and to rise to around 6.5% by the end of 2010 because of the fol- Source: TurkStat, Garanti Securities lowing reasons: Inflation Components (May09, annual, %) 1.The economic recovery may prove moderately inflationary Others 0.4% 2.The fiscal deterioration could be inflationary Restaurant-Hotel 0.5% Education 0.2% 3.Economic recovery is likely to lead to a normalization in pricing Entertain. and Culture 0.2% behavior, with the possibility of some pass through effect from Communication the exchange rate on inflation. Transportation -0.7% Health 0.1% 4.Declining prices of energy, electricity and natural gas - which Housew are 0.0% have supported the disinflation in 2009 – are likely to be reversed Housing 2.2% in 2010. Clothing-shoes -0.1% Alch-bev. tobacco 0.3% Food-non-alch bev. 2.1%

-3% -1% 1% 3% 5%

Source: TurkStat, Garanti Securities

TURKISH ECONOMIC OUTLOOK

Monetary Policy: Easing cycle nearing an end... Inflation (annual, %)

• With the last cut of 50bps in its June’09 meeting, the Central Bank 15 has taken the policy rate down from 15.0% at the end of 2008 to 13 Goods Services 8.75%. While the Central Bank may continue to cut rates in the next 11

few meetings, we believe the bank will be more cautious in the rest of 9

2009 given the inflation outlook. 7 • In 2010 however, with higher realized and expected inflation figures 5

Central Bank is more likely to increase rates than keep them on hold. 3 We expect a 150bps rate hike in 2010, in line with the 2011 inflation

target of 5.5%. 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 Source: TurkStat, Garanti Securities Monetary Policy Inflation vs Interest Rates - Forecast (annual, %) Official Policy rate CPI (annual, %) inflation Begining Begining Status 17.5 Benchmark-lhs 10.0 target (%) of the Year-end of the Year-end 9.0 year year 16.5 Inf lation 8.0 Target 2007 4 17.50 15.75 9.7 8.4 15.5 overshot 7.0 14.5 6.0 Target 2008 4 15.75 15.00 8.4 10.0 5.0 overshot 13.5 4.0 Target likely to 12.5 2009E 7.5 15.00 8.50 10.0 4.5 3.0 be undershot 11.5 2.0 Target likely to

2010E 6.5 8.50 10.00 4.5 6.5 01.09 03.09 05.09 07.09 09.09 11.09 01.10 03.10 05.10 07.10 09.10 11.10 be hit Source: Garanti Securities Source: TurkStat, Garanti Securities

TURKISH ECONOMIC OUTLOOK

Interest Rates: Yields bottomed out in 2Q09 12-m Fwd Looking Inf. Expectations vs. Bond Yields

9.5% 23% • Manageable increase in bond yields: After bottoming out at 11.5% 9.0% 21% in May’09, bond yields are now hovering at the 12.0-12.5% band. 8.5% 8.0% 19% While the 2010 inflation expectations continue to take effect, we may 7.5% 17% see some limited rise in bond yields in the rest of 2009 and 2010. 7.0% Thus, we expect to see rising demand for FRN’s and CPI-linkers at 6.5% 15% 6.0% 13% Benchmark Yield Bond the expense of fixed interest bearing bonds. ExpectationsInflation 5.5% 5.0% 11% • Fiscal concerns to dominate the course of the yields: The Treas- 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 ury’s rollover ratio has stood at 106% so far in 2009, which could Inflation Expectations Benchmark Bond prove sticky into 2010. While we do not foresee any rollover concerns going forward, the yields may remain under pressure as banks may Source: CBRT, Garanti Securities prefer to allocate some sources to loans rather than expanding their already large bond portfolios as the economic activity picks up. Therefore, we expect interest rates to edge higher in 2010. Treasury’s Domestic and External Redemptions

25 • Large carry margin to persist: Following the last 50 bps rate cut of CBT, there is a gap of around 3.0 pp between the Central Bank inter- 20 est rate and the benchmark bond yield, which motivates the banks to 15 hold on to their bond portfolios. Therefore, we do not expect to see bn TL 10 any heavy selling pressure in the bond market. 5 • Foreigners’ bond holdings stand at a five year low of 12%: If foreigners decide to enter the market, this will create a downward pres- -

sure on the yields given the low debt redemptions in the summer and 06.09 07.09 08.09 09.09 10.09 11.09 12.09 01.10 02.10 03.10 04.10 therefore the supply squeeze in the market. Local Debt External Debt Source: Treasury

TURKISH ECONOMIC OUTLOOK

Change in Yield Curve Banking Sector’s Bond Preference vs Yields

18 12/2008 03/2009 06/2009 63% 25 17 61% 23 16 21 15 59% 14 19 57% 13 17 55% 12 15 Bonds/Credits 11 53% 13 Compounded Yields (%)Compounded Yields 10 Benchmark (%) Yield Bond 51% 11 9 1 3 6 9 122460 Months 06.08 07.08 08.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 Bond/Credits Benchmark Bond

Source: Reuters, Garanti Securities Source: BRSA, Garanti Securities

Budget Balance vs Yield Foreign Investors’ Share in Domestic Debt

0 23 250 26% -5 21 230 24% -10 e 19 22% -15 210 20% -20 17 18% -25 190 15 16% -30 14%

13 170 Foreign Share -35

Market(TL bn) 12%

-40 11 (%,Bmk Yield comp.) Bond

Bud. Blnc (12Bud. mo., TL)bn 150 10% Domestic Debt Held by th Held Debt Domestic 12-05 03-06 06-06 09-06 12-06 03-07 06-07 09-07 12-07 03-08 06-08 09-08 12-08 03-09 12.06 04.07 08.07 12.07 04.08 08.08 12.08 04.09 Budget Balance Yields Domestic Debt Foreign Share

Source: Finance Ministry, ISE Source: BRSA, Garanti Secuities

TURKISH ECONOMIC OUTLOOK

External Financing Requirement: Is it overestimated? Energy Prices vs Current Account

• Remarkable improvement in current account deficit: The 12 49 98 100 CA Def icit month rolling deficit plunged from US$41bn at the end of 2008 to 42 90 (US$bn) around US$27bn by April 2009 thanks to lower oil prices and lower 35 70 80 66 72 60 import demand. We now forecast US$11bn current account deficit for 28 70 Net Energy 55 Import FY09 on an average oil price assumption of US$60. 21 60 (US$bn) • Surprisingly strong external financing performance in 1Q09: The 14 50 Oil price (US$/bbl)- 7 40 year to date realizations on the external financing front have been rhs brighter than expected in the beginning of the year thanks to: 0 30

1. Declining FX needs on back of a narrowing in the CA deficit amid 2005 2006 2007 2008 2009E 2010E economic slowdown E: Garanti Securities Estimate 2. A higher than expected FX inflow with: Source: TurkStat, CBRT, Garanti Securities • A satisfactory external debt roll over ratio: Encouragingly, the private sector roll over ratio came in at 75% in 1Q09 thanks to the GDP Growth vs Non-energy CA Balance easing global crisis - better than our 70% forecast. GDP-rhs (4Q avg.) • A robust foreign direct investment (FDI): FDI (net) reached 15 non-energy ca balance (4Q rolling) -9

US$2bn in 1Q09 – a respectable performance given our forecast 10 -6

of US$5bn for the full year. 5 -3

• Astounding contribution from net errors and omissions 0 0 (NEO): A total of US$19bn in FX inflows was received through -5 3 NEO in the last 7 months. The YTD figure was alos close to US$6bn, well above our estimate of US$5bn for the full year. The -10 6 massive FX inflow through the NEO channel helped alleviate the -15 9

pressure on the TL in the 1Q09, in the absence of an IMF deal. 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09E 3Q09E 1Q10E 3Q10E

E: Garanti Securities Estimate Source: TurkStat, CBRT, Garanti Securities

TURKISH ECONOMIC OUTLOOK

• No worries on financing external financing requirement in 2010: External Financing 2008-2010 (US$bn) 1. Thanks to a stronger global credit environment and capital inflows, we do not expect to see any problems on the financing of Turkey’s 2008 1Q09 2009E 2010E

FX need even if a deal with the IMF do not materialize. Outflow s 84.6 11.8 61.5 63.4 2. A higher CAD but a lower private sector external debt service: We estimate that the total FX financing requirement in 2010 is likely to Current Account Deficit 41.4 1.2 11.0 29.0

be realized around the 2009 level. Higher oil prices coupled with a Debt Service (MLT) 43.2 10.7 50.5 34.4 stronger import demand is likely to result in a higher CAD in 2010. We expect a CAD of US$29bn in 2010 (oil price assumption: Public 11.0 1.5 8.2 8.4 US$70bbl average), up from an expected US$11bn deficit in 2009. However, most of this increase will be offset by the lower external Private 32.2 9.2 42.3 26.0

debt service of private sector in 2010. Therefore, on the external Inflow s 82.7 10.6 56.5 58.4 financing front, we expect to see an FX need of around US$63bn, similar to 2009. FDI (net) 15.0 1.9 6.0 9.0

3. We also expect the private sector external roll over ratio to be Portfolio (equity; net off port.assets) -3.5 -1.6 2.0 3.0 around 110% in 2010 (compared to around 75% currently and 200% in the pre-crisis period). Borrow ing (MLT) 63.4 5.5 39.5 37.1

4. We also foresee further FDI flows in 2010, although we remain Public 6.0 -1.4 7.6 8.4 cautious on other FX inflow items-mainly NEOs. Private 57.4 6.8 31.9 28.7 To sum up, we only expect an external financing gap of US$5bn for 2010, which will not put pressure on the economy. Short Term (net) 4.0 -2.1 3.0 3.3

Others 3.8 6.9 6.0 6.0 • An even better realization? A case in which private sector’s external debt roll over ratio exceeds our estimates would be a welcome devel- Reserve Accumulation (inflow -outflow ) -1.9 -1.2 -5.0 -5.0

opment resulting in an excess of FX in the economy in 2010. (see our Source: TurkStat, Garanti Securities box: 2, Thinking out of the box on external financing). E: Garanti Securities estimate

TURKISH ECONOMIC OUTLOOK

Current Account Balance (12-m rolling, US$bn) Net Errors and Omissions (6-m cumulative, US$bn)

10 20 4 -2 15 -8 10 -14 -20 CA Balance (annual, energy inc.) 5 -26 CA Balance (annual, non-energy) 0 -32 -38 -5 -44 -50 -10 09.03 01.04 05.04 09.04 01.05 05.05 09.05 01.06 05.06 09.06 01.07 05.07 09.07 01.08 05.08 09.08 01.09 02-05 05-05 08-05 11-05 02-06 05-06 08-06 11-06 02-07 05-07 08-07 11-07 02-08 05-08 08-08 11-08 02-09 05-09

Source: CBRT Source: CBRT

Net FDI Flows (annual, US$bn) Equity & Debt Flows (12-m rolling, US$bn)

32 24 28 20 24 16 19.2 19.8 20 12 15.2 8 16 4 12 8.7 9.0 0 8 6.0 2.9 -4 4 1.0 1.3 2.0 -8 0 -12 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 06.02 10.02 02.03 06.03 10.03 02.04 06.04 10.04 02.05 06.05 10.05 02.06 06.06 10.06 02.07 06.07 10.07 02.08 06.08 10.08 02.09 06.09

Source: CBRT, Garanti Securities Source: CBRT

TURKISH ECONOMIC OUTLOOK

FX Market: No worries regarding TL CBRT Reserves and Banking System’s FX Liquidity

• In line with supportive global environment scenario, we expect 24 23 76 the Lira to appreciate in real terms for the remainder of the year: ) 22 74 21 72 In line with the other EM currencies, TL has faced some pressure in 20 70 19 the past one year depreciating by 26% against USD. 18 68

17 66 16 • A more comfortable period ahead for the Lira in terms of exter- 64 15 nal borrowing requirement: Banks face a total of US$6.8bn in syn- 14 62 Banking Sys. (bn USD dication payments before the end of the year, and should have little 13 60 Rsrv.CBRT USD (bn

difficulty in rolling over at least 70% of this amount. We forecast 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 banks to roll over more than 100% of those debt repayments in 2010 Banking System CBRT due to expected cheaper financing conditions, which would result in Source: BRSA, CBRT an influx of FX into the country. We estimate total private sector external debt service to decrease from US$42bn in 2009 to US$26bn in 2010. Household Deposits

• Households continuing to accumulate FX: FX deposits reached 1.8 US$93bn in May after having bottomed at US$82bn as the TL depre- 104 ciated during the year. Past evidence suggests that the level of the 99 1.7 Lira is inversely correlated to households’ FX stocks, the upshot be- 94 1.6

ing that households tend to smooth out extreme volatility. Additionally, 89 1.5 $/TL FX liquidity in the system remains quite healthy. The Central Bank’s 84 1.4

reserves and banking system’s FX liquidity are stable, indicating that FX Deposits (bnUSD) 79 1.3

there is no FX shortage in the system. 74 1.2

•

A downside risk-volatility in EM currencies: Although it is not in 05.08 06.08 08.08 09.08 11.08 01.09 02.09 04.09 our base case scenario, a new wave of volatility in EM currencies Total FX Deposits $/TL would certainly have negative spillover impact on TL as well. Source: CBRT, Garanti Securities

TURKISH ECONOMIC OUTLOOK

Box 2: Thinking out of the box on external financing...

Bas e Bull Be ar Past experience shows that much depends on the magnitude External Financing (US$bn) 2008 2009E 2010E 2010E 2010E of capital inflows in Turkish economy; 2010 will not be an ex- Private sector external debt roll-over-Scenarios 178% 75% 110% 200% 73%

ception. Outflow s 84.6 61.5 63.4 63.4 63.4 Current Account Deficit 41.4 11.0 29.0 29.0 29.0 Thus, if the global recovery turns out to be much more vigor- Debt Service (MLT) 43.2 50.5 34.4 34.4 34.4 ous than the prevailing consensus view, the Turkish private Public 11.0 8.2 8.4 8.4 8.4 Private 32.2 42.3 26.0 26.0 26.0 sector may roll over a higher proportion of its debt than the Inflow s 82.7 56.5 58.4 81.7 48.7 110% we currently envisage – perhaps as much as the 200% FDI (net) 15.0 6.0 9.0 9.0 9.0 Portfolio (equity; net off port.assets) -3.5 2.0 3.0 3.0 3.0 seen in the pre crisis period. This may significantly alter the Borrow ing (MLT) 63.4 39.5 37.1 60.4 27.4 economic picture we have put forward in this report… Public 6.0 7.6 8.4 8.4 8.4 28.7 52.0 19.0 Private 57.4 31.9 Short Term (net) 4.0 3.0 3.3 3.3 3.3 Such a development would mainly result in an excess of FX in Others 3.8 6.0 6.0 6.0 6.0 the economy, fuelling growth by stimulating investment and Reserve Accumulation (inflow-outflow) -1.9 -5.0 -5.0 18.3 -14.7 E: Garanti Securities Estimate consumption demand.

Moreover, the high FX liquidity in the economy would support the appreciation of the TL, supporting disinflation and fall in interest rates. A positive loop would evolve with further stimulus on the private sector investments and consumption demand.

TURKISH ECONOMIC OUTLOOK

Macroeconomic Indicators (2007-2010)

GROWTH 2007 2008 2009E 2010E GDP (TLbn) 865 962 980 962 GDP (US$bn) 665 740 635 665 GDP (real, %) 4.5 1.1-3.53.0 EXTERNAL BALANCE (US$bn) Current Account Balance -38.0 -41.4 -11.0 -29.0 C/A Balance (% of GDP) -5.7 -5.6 -1.7 -4.4 PRICES (% Change) CPI (ann. avg.) 8.8 10.5 5.6 6.0 CPI YoY 8.4 10.0 4.5 6.5 INTEREST RATES (%) Benchmark Compounded (avg) 18.50 19.27 13.60 14.50 Benchmark Compounded (end-period) 16.50 16.45 13.50 15.00 Real Interest Rates (avg) 11.20 11.00 6.50 7.50 Policy Rate (end-period) 15.75 15.00 8.50 10.00 FX MARKET US$/TL (year-end) 1.16 1.51 1.55 1.65 US$/TL (year-average) 1.30 1.29 1.54 1.59 TL depreciation (nom.) (% year-end) -15.7 30.3 2.6 6.5 TL depreciation (nom.) (% year-avg.) -9.8 -0.6 18.8 3.2 BUDGET (P) Budget Deficit/GDP -1.6 -1.8 -5.0 -3.8

E: Garanti Securities Forecasts P: Gov't Projection Source: CBT, Treasury, TurkStat

36 SECTORS & COMPANIES

AUTOMOTIVE

Incentives extended - enough to keep the sector in gear? Domestic Automotive Sales (PC+LCV, units)

• The global crisis has hit the automotive industry hard, although 750,000

we believe the worst is now behind us. The government’s efforts to 650,000

stimulate domestic demand through cutting the rate of Special Con- 550,000 sumption Tax (SCT) on March 16 have helped clear out the glut of in- 450,000 ventories, with total domestic sales only declining by a mere 5.2% YoY to 219,308 vehicles in the January-May period. The new exten- 350,000 sion to the SCT tax cuts, which will expire on September 30, may 250,000 keep domestic demand alive for the coming period, although they 150,000 may now have a less impressive impact than the previous cut. 50,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

• Volumes to remain under pressure for commercial vehicles in 2009E 2010E 2011E 2012E 2009. The sales of commercial vehicles are mostly related to the economic activity. While we are optimistic on the future of the automotive Source: AMA, Garanti Securities Estimates industry in the medium term, 2009 looks set to be a difficult year for the sector. Demand is being driven by Government incentives at the Change in Auto Sales vs. GDP sacrifice of a certain amount of tax income, yet a sustained recovery 10% 140% will not occur without a recovery in consumer confidence. We expect 8% 120% total sales volumes in the domestic market (PC+LCV) to narrow by 6% 100% 13% YoY in 2009 to 431,717 vehicles. We estimate a 9% YoY rise in 4% 80% 60% 2% 2010 with the expected recovery in the economic activity. 40% 0% 20% • In the global arena, especially in Europe, Government initiatives -2% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 have aimed to support demand - mainly through scrap incen- -4% 2009E 2010E -20% tives. We would note that most of these efforts initially impact sales of -6% -40% passenger cars, whereas Turkey’s automotive exports mainly serve -8% -60% -10% -80% LCV markets. Therefore, we expect the impact of the European incen- GDP Change in Auto Sales (rhs) tives on demand to be limited in 2009. We expect the recovery to begin in earnest in 2010 on the back of rising consumer confidence. Source: AMA, Garanti Securities Estimates

ANADOLU ISUZU (ASUZU.IS) / Automotive Market Perform

Current / 2009-end Target Price: TL4.92/ TL5.86 Current/ 2009-end Target Mcap: US$81mn/ US$96mn

No recovery until 2010... Anadolu Isuzu (2008-2009) 12.0 • Our DCF based valuation implies a fair equity value of US$96mn, 10.0 indicating 19% TL based upside potential. With a 1Q09 net debt 8.0 position of TL34mn, Anadolu Isuzu trades at an EV/EBITDA multiple TL 6.0 of 6.8x - a premium to sector averages. 4.0 2.0 • Production suspended for nearly four months in the first half of 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 the year. The production will begin again on June 22. The contraction ASUZU ISE-100 in demand was especially severe in the market for Anadolu Isuzu’s vehicle range, where the tax incentives have been lower compared to other segments. This has hit the Company hard and we do not expect Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E a substantial recovery in the Company’s sales until 2010. Net Sales 473 497 309 415 Gross Profit 85 78 40 63 • Extending cooperation with Japanese parent, Isuzu Motors. Isuzu EBITDA 38 23 11 23 Motors signed an MoU to manufacture the D-Max pick-up and light- Net Income 25 0 2 15 duty “N Series” truck at Anadolu Isuzu’s Gebze plant. We do not ex- Gross Margin 17.9% 15.7% 13.0% 15.2% pect the production to commence before 2010. The second phase of EBITDA Margin 8.1% 4.7% 3.6% 5.7% Net Margin 5.3% 1.3% 0.8% 3.5% the project, would be to export the D-Max from Gebze to international Valuation Multiples markets, mainly Europe. The investments, however are continuing, P/E 5.0 n.m. 50.9 8.6

yet the ongoing crisis may lead to delays in the production schedule. EV/Sales 0.3 0.3 0.5 0.4 EV/EBITDA 4.1 6.8 14.1 6.8 • We forecast 2009 full year revenues of TL309mn, marking a 38% Stock Market Data (25 June 2009) slump YoY. We project slim pickings of just TL11mn in EBITDA for Relative Performance: 1mth 3mths 12mths the Company in 2009, indicating a plunge of 52% YoY and a 1.1pp 7.8% 8.8% -40.1% 52 Week Range (TL): 2.7-9.3 narrowing in the Company’s EBITDA margin from its 2008 level of Market Cap (TLmn): 125 4.7% to 3.6% in FY09. We expect the Company’s revenues to bounce Average Daily Vol (TLmn) 3 mth: 0.80 back by 34% in 2010 with the expected recovery in both domestic and YTD TL Return(%): 67.3 export markets. Free float (%): 16.00

FORD OTOSAN (FROTO.IS) / Automotive Outperform Current / 2009-end Target Price: TL6.05/ TL8.75 Current/ 2009-end Target Mcap: US$1,372mn/ US$1,979mn

Poised to rebound… Ford Otosan (2008-2009) • Our DCF based valuation implies a fair equity value of 12.5 US$1.98bn, indicating an attractive 45% TL based upside poten- 10.5 8.5

tial. We believe exports to the US will act as a catalyst and that with TL 6.5 the stock trading at a discount to its peers, Ford Otosan shares are 4.5 poised for a stronger comeback. The stock had been severely af- 2.5 fected by the downturn in the European market and we believe the recent recovery does not fully reflect the Company’s future prospects. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 Ford Otosan trades at an EV/EBITDA of 3.2x and P/E of 5.4x based FROTO ISE-100 on 2010 prospective multiples, well below the respective domestic sector average multiples of 5.4x and 7.9x. Summary Financials & Ratios

(TLmn) 2007 2008 2009E 2010E • Exports to the US started in May. Ford will export 35,000 Transit Net Sales 7,231 7,007 5,415 6,205 Connect models to the US market in 2009. These exports will en- Gross Profit 1,035 1,016 682 850 hance the Company’s operations and create a cushion against the EBITDA 810 769 497 621 Net Income 484 436 283 394 downturn in the domestic and European markets. Gross Margin 14.3% 14.5% 12.6% 13.7% • The worst is over. In May, the Company has started to regain market EBITDA Margin 11.2% 11.0% 9.2% 10.0% share, which it had lost in the prior months amid availability problems Net Margin 6.7% 6.2% 5.2% 6.3% of its Transit Connect model and an influx of imported PCs from Valuation Multiples Europe as inventories declined rapidly with incentives. The recent P/E 4.4 4.9 7.5 5.4 EV/Sales 0.3 0.3 0.4 0.3 launch of the new Transit Connect will continue to help the Company EV/EBITDA 2.4 2.6 4.0 3.2 regaining some of its market share losses. Stock Market Data (25 June 2009)

• We expect a recovery in 2010. We expect the Company’s net sales Relative Performance: 1mth 3mths 12mths -14.6% 2.7% -30.3% to decline by 23% YoY in 2009, although we forecast a 15% YoY re- 52 Week Range (TL): 3.3-9.8 bound in sales in 2010 on the back of the prospective recovery in Market Cap (TLmn): 2,123 both domestic and export markets. Accordingly, EBITDA is set to rise Average Daily Vol (TLmn) 3 mth: 7.44 by 25% thanks to a boost in sales and profitability achieved on the YTD TL Return(%): 47.3 Free float (%): 18.00 back of the rising CUR in 2010.

OTOKAR (OTKAR.IS) / Automotive Outperform Current Price/ 2009-end Target Price: TL12.80/ TL16.61 Current/ 2009-end Target Mcap: US$198mn/ US$257mn

A solid defence in a crisis… Otokar (2008-2009) 20.0 • Otokar’s focus on military vehicles will help cushion the Com- 17.0 pany against the downturn in the commercial vehicle market. 14.0 Our DCF based valuation implies a fair equity value of US$257mn, TL 11.0 8.0 indicating an attractive 30% TL based upside potential. 5.0 • National tank project to support revenues. The Ministry of Defence 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

selected Otokar as a major supplier for the development of a national OTKAR ISE-100 tank, agreeing to pay US$500mn by 2015 for the development of four prototypes. We therefore expect the project to bring in an additional Summary Financials & Ratios US$70-75mn in annual revenues for Otokar between 2009-2015. (TLmn) 2007 2008 2009E 2010E Net Sales 428 479 487 526 • Defence tenders to keep the stock active. The Ministry of Defence Gross Profit 115 117 127 139 announced two tenders for a total of 4,131 multi-purpose vehicles for EBITDA 49 62 63 70 the army. The first part of the tender, amounting to a total of 2,720 ve- Net Income 38 35 32 41 hicles, was recently signed, whereby Otokar is scheduled to deliver a Gross Margin 26.9% 24.3% 26.1% 26.4% total of 861 vehicles, which we have included in our valuation. The EBITDA Margin 11.4% 12.9% 12.9% 13.3% Net Margin 8.8% 7.3% 6.5% 7.8% second tender is for 1,411 vehicles, where Otokar submitted an offer Valuation Multiples for 1,075 vehicles. The tender is expected to be concluded in the first P/E 8.2 8.8 9.6 7.5 half of 2009. We believe these orders will help cushion the Company EV/Sales 1.0 0.9 0.9 0.8 against the negativities affecting the broader automotive sector. EV/EBITDA 8.9 7.0 6.8 6.2 Stock Market Data (25 June 2009) • Stable financials. We project that Otokar’s revenues will remain Relative Performance: 1mth 3mths 12mths slightly over their 2008 levels, despite the expected contraction in 4.1% 8.7% 0.5% 52 Week Range (TL): 6.1-15.5 both domestic and export markets, thanks to orders taken from the Market Cap (TLmn): 307 defence industry in 2009. We also forecast profit margins to remain Average Daily Vol (TLmn) 3 mth: 1.44 near their 2008 levels, with the Company generating TL63mn in YTD TL Return(%): 54.6 EBITDA and a net profit of TL32mn. Free float (%): 28.00

TOFAS (TOASO.IS) / Automotive Market Perform Current/ 2009-end Target Price: TL2.64/ TL3.16 Current/ 2009-end Target Mcap: US$853mn/ US$1,020mn

Investments start to bear fruit… Tofas (2008-2009) • Tofas will be one of the least affected companies from the eco- 6.5 nomic contraction in both domestic and export markets as a re- 5.3 4.1

sult of its favourable take-or-pay agreements, the reduction in TL 2.9 the rate of SCT and its relatively newly launched models. In fact, 1.7 the Company’s bright prospects have recently been reflected to the 0.5 shares with Tofas outperforming the ISE-100 index by 30% in the last

3 months. Our DCF based target value points to 20% TL based up- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 side potential, in line with the upside potential of the ISE-100 index. TOASO ISE-100

• Vital support from take-or-pay agreements. The take-or-pay contracts have gone some way towards protecting the Company against Summary Financials & Ratios the downturn in the European market. The new Doblo, which is ex- (TLmn) 2007 2008 2009E 2010E Net Sales 3,659 4,798 4,200 4,760 pected to be on roads by the end of 2009, will also be subject to a Gross Profit 420 566 441 524 take-or-pay contract, further supporting the Company’s profit margins. EBITDA 273 494 395 485

Net Income 176 176 132 167 • Benefited most from SCT incentive. Tofas enjoyed relatively rich Gross Margin 11.5% 11.8% 10.5% 11.0% rewards from the tax incentive. The Company captured the market EBITDA Margin 7.5% 10.3% 9.4% 10.2% leader position by increasing its market share from 12.4% in 2008 to Net Margin 4.8% 3.7% 3.1% 3.5% 14.6% in January-May period. We expect this positive sales figure to Valuation Multiples

be reflected on 2Q09 results. P/E 7.5 7.5 10.0 7.9 EV/Sales 0.7 0.5 0.6 0.5 • New models. Tofas’ relatively new portfolio will create a competitive EV/EBITDA 9.2 5.1 6.4 5.2 advantage for the Company once a rebound in domestic and export Stock Market Data (25 June 2009) demand is observed. Relative Performance: 1mth 3mths 12mths -2.6% 29.5% -29.4% • Only a limited margin contraction for 2009. Thanks to the take-or- 52 Week Range (TL): 1.0-4.3 pay agreement and the company’s policy against sacrificing profit Market Cap (TLmn): 1,320 margins for market share, we expect margins to remain resilient in Average Daily Vol (TLmn) 3 mth: 15.25 2009. We project that Tofas will write TL4.2bn of revenues and YTD TL Return(%): 138.7 TL395mn of EBITDA in 2009. Free float (%): 24.00

TURK TRAKTOR (TTRAK.IS) / Automotive Market Perform Current / 2009-end Target Price: TL5.80/ TL6.69 Current/ 2009-end Target Mcap: US$200mn/ US$230mn

No hope for this year… Turk Traktor (2008-2009) • We expect the demand for tractors to continue to contract amid 13.0 the economic recession - hardly the fertile backdrop required to 10.8 8.6

outperform the ISE-100. Our DCF valuation of US$230mn for Turk TL 6.4 Traktor suggests only 15% upside potential in TL terms. With its 4.2 2010E EV/EBITDA multiple of 10.8x, Turk Traktor trades at a signifi- 2.0

cant premium to its peers.

01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Market to continue contracting. We expect the domestic tractor TTRAK ISE-100 market to contract by 21% YoY to 21,252 units in 2009. Turk Traktor is the market leader in the domestic tractor market, commanding a market share of nearly 50% in 2008 - a 12pp improvement since Uzel Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E Makina exited the market when Massey Ferguson cancelled its li- Net Sales 641 787 616 704 cense with Uzel in June 2008. However, Massey Ferguson recently Gross Profit 149 138 101 119 signed a license agreement with Hattat. Other importers are also EBITDA 109 88 55 70 seeking to gain market share. Net Income 93 67 31 49 Gross Margin 23.2% 17.5% 16.3% 17.0% • No growth until 2010. We forecast a 22% YoY fall in Turk Traktor’s EBITDA Margin 17.0% 11.2% 9.0% 10.0% total net sales in 2009 to TL616mn, with the Company’s EBITDA set Net Margin 14.5% 8.5% 5.0% 7.0% to tumble by 37% YoY to TL55mn, which would imply a narrowing in Valuation Multiples the EBITDA margin from 11.2% in 2008 to 9.0% in 2009. In 2010, we P/E 3.3 4.6 10.1 6.3 EV/Sales 1.2 1.0 1.2 1.1 estimate the Company’s net sales to increase by 14% YoY with the EV/EBITDA 6.9 8.6 13.7 10.8 expected recovery in both domestic and exports demand. Stock Market Data (25 June 2009)

• High net debt position. Turk Traktor has a net debt position of Relative Performance: 1mth 3mths 12mths 9.6% 11.0% -34.7% TL449mn as of 1Q09 financials. TL479mn of the Company’s total 52 Week Range (TL): 3.2-10.5 TL604mn financial debt is short term. The Company used a consumer Market Cap (TLmn): 310 finance program in which it obtained credit at compatible conditions Average Daily Vol (TLmn) 3 mth: 2.57 and passed on credit to its customers. Some of the short-term finan- YTD TL Return(%): 51.6 Free float (%): 22.00 cial debt has a counterpart in short-term trade receivables.

AVIATION

Sunny weather at home…

• Passenger decline stabilizes. The International Air Transport Asso- Passenger Traffic Breakdown in Turkey (mn) ciation (IATA, 230 members representing 93 percent of scheduled in- YoY Domestic ternational air traffic) released May traffic data, showing a 9.1% YoY Domestic International Total Change Stake 2003 9.13 25.14 34.27 1.9% 27% decline in passenger demand and a 17.4% YoY fall in cargo demand. 2004 14.43 30.36 44.79 30.7% 32% The average passenger load factor stood at 71.2, down from 74.5% 2005 19.94 34.58 54.53 21.7% 37% recorded in May 2008. The 17.4% decline in international cargo de- 2006 26.65 32.14 58.79 7.8% 45% 2007 29.31 37.15 66.46 13.1% 44% mand is a relative improvement compared to the 21.7% drop in April. 2008 32.89 42.08 74.97 12.8% 44% Since December 2008, cargo demand has been moving sideways in Jan-May09 13.51 11.54 25.05 2.1% 54% the -20% range. This is one of the first physical signs of the economic Source: DHMI recovery being anticipated in equity markets. Yet, Giovanni Bisignani, IATA’s Director General and CEO said “We may have hit bottom, but we are a long way from recovery,” . YoY % Passenger Traffic & GDP Growth in Turkey • Air traffic at home. Domestic passenger traffic started 2009 with better than anticipated momentum, partially due to the promotional cam- 35% 15% paigns and decline in fares. The number of domestic passengers 30% 10% grew by 8% YoY in Jan-May09, partially compensating the 4% YoY 25% 20% decline in the number of international passengers carried. We expect 5% 15% improvement in international passenger traffic in 2Q and 3Q with the 10% 0% summer season. We expect 2009 passenger traffic to be in line with 5% -5% 2008 thanks to the domestic passenger growth. We expect growth to 0% -5% pick up in 2010 with the expected recovery in the global economy. -10% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-10% 2009E • Not a bad year for the sector in Turkey. Despite the contraction in -15% -15% air traffic, thanks to the increase in domestic passengers and lower oil YoY Passenger Traffic Grow th GDP Grow th (rhs) prices combined with efficient business models, the players at the ISE will not be as severely affected as international players in the sector. Source: DHMI & Garanti Securities Estimates In addition, a relatively weaker TL is positive for the sector as most of the revenues are FX based.

CELEBI HAVA SERVISI A.S. (CLEBI.IS) / Aviation Market Perform Current/ 2009-end Target Price: TL10.00/ TL11.17 Current/ 2009-end Target Mcap: US$157mn/US$175mn

Expanding to foreign grounds… Celebi (2008-2009) 10.0 • We find a 2009-end target Mcap of US$175mn for Celebi, derived 8.4 6.8

from DCF analysis and international peer group comparison, in- TL 5.2 dicating 12% upside potential. We believe Celebi is one of the 3.6 sound companies in the ISE with its strong balance sheet. 2.0 • Margins to remain resilient. Celebi’s revenues are mostly Euro

based. We expect Celebi’s revenues to reach TL327mn in FY09, with 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 the Company generating TL94mn of EBITDA, above 2008 level CLEBI ISE-100 thanks to the YoY depreciation of the TL. • Antalya operations to be discontinued in 2009, but EBITDA to be Summary Financials & Ratios supported by expanding international operations and organic (TLmn) 2007 2008 2009E 2010E growth. Celebi’s 50% subsidiary, Celebi-IC Antalya, currently oper- Net Sales 276 302 327 266 Gross Profit 80 87 88 69 ates Terminal 2 at Antalya International Airport and the concession ex- EBITDA 77 86 94 62 pires in September 2009. In November 2008, Celebi’s consortium Net Income 26 35 49 30 won the tender for ground handling services for a period of 10 years Gross Margin 28.8% 28.7% 27.0% 26.0% at Mumbai Chhatrapati Shivaji International Airport; operations will EBITDA Margin 27.9% 28.3% 28.8% 23.5% start in 2H09. In April 2009, Celebi won the tender for the operating Net Margin 9.5% 11.6% 15.0% 11.1% Valuation Multiples rights of the current cargo terminal at Delhi Indra Gandhi International P/E 9.3 6.9 4.9 8.2 Airport for 25 years. EV/Sales 1.1 1.0 0.9 1.1 • Exploring inorganic growth opportunities. Celebi announced that EV/EBITDA 3.8 3.5 3.1 4.7 it has authorized Citigroup Global Markets Limited as its financial ad- Stock Market Data (25 June 2009) visor regarding the acquisition of ground services operations of Ac- Relative Performance: 1mth 3mths 12mths 10% 3% 43% ciona SA in Germany and Spain. Additionally, Citigroup Global Mar- 52 Week Range (TL): 3.34-11.00 kets Limited will advise on the financing on the acquisition. Celebi will Market Cap (TLmn): 243 strengthen its position in the European market if this acquisition takes Average Daily Vol (TLmn) 3 mth: 1.9 YTD TL Return(%): 93 place. Free float (%): 23

TAV AIRPORTS HOLDING (TAVHL.IS) / Aviation Outperform Current/ 2009-end Target Price: TL4.12/ TL5.55 Current/ 2009-end Target Mcap: US$940mn/ US$1,300mn

Worst is over... TAV Airports (2008-2009) 9.0 • We employ sum-of-the-parts and multiple comparison methods 7.4 to value TAV Airports, deriving 35% TL based upside potential. 5.8

TAV is trading at a discount to peers based on 2010E EV/Sales multi- TL 4.2 ple. We believe the 31% underperformance in the past year offers an 2.6 attractive entry level. 1.0 • We believe the Company will not have cash flow issues in 2009. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 TAV completed its 50% rights issue (TL121mn) in January. In addition, TAVHL ISE-100 TAV announced that it has started negotiations with potential investors for the sale of minority shares up to 20% of TAV Tunisie SA. We value TAV’s Tunisia operations at US$350mn with the net debt figure Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E at end-1Q09. We deem this development positive as the transaction Net Sales 903 1,190 1,411 1,469 could bring a strategic partner and cash inflow. EBITDA 136 267 344 402 • We believe the worst quarter of the year is over, which was a low EBITDAR 387 563 621 678 season for air travel. Additionally the global economic crisis negatively Net Income (68) 8 39 84 EBITDA Margin 15.1% 22.4% 24.4% 27.3% affected both aircraft and passenger traffic. TAV reported an EBIT- EBITDAR Margin 43% 47.3% 44.1% 46.1% DAR margin of 36.6% in 1Q09, a contraction of 3pp YoY. The operat- Net Margin n.m. 0.7% 2.8% 5.7% ing performance is set to improve in the upcoming quarters as pas- Valuation Multiples senger numbers gradually increase, positively affecting financials. As EV/Sales 3.1 2.4 2.0 1.9 EV/EBITDA 20.6 10.5 8.2 7.0 air travel does not have good alternatives in terms of time constraints, EV/EBITDAR 7.2 5.0 4.5 4.1 in the mid term, positive expectations continue. Stock Market Data (25 June 2009) • After Georgia and Tunisia, expansion into Macedonia. On Sept. 4, Relative Performance: 1mth 3mths 12mths 2008, TAV was awarded the 20 year concession tenders for the op- 8% 1% -31% eration of 2 international airports in Skopje and Ohrid, and the con- 52 Week Range (TL): 1.88-6.36 Market Cap (TLmn): 1,497 struction of the New Cargo Airport in Shtip. As the financing agree- Average Daily Vol (TLmn) 3 mth: 18 ment has not been disclosed, we have not included these operations YTD TL Return(%): 62 in our valuation. Free float (%): 18

TURKISH AIRLINES (THYAO.IS) / Aviation Market Perform Current/ 2009-end Target Price: TL2.13/ TL2.35 Current/ 2009-end Target Mcap: US$1,204mn/ US$1,325mn

A smooth take off for 2009… Turkish Airlines (2008-2009) 10.0 • Based on a multiple comparison with THY’s European peers, we 8.4 value the flag carrier at US$1.3bn, indicating 10% TL based up- 6.8 side potential. At its current Mcap, THY is trading in line with its TL 5.2 European peers on the basis of its 2009-2010 EV/EBITDA and EV/ 3.6 EBITDAR multiples, respectively. THY is one of the most profitable 2.0

airlines in Europe and we will simply wait for an attractive entry level 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 to build new positions. THYAO ISE-100

• Strong fundamentals. THY started 2009 with a strong balance sheet. Despite a decline in the load factor with rapid expansion in its Summary Financials & Ratios fleet, passenger numbers continues to increase. Passenger numbers (TLmn) 2007 2008 2009E 2010E Net Sales 4,860 6,123 6,333 7,292 rose by 9.5% YoY, from 6.3 million in 4M08 to 6.9 million in 4M09. In EBITDA 890 1,050 963 1208 this period, THY’s load factor decreased by 3.9 pp YoY to 67.2% in EBITDAR 1,056 1,197 1,153 1,412 Jan-April09. Net Income 265 1,134 457 624 EBITDA Margin 18.3% 17.2% 15.2% 16.6% • Oil prices not a concern. Oil prices averaged at around US$99/bbl EBITDAR Margin 21.7% 19.6% 18.2% 19.4% in 2008 while our 2009 estimate is at around US$60/bbl. The airline Net Margin 5.5% 18.5% 7.2% 8.6% also applies fuel surcharges if necessary. We expect average fares to Valuation Multiples plunge by 20% in 2009 with load factor slipping 6pp to 69%, translat- P/E 7.0 1.6 4.1 3.0 EV/Sales 0.6 0.5 0.5 0.4 ing into lower revenues. Still, we project an EBITDAR of TL1.15bn for EV/EBITDAR 4.1 3.6 3.7 3.0 THY in 2009 and a healthy 18% margin, slightly below 2008. The YoY Stock Market Data (25 June 2009) depreciation in TL is also positive for THY as the majority of revenues Relative Performance: 1mth 3mths 12mths are FX based. 17% 26% 112% 52 Week Range (TL): 0.72-2.13 • Great FY08 results - translated into cash dividends and bonus Market Cap (TLmn): 1,864 shares. On May 21, THY distributed TL99.2mn cash dividends. The Average Daily Vol (TLmn) 3 mth: 32 distribution of TL700mn bonus issue (400%) started on June 25, YTD TL Return(%): 99 Free float (%): 50.88 bringing further liquidity to the stock.

BANKING

Improving outlook... Sector Forecasts (2008-2010E) • Strong fundamentals remain intact. The Turkish banking system (TLmn) 2008 2009E Chg. 2010E Chg. proved its resilience in 2H08, ending 2008 with an RoE of 18.6%, de- Total Deposits 445,438 481,073 8% 543,612 13% spite a deteriorating macro economic outlook, a slowdown in volume Total Loans 353,118 381,367 8% 438,572 15% growth, worsening asset quality and narrowing syndication markets. Cons. Loans* 81,413 89,554 15% 107,464 20% 1H09 was a period of success as they cashed in on declining interest Total Assets 732,749 791,369 8% 910,074 15% * excl. credit cards rates. The banking sector witnessed 33% YoY earnings growth in 1Q09, which is likely to continue in 2Q09 along with the positive effect Per GDP ratios of the duration gap between assets and liabilities. As such, banks 2007 2008 2009E 2010E 2011E managed to improve their NIM levels on the back of declining funding Deposits / GDP 42% 48% 53% 58% 60% Loans / GDP 33% 38% 43% 48% 50% costs without loan expansion in 1H09. However, the positive effect of Cons. Loans / GDP 8% 9% 10% 12% 15% the duration gap will peter out in 2H09, and banks will need to attain Assets / GDP 68% 77% 83% 86% 88% some degree of expansion in loans to sustain their NIM levels. We ex- Source: Garanti Securities Estimates pect banks’ NIM level to increase by 110bps in 1H09 and contract by 60bps in 2H09, ending 2009 with a 50bps YoY rise in NIM levels. • Volume growth on the cards. Our economic view is more optimistic for 2H09 and 2010, and we anticipate some recovery, especially in O/N Policy Rates vs. Deposit Costs loan growth. We expect 6% loan growth in 2H09, basing our expecta- 30% tion on the increase in consumer confidence index as well as our 3% 25% GDP growth forecast for 2H09. For 2010, we are more optimistic in 20% 15% our volume growth forecast with a 15% YoY growth, in line with our 10% 3% FY10 GDP growth forecast. 5% • Volume growth to be derived from consumer & corporate loans. We expect loan volume growth to be derived mainly from business 01.04 05.04 09.04 01.05 05.05 09.05 01.06 05.06 09.06 01.07 05.07 09.07 01.08 05.08 09.08 01.09 05.09 O/N Policy Rate Deposit Costs (ave) banking and consumer loans (general purpose and credit cards) in 2009 and 2010. We believe banks’ appetite to extend FX loans will re- Source: CBRT, Garanti Securities turn as TL loan-deposit spreads erode with rising interest rates and declining yields on TL loans in 2010.

BANKING

• Signs of improvement in asset quality. The BRSA banking sector NPL Ratio (1991-2010E) figures point to an average monthly deterioration of around 20bps in 20% 17% asset quality in 4Q, and the worsening in asset quality continues at a 16% 13% 10% lower pace since the end of January. Our bullish loan growth expecta- 12% 7% 6% 6% tion for 2H09 leads us to maintain our 2009-end NPL ratio forecast of 8% 5% 5% 5% 5.5% 3% 4% 4% 3%3% 3% 3%2%2% 3% 6%. We expect a 60% YoY rise in Turkish banks’ provisions for bad 4% loans. We do not expect a drastic fall in the banking system’s provi- 0% sioning coverage policy for bad loans, considering their strong capi- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

talization levels. In 2010, we expect an NPL ratio of 5.5% for the 2009E 2010E banking sector, down by 50bps YoY due to a slowdown in NPL book Source: The Banks Association of Turkey, Garanti Securities Estimates growth, coupled with rising loan volume growth. Turkish Banks: Capital Adequacy Ratio • Improving FX funding outlook. Given the tight global liquidity condi- 35 30.9 tions we believe the main risk areas on the funding side will be syndi- 28.8 28 24.2 24.2 cation loans and banks’ FX deposit bases. Although the syndication 22.0 19.1 markets narrowed in size, Turkish banks managed to roll-over 50% of 21 18.0 18.3 18.1 % their syndication payments in 2H09. We expect a syndication roll-over 14

ratio of 70% for the 2009 full year, rising to 120% in 2010. We expect 7 the TL to maintain its strength against foreign currencies, hence we 0 do not expect a problem on the FX deposit side going forward. 2002 2003 2004 2005 2006 2007 2008 2009E 2010E • 2010 will be a much better year. We project 14% YoY growth in the Source: The Banks Association of Turkey, Garanti Securities Estimates bottom lines of the banks under our coverage in 2009, to be followed by a much better year in 2010, with 18% YoY earnings growth, con- Turkish Banks: International Comparison

sidering the decline in banks’ provisioning costs coupled with the im- P/E P/BV ROE (%) provement in their revenue generation capability on the back of a (US$ based) 2009 2010 2009 2010 2009 2010 more favourable volume growth and reversal of loan loss provisions. CEE Average 11.7 10.2 1.3 1.2 12.3 18.7 Moreover, the recent rise in the multiples of Turkish banks’ interna- Latam Average 13.2 11.7 2.0 1.9 15.9 16.5 Turkish Average 7.5 6.6 1.1 1.0 16.4 16.4 tional peers has led to an upward adjustment in our valuations. Source: Bloomberg / IBES Estimates, Garanti Securities Estimates

BANKING - Major Indicators

Loans (TLbn) Deposit Distribution (TLbn)

413 300

334 225

256 150

178 75

100 0 01.06 03.06 05.06 07.06 09.06 11.06 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 01.06 03.06 05.06 07.06 09.06 11.06 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 TL Deposit FX Deposit

Loans/Deposits Ratio Interest Rates vs. Consumer Loan Growth

100% 12% 22

80% 9% 20

60% 6% 18 % 40% 3% 16

20% 0% 14

0% -3% 12 01.06 03.06 05.06 07.06 09.06 11.06 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 01.05 03.05 05.05 07.05 09.05 11.05 01.06 03.06 05.06 07.06 09.06 11.06 01.07 03.07 05.07 07.07 09.07 11.07 01.08 03.08 05.08 07.08 09.08 11.08 01.09 03.09 05.09 TL Loans/Deposits FX Loans/Deposits Consumer Loans MoM Chg. (%) Benchmark int. rate (rhs)

Source: BRSA weekly data, CBRT

BANKING - Asset Quality Indicators

NPL Ratio vs. NPL Provisioning Coverage NPL Ratio by Segments

83% 5% 10%

82% 4% 8%

81% 3% 6%

80% 2% 4%

2% 79% 1%

0% 78% 0% 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 Credit cards Commercial Instalment NPL Coverage NPL ratio Consumer Loans Corporate + Big Commercial Loans

NPL Breakdown in Consumer Loans Growth in NPL Book

15%

Housing 12% 27% NPL ratio: General 1.7% 9% Purpose NPL ratio: 6% 3.6% 56% 3% 17% Auto NPL 0% ratio: 7.8% 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09

Housing Auto General Purpose NPL Grow th (MoM)

Source: BRSA data

BANKING - Multiple Comparison

(as of 25/06/2009) Akbank Fortis Garanti Bank* Halkbank Isbank TEB Vakifbank YKB Average MCAP (US$mn) 13,278 943 11,180 4,967 8,874 853 3,570 6,263 Current Price (TL) 6.85 1.39 4.12 6.15 4.46 1.20 2.21 2.23 2009-end Target Price (TL) 7.27 1.89 - 8.00 6.31 1.61 2.58 2.76 Upside Potential (%) 6% 36% - 30% 41% 34% 17% 24% RATING Market Perform Outperform NOT RATED Outperform Outperform Outperform Market Perform Market Perform Net Profit (TLmn)* 2007 1,994 150 2,316 1,131 1,702 130 1,031 709 2008 1,705 145 1,750 1,018 1,509 164 753 1,043 2009F 1,829 181 1,725 1,342 1,697 185 870 1,125 2010F 2,324 193 2,103 1,481 2,009 223 991 1,334 Adjusted Book Value (TLmn) 2007 10,601 1,115 6,883 4,383 7,805 552 5,093 4,901 2008 11,208 1,649 9,469 4,289 7,504 1,424 5,516 6,851 2009F 12,854 1,968 11,222 5,496 9,392 1,590 6,265 7,863 2010F 14,946 2,132 12,844 6,830 11,529 1,790 7,159 8,997 P/E (x) 2007 10.3 9.7 7.5 6.8 8.1 10.1 5.4 13.7 8.4 2008 12.1 10.1 9.9 7.5 9.1 8.0 7.3 9.3 9.6 2009F 11.2 8.1 10.0 5.7 8.1 7.1 6.4 8.6 8.6 2010F 8.8 7.6 8.2 5.2 6.8 5.9 5.6 7.3 7.3 Adjusted P/BV 2007 1.9 1.3 2.5 1.8 1.5 2.4 1.1 2.0 1.9 2008 1.8 0.9 1.8 1.8 1.6 0.9 1.0 1.4 1.6 2009F 1.6 0.7 1.5 1.4 1.3 0.8 0.9 1.2 1.4 2010F 1.4 0.7 1.3 1.1 1.0 0.7 0.8 1.1 1.2 Adj. ROAE 2007 23% 11% 40% 28% 24% 18% 22% 17% 26% 2008 16% 8% 21% 23% 20% 14% 14% 18% 18% 2009F 15% 10% 18% 27% 20% 12% 15% 15% 18% 2010F 17% 9% 18% 24% 19% 13% 15% 16% 18% Adj P/BV/ROAE 2007 8.6 12.1 6.3 6.3 6.4 13.4 5.0 11.5 7.7 2008 11.7 10.6 8.5 7.6 7.9 6.6 7.1 8.0 9.0 2009F 10.5 7.7 8.6 5.1 6.2 6.8 6.0 8.1 8.0 2010F 8.2 7.3 7.6 4.7 5.3 5.6 5.2 6.8 6.8 Mcap / Loans 0.49 0.21 0.34 0.28 0.30 0.17 0.18 0.25 0.34 Mcap / Deposit 0.41 0.29 0.30 0.19 0.21 0.14 0.14 0.23 0.28 Mcap / Assets 0.24 0.13 0.18 0.15 0.14 0.09 0.10 0.15 0.17 Mcap / # of branches 23.5 4.9 23.8 12.0 13.1 3.9 10.5 11.3 17.4 Source: Garanti Securities estimates and bank only BRSA financial tables * We do not issue rating, nor do we provide forecasts for Garanti Bank, hence the source of projections for Garanti Bank is Bloomberg/IBES consensus estimates.

AKBANK (AKBNK.IS) / Banking Market Perform Current/ 2009-end Target Price: TL6.85/ TL7.27 Current/ 2009-end Target Mcap: US$13,278mn/ US$14,050mn

Banking on a better 2010... Akbank (2008-2009) 8.5 • At its current Mcap, based on our 2009 and 2010 projections, Ak- 7.3 bank trades at a premium compared to sector average multiples. 6.1

The bank’s strong liquidity and capital base offsets our concerns re- TL 4.9 garding above sector asset quality deterioration and high exposure to 3.7 syndication payments in 2H09. Our end-2009 target of US$14bn sug- 2.5 gests 6% upside potential for the stock in TL terms. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Continued caution in lending. Akbank proactively started to reduce AKBNK ISE-100 its risky loan exposure prior to the crises at the cost of market share. In line with the bank’s strategy of shifting its loan portfolio towards Summary Financials & Ratios less risky and lower yielding loans, the bank’s interest return on loans (TLmn) 2007 2008 2009E 2010E Net Income 1,994 1,705 1,829 2,324 is now lower than the sector average. We expect Akbank to post 5% Total Assets 68,205 85,655 92,476 103,738 loan growth in 2009, followed by 14% growth for 2010. Sh.’s Equity 10,601 11,208 12,854 14,946 Loans 37,016 44,374 46,612 53,005 • Worsening deterioration in asset quality. Akbank has suffered a Deposits 41,044 52,182 53,717 61,260 marked increase in new NPL generation, and the bank’s ratio of loans FX-adj. NIM 5.8% 4.9% 4.9% 4.8% under close monitoring is signaling no major improvement in asset Cost/Income 50% 62% 62% 55% quality for 2Q09, implying high provisions in FY09 coupled with the Valuation Multiples bank’s 100% NPL provisioning coverage policy. However, we expect P/E 10.3 12.1 11.2 8.8 P/BV 1.9 1.8 1.6 1.4 the conservatively set aside loan loss provisions to support the bank’s ROAE 22.6% 15.6% 15.2% 16.7% bottom-line in the form of other income in 2010. Stock Market Data (25 June 2009) • High volume of syndication payments ahead. Akbank has a total Relative Performance: 1mth 3mths 12mths -0.4% 0.2% 52.0% of US$2.7bn in syndication payments maturing in 2H09. We expect a 52 Week Range (TL): 3.4 - 6.9 60% roll-over ratio for Akbank. Market Cap (TLmn): 20,550

Average Daily Vol (TLmn) 3 mth: 53.0 • Earnings to jump in 2010. Along with volume growth and improving YTD TL Return(%): 47.0 asset quality, we expect Akbank’s earnings to surge by 27% YoY in Free float (%): 37.0 2010.

FORTIS (FORTS.IS) / Banking Outperform Current/ 2009-end Target Price: TL1.39/ TL1.89 Current/ 2009-end Target Mcap: US$943mn/ US$1,280mn

Merger is the most likely scenario... Fortis (2008-2009)

2.5 • Our 2009-end target valuation of US$1.1bn suggests 36% upside 2.1 potential for Fortis in TL terms. We keep Fortis in our 1.7

recommended stocks list, firstly because of the massive discount to TL 1.3 its peers (based on projected P/BV multiples) and secondly by virtue 0.9 of a potential merger with TEB on the agenda. 0.5

• The cheapest bank in our coverage. Fortis trades at a significant 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

discount to its peers based on our 2009 and 2010 projections. Indeed, FORTS ISE-100 with its FY09 and FY10 P/BV multiple of 0.7x, Fortis is the cheapest bank in our coverage. Summary Financials & Ratios • A potential merger with TEB is likely in 2009. With the approval of (TLmn) 2007 2008 2009E 2010E the Fortis SA/NV and Fortis NV shareholders, BNP Paribas’ acquired Net Income 150 145 181 193 Total Assets 9,828 11,915 12,497 13,815 75% stake in Fortis Belgium from Belgian Government in April 2009. Sh.’s Equity 1,649 1,805 1,968 2,132 BNP Paribas is also TEB's majority shareholder in Turkey. Although Loans 5,528 7,238 7,430 8,058 BNP Paribas has made no official announcement regarding its plans Deposits 5,647 5,461 5,683 6,232 for Fortis Turkey, the two banks recently signed a confidentiality FX-adj. NIM 7.3% 7.4% 7.4% 7.3% Cost/Income 76% 80% 78% 79% agreement for exchanging information to consider various corporate Valuation Multiples restructuring alternatives. We believe BNP Paribas is likely to choose P/E 9.7 10.1 8.1 7.6 to merge TEB and Fortis and create synergies in its banking P/BV 0.9 0.8 0.7 0.7 operations in Turkey. Alternatively, it may decide to put Fortis up for ROAE 10.9% 8.4% 9.6% 9.4% sale, which we attach a smaller probability. In either case, we believe Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths Fortis would definitely be valued at a higher multiple than its 2010F 11.2% 29.4% 49.5% P/BV of 0.6x. 52 Week Range (TL): 0.6 - 1.4

Market Cap (TLmn): 1,460 • Projections. We expect Fortis to attain 25% earnings growth in 2009 Average Daily Vol (TLmn) 3 mth: 3.3 backed by declining interest rates. We also expect Fortis to post a YTD TL Return(%): 90.4 strong set of earnings in 2010 thanks to high spreads on FX loans. Free float (%): 6

HALKBANK (HALKB.IS) / Banking Outperform Current/ 2009-end Target Price: TL6.15/ TL8.00 Current/ 2009-end Target Mcap: US$4,967mn/ US$6,450mn

RoAE to remain strong in 2009 and 2010... Halkbank (2008-2009)

11.0 • At its current Mcap, our 2009-end target of US$6.5bn suggests 9.2 30% TL based upside potential for Halkbank. We expect the stock 7.4

to outperform its peers thanks to its strong fundamentals and out- TL 5.6 standing earnings potential. 3.8

• Wide deposit base ensures robust funding. Halkbank is the most 2.0 robust bank in terms of funding in our coverage with its wide deposit 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 base constituting 76% of its balance sheet. Moreover, with ongoing HALKB ISE-100 redemptions of its broad security portfolio, Halkbank stands relatively resilient in the face of liquidity constraints. Fuelled by redemptions of Summary Financials & Ratios securities, we expect Halkbank to enjoy 20% YoY loan volume growth (TLmn) 2007 2008 2009E 2010E in 2009 and 2010. Net Income 1,131 1,018 1,342 1,481 Total Assets 40,234 51,096 56,583 63,980 • No exposure to international funding. International funding ac- Sh.’s Equity 4,383 4,289 5,496 6,830 counts for a negligible 3% of the bank’s total liabilities and sharehold- Loans 18,121 25,836 31,125 37,259 ers’ equity. Halkbank is thus less exposed to the surge in syndication Deposits 30,841 40,271 41,616 47,118 costs than other banks. FX-adj. NIM 4.8% 4.5% 5.9% 4.6% Cost/Income 43% 53% 54% 48% • Asset quality improving. Despite being an SME bank, Halkbank’s Valuation Multiples NPL book growth remained below the sector in 1Q09. Moreover, the P/E 6.8 7.5 5.7 5.2 decline in the ratio of the bank’s loans under close monitoring to total P/BV 1.8 1.8 1.4 1.1 loans in 1Q09 hints to an improvement in asset quality for 2Q09. ROAE 27.7% 23.5% 27.4% 24.0% Stock Market Data (25 June 2009) • Projections. We expect Halkbank’s NIM to increase by 50bps in Relative Performance: 1mth 3mths 12mths 2Q09 on the back of a decline in the bank’s deposit costs and fore- 0.9% 21.6% 5.2% gone market share in deposits as the bank’s loans/deposits ratio is 52 Week Range (TL): 3.1 - 7.7 very comfortable at 68% as of 1Q09. We expect 32% and 10% YoY Market Cap (TLmn): 7,688 Average Daily Vol (TLmn) 3 mth: 65.4 earnings growth for Halkbank in 2009 and 2010 respectively. We also YTD TL Return(%): 38.2 expect declining provision expenses and rising NPL collections to Free float (%): 25 support Halkbank’s bottom-line in 2010.

ISBANK (ISCTR.IS) / Banking Outperform Current/ 2009-end Target Price: TL4.46/ TL6.31 Current/ 2009-end Target Mcap: US$8,874mn/ US$12,520mn

Time for a rebound… Isbank (C) (2008-2009) 7.0 • Our 2009-end target of US$12.5bn for Isbank points to 41% TL 6.0 based upside potential over the bank’s current Mcap. Isbank 5.0

trades at a discount to other large cap banks in our coverage uni- TL 4.0 verse, based on its FY09 and FY10 P/BV multiples. We believe Is- 3.0 bank boasts the ability to react swiftly to any improvement in the eco- 2.0 nomic outlook, on the back of its competitive advantage in funding, 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 high capitalization and liquidity level. ISCTR ISE-100

• Competitive advantage in funding. Isbank’s main strength is its wide network of 1,071 branches, which provides the bank with a com- Summary Financials & Ratios petitive edge in maintaining a strong funding base. The bank’s 72% (TLmn) 2007 2008 2009E 2010E loans/deposits ratio also offers it comfort in funding. Net Income 1,702 1,509 1,697 2,009 Total Assets 80,180 97,551 107,066 118,930 • Improving asset quality. Isbank’s conservative 100% provisioning Sh.’s Equity 10,604 9,449 11,107 13,014 coverage policy for NPLs alleviates our concerns of a much worse as- Loans 33,980 47,610 50,874 57,505 set quality deterioration, leaving the worst behind for the bank. The Deposits 48,533 63,539 66,957 74,380 improvement in the bank’s 1Q09 loans under close monitoring ratio FX-adj. NIM 4.8% 5.0% 5.5% 4.3% Cost/Income 64% 71% 71% 63% signals lower NPL creation going forward, while strong NPL collec- Valuation Multiples tions will also help boost the bank’s other income in 2H09 and 2010. P/E 8.1 9.1 8.1 6.8 • Above sector NIM expansion in 2Q09; RoAE to remain strong in P/BV 1.5 1.6 1.3 1.0 2009 and 2010. With a wide TL deposit base and AFS securities port- ROAE 23.6% 19.7% 20.1% 19.2% folio, Isbank is one of the foremost beneficiaries of a declining interest Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths rate environment. As the bank has a higher duration gap compared to -8.9% -4.2% 16.9% its peers, we believe declining funding costs will be reflected clearly in 52 Week Range (TL): 2.7 - 5.2 Isbank’s 2Q09 NIM expansion. The bank’s wide AFS securities portfo- Market Cap (TLmn): 13,735 Average Daily Vol (TLmn) 3 mth: 135.9 lio also offers potential for strong trading gains. We expect volume YTD TL Return(%): 23.5 growth and improving asset quality to support Isbank’s bottom-line in Free float (%): 33 2010, leading to an 18% YoY rise in earnings.

TEB (TEBNK.IS) / Banking Outperform Current/ 2009-end Target Price: TL1.20/ TL1.61 Current/ 2009-end Target Mcap: US$853mn/ US$1,140mn

Merger is on the cards... TEB (2007-2008) 3.0 • Our 2009-end target of US$1,140mn suggests 34% upside poten- 2.5 tial for TEB over its current MCap. We expect the shares to enjoy a 2.0

significant rebound, as its bargain basement FY09 and FY10 P/BV TL 1.5 multiples offer significant upside potential. The announced 1Q09 fi- 1.0 nancials stand as testament to TEB's resilience. 0.5

• A potential merger with Fortis is on the cards. Following BNP 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 Paribas’ acquisition of Fortis, we believe a merger between TEB and TEBNK ISE-100 Fortis is the most likely scenario as the two banks are strategically complementary of each other with Fortis’ expertise in retail banking Summary Financials & Ratios and TEB’s expertise in corporate and commercial banking. Moreover, (TLmn) 2007 2008 2009E 2010E a potential merger will lead to cost synergies as well as a re-rating in Net Income 130 164 185 223 Total Assets 11,801 14,736 15,513 17,441 TEB’s valuation. Whether there will be a merger or not is expected to Sh.’s Equity 910 1,424 1,590 1,790 become clear by the end of 2009. Loans 6,864 8,505 8,047 9,206 • Further improvement likely in fee income/opex ratio. TEB proved Deposits 7,083 9,272 9,650 10,750 its success in upward repricing in 1Q09 as its fee income climbed by FX-adj. NIM 5.9% 5.7% 5.8% 5.5% Cost/Income 76% 81% 79% 76% 20% QoQ. Along with the suspension of TEB’s branch expansion Valuation Multiples strategy, TEB’s operating expenses will continue to ease further, re- P/E 10.1 8.0 7.1 5.9 sulting in a much higher fee income/opex ratio going forward. P/BV 1.5 0.9 0.8 0.7

• The highest spreads in our coverage. The bank’s higher spreads ROAE 17.8% 14.1% 12.3% 13.2% stem from its above sector yields on TL and FX loans. We believe this Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths trend will continue to support TEB’s bottom-line in 2Q09 and so on. 0.1% 32.6% 12.1% • Projections. We forecast a 13% YoY improvement in TEB’s 2009 52 Week Range (TL): 0.5 - 1.6 earnings on the back of declining funding costs as well as the bank’s Market Cap (TLmn): 1,320 Average Daily Vol (TLmn) 3 mth: 18.4 competence in generating FX gains and trading income. We believe YTD TL Return(%): 46.3 TEB’s earnings will surge by 21% YoY in 2010 with above sector vol- Free float (%): 20 ume growth, along with high spreads and NPL collections.

VAKIFBANK (VAKBN.IS) / Banking Market Perform Current/ 2009-end Target Price: TL2.21/ TL2.58 Current/ 2009-end Target Mcap: US$3,570mn/ US$4,160mn

Needs a pause for breath ... Vakifbank (2008-2009) 4.5 • Our 2009-end target share price of TL2.58 offers 17% TL based 3.7 upside potential for the stock. Vakifbank has outperformed the ISE- 2.9

100 index by 32% since the beginning of the ISE rally on 9 March and TL 2.1 we believe the stock has a limited upside potential following its recent 1.3 outperformance. The bank enjoyed an above sector NIM expansion in 0.5 1Q09 as a result of its proportionately high TL deposits. However, we 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 do not expect a repeat of the same performance in 2Q09 as most of VAKBN ISE-100 the bank’s deposits were repriced in 1Q09.

• Growth to come from lucrative retail segment going forward. The Summary Financials & Ratios bank is currently raising its market share in retail loans and credit (TLmn) 2007 2008 2009E 2010E cards. The bank is set to benefit from its existing leading position in Net Income 1,031 753 870 991 Total Assets 42,408 52,193 59,190 66,195 the payroll & debit cards by cross-selling general purpose and credit Sh.’s Equity 5,226 5,671 6,417 7,260 card loans. We expect Vakifbank to improve its fee income generation Loans 23,470 30,502 32,150 37,200 in 2009 and 2010 on the back of rising cross-sell ratios. Deposits 28,863 37,120 40,252 46,270 FX-adj. NIM 5.0% 4.6% 5.2% 4.7% • Mark to market and trading gains on the cards. Around 69% of Cost/Income 52% 68% 68% 66% Vakifbank’s securities are kept in AFS accounts, which will result in Valuation Multiples mark to market gains with TL and FX security yields on a declining P/E 5.4 7.3 6.4 5.6 trend. Moreover, as a large portion of the bank’s securities are in the P/BV 1.1 1.0 0.9 0.8 form of AFS, Vakifbank has room to generate trading gains. ROAE 21.8% 14.2% 14.8% 14.8% Stock Market Data (25 June 2009) • Projections. Vakifbank is set to benefit from having the lowest cost/ Relative Performance: 1mth 3mths 12mths income ratio and cost of deposits in the sector, and we expect 0.0% 23.1% 23.6% Vakifbank’s earnings to increase by 15% YoY, implying an RoAE of 52 Week Range (TL): 1.0 - 2.5 15% for 2009. We expect Vakifbank to achieve 14% earnings growth Market Cap (TLmn): 5,525 Average Daily Vol (TLmn) 3 mth: 69.7 in 2010, along with volume growth. However, capital adequacy YTD TL Return(%): 88.9 constraints may limit the bank’s loan volume growth potential in 2010, Free float (%): 25 although the loans/deposits ratio may be considered comfortable.

YAPI KREDI BANK (YKBNK.IS) / Banking Market Perform Current/ 2009-end Target Price: TL2.23/ TL2.76 Current/ 2009-end Target Mcap: US$6,263mn/ US$7,740mn

Limited upside on valuation grounds... Yapi Kredi Bank (2008-2009) 4.0 • Our target valuation of US$8bn suggests 24% TL based upside 3.4 potential for YKB. The stock trades in line with its peers on the basis 2.8

of its prospective FY09 and FY10 P/BV multiples. The bank’s impres- TL 2.2 sive earnings performance in 1Q09 mainly stemmed from the strong 1.6 dividend income and FX gains - the sustainability of which we doubt 1.0

going forward.

01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Asset quality stands as main concern. The completion of YKB’s re- YKBNK ISE-100 structuring phase started to pay back in the form of aggressive market share gains in loans. However, the bank’s high exposure to consumer Summary Financials & Ratios loans and credit card loans raises the risk of greater asset quality de- (TLmn) 2007 2008 2009E 2010E Net Income 709 1,043 1,125 1,334 terioration, and thus a surge in provisions in 2009. We expect YKB to Total Assets 50,141 63,723 69,757 79,020 limit its presence in the high risk general purpose and credit card loan Sh.’s Equity 4,904 6,853 7,865 8,999 segments as a precautionary measure. Nevertheless, the bank’s Loans 28,509 38,673 41,552 47,603 bulky credit card loan book is too massive to be reduced easily. More- Deposits 32,166 41,705 44,124 48,549 FX-adj. NIM 5.1% 4.7% 5.2% 4.6% over, the Central Bank’s move to reduce the upper limit of credit card Cost/Income 75% 69% 71% 68% interest rates also puts a dent in the bank’s interest income. Valuation Multiples • 1Q09 NIM expansion mainly derived from TL deposit contraction. P/E 13.7 9.3 8.6 7.3 We do not expect strong NIM expansion for YKB in 2Q09, with the P/BV 2.0 1.4 1.2 1.1 bank’s TL loans/deposits ratio at 110% in 1Q09 - and most of the de- ROAE 17.2% 17.7% 15.3% 15.8%

posits re-priced in 1Q09. Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths • Provisions to grow in 2009 and ease in 2010. The bank’s NPL pro- -9.3% -9.3% 1.1% visioning coverage is the lowest of the banks within our coverage, im- 52 Week Range (TL): 1.4 - 2.8 plying that the currently unprovisioned portion of loans may require Market Cap (TLmn): 9,694 Average Daily Vol (TLmn) 3 mth: 90.4 additional provisioning going forward, a problem that will be com- YTD TL Return(%): 6.2 pounded by rapid generation of new NPLs in 2009. We expect YKB’s Free float (%): 24 earnings to grow by 8% and 19% YoY, in 2009 and 2010 respectively.

CEMENT

Building out of the ashes of recession… Cement Sales (mn tonnes)

• We believe that rising demand for new housing will release pres- 60.0 sure on the construction sector in 2H09 as low interest rates will 48.0 6.6 10.6 contribute to residential home sales. However, we do not expect 5.6 11.7 11.7 7.7 36.0 8.2 substantial government spending to drive the construction sector in 7.4 2H09, as the positive impact was only felt before the local elections in 24.0 41.6 42.5 40.7 1Q09. Yet, we believe that 2H09 will be more positive for construction 35.1 36.7 37.8 28.1 30.7 sector with increasing residential demand. We forecast a 10% con- 12.0 traction in the domestic cement demand. 0.0 • We change our view for cement sector from negative to neutral 2003 2004 2005 2006 2007 2008 2009E 2010E in 2H09 with its direct exposure to the construction sector and Domestic Sales Export Sales the positive effects of high demand season. We believe cement producers will continue selling their products at current prices, giving Source: Turkish Cement Manufacturers' Association, Garanti Securities Estimates rise to slimmer margins than in 2008. Going forward, we believe that domestic cement consumption will increase by 3% in 2010 along with Construction vs. GDP Growth

steady export volumes. We believe falling freight prices may encour- 20.0% age cement producers to move further afield into markets such as Af- rica. 10.0% • Domestic cement prices set to drop by an average 10% in 2009. Although low petcoke and coal prices will serve as a positive factor for 0.0% cement producers, we believe the declining prices in the domestic market will hit margins. We believe all cement producers will seek to -10.0%

reduce operating costs. All factors combined we believe that cement -20.0% producers will encounter slight squeeze in margins. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 • Outperformed before dividend distributions. However, going for- Construction Grow th GDP Grow th ward we believe the sector now lacks a catalyst to fire up cement stocks. Source: TURKSTAT

CEMENT

ISE Cement Stocks Comparison Table

as of 25 June 2009

TLmn Clinker Cap. EV/EBITDA EV/Net Sales P/E Mcap Net Debt EV EV/Clinker Cap. (1,000 tonnes) Company 2007 2008 2009F 2010F 2007 2008 2009F 2010F 2007 2008 2009F 2010F

Adana 492 -85 408 2,300 3.1 5.1 6.1 5.6 1.3 1.4 1.4 1.3 2.7 4.6 5.3 4.8 177

Afyon 94 -11 82 490 5.1 168.3 13.7 12.9 1.6 2.0 2.2 2.1 8.1 25.6 22.8 21.5 168

Akcansa 643 290 933 6,500 3.9 4.0 5.0 4.4 1.3 1.2 1.3 1.1 3.5 6.2 8.0 6.3 144

Aslan 369 47 416 1,250 7.7 14.5 12.7 12.0 1.7 1.8 2.0 1.9 10.3 35.0 23.1 21.8 333

Bolu 183 -29 153 1,500 2.8 3.1 4.1 3.8 1.0 0.9 1.0 0.9 3.8 4.6 6.3 5.9 102

Batisoke 79 -21 58 1,000 1.9 5.8 4.9 4.7 0.6 0.7 0.7 0.7 4.1 136.1 37.3 35.2 58

Baticim 397 -30 366 1,400 4.5 9.5 8.0 7.5 1.2 1.1 1.2 1.1 7.1 21.4 14.8 13.9 262

Bursa 571 -26 545 1,400 5.2 8.2 8.7 8.2 1.2 1.3 1.3 1.3 7.9 12.5 16.3 15.4 389

Cimsa 532 243 775 4,800 3.6 4.3 5.3 4.9 1.3 1.3 1.3 1.2 1.8 7.0 7.9 7.3 161

Konya 225 -17 208 1,500 3.1 5.3 7.0 6.6 1.1 1.1 1.2 1.1 4.8 6.4 8.6 8.2 139

Mardin 493 -71 422 2,000 4.8 5.0 5.1 4.7 2.4 2.0 2.1 1.9 5.2 7.2 7.4 6.8 211

Nuh 1,465 122 1,587 4,100 6.1 6.7 7.8 7.3 2.2 1.9 2.0 1.9 6.3 9.8 9.5 8.9 387

Unye 348 -73 275 1,500 2.5 3.4 4.6 4.3 1.4 1.4 1.5 1.3 4.0 5.2 6.6 6.1 183

Sector Average 6789.0 761.0 7,550.1 35,840 4.5 5.9 7.0 6.4 1.6 1.5 1.6 1.5 4.6 9.6 9.6 8.6 211

AKCANSA (AKCNS.IS) / Cement Market Perform Current/ 2009-end Target Price: TL3.36/ TL4.21 Current/ 2009-end Target Mcap: US$416mn/ US$520mn

Still waiting to use new capacity… Akcansa (2008-2009) 6.0 • Our US$520mn 2009-end target Mcap for Akcansa is derived 5.0 from peer group comparison and DCF analysis with equal 4.0 weighting and suggests 25% upside potential in TL terms. The TL 3.0 stock trading at a 31% discount to its local peers based on its 4.4x 2.0 2010F EV/EBITDA multiple. The shares outperformed the index on 1.0 the back of dividend expectations, but we believe there is no catalyst 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

for the time being which could fuel the stock’s performance further. AKCNS ISE-100 • We forecast a 10% decline in Akcansa’s domestic grey cement sales volumes - which comprise 80% of total sales volumes - to 4.3mn tonnes on the back of the slowdown in the construction Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E sector. Meanwhile, Akcansa will sustain its strong growth trend in ex- Net Sales 691 804 726 816 port volumes, underpinned by synergies with its main shareholder, Gross Profit 225 206 160 186 Heidelberg Cement. We forecast 10% growth in Akcansa’s grey ce- EBITDA 243 234 188 214 ment and clinker export volumes to 1.3mn tonnes in 2009, which will Net Income 186 104 81 103 Gross Margin 32.6% 25.6% 22.0% 22.8% compensate some of the contraction in domestic cement demand in EBITDA Margin 35.2% 29.1% 25.9% 26.2% 2009. As Turkey’s leading clinker producer in terms of capacity, we Net Margin 26.9% 13.0% 11.1% 12.6% believe Akcansa’s excess capacity will hurt the Company in 2009 due Valuation Multiples to the ongoing slowdown. However in 2010 the Company will benefit P/E 3.5 6.2 8.0 6.3 EV/Sales 1.4 1.2 1.3 1.1 from this with increasing demand. EV/EBITDA 3.8 4.0 5.0 4.4 • We estimate a 5% narrowing in Akcansa’s average domestic ce- Stock Market Data (25 June 2009) ment prices in 2009. Consequently we project a 10% decline in net Relative Performance: 1mth 3mths 12mths revenues, with a 20% fall in EBITDA in 2009 as the EBITDA margin -7.9% 8.3% -12.9% slims down by 3.2pp turning to an improvement of 0.3 pp in 2010. 52 Week Range (TL): 1.5 - 4.5 Market Cap (TLmn): 643 • One step ahead of its peers with emphasis on alternative fuels. Average Daily Vol (TLmn) 3 mth: 1.0 By using alternative fuels, Akcansa will tackle its largest cost item and YTD TL Return(%): 55.7 improve margins in the long term. Free float (%): 20

CIMSA (CIMSA.IS) / Cement Market Perform Current/ 2009-end Target Price: TL3.94/ TL4.98 Current/ 2009-end Target Mcap: US$344mn/ US$434mn

Harder times ahead… Cimsa (2008-2009) 7.5 • Our 2009-end target Mcap of US$434mn suggests 26% upside 6.3 potential in TL terms. With a 2010F EV/EBITDA of 5.1x, the stock is 5.1

currently trading at a 23% discount to its local peers. Given the slow- TL 3.9 down in the cement sector and increased competition in Cimsa’s op- 2.7 erating region, we believe that the stock will move in line with the ISE 1.5 index. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • We expect Cimsa to be affected negatively from sectoral dynam- CIMSA ISE-100 ics. Cimsa targeted Russia for exports in 2008 (the Company under- took a port investment in Novorossiysk, Russia), while Russian ce- Summary Financials & Ratios ment demand collapsed in 1H09. Thus, we believe that Cimsa has to (TLmn) 2007 2008 2009E 2010E find new destinations to maintain its share of exports at the current Net Sales 575 610 580 633 high levels which is bound to compromise profitability in the current Gross Profit 210 160 132 144 EBITDA 215 178 147 157 difficult environment. With the recent worsening of conditions in the Net Income 290 76 68 72 Russian economy and falling domestic prices, we believe 2H09 will Gross Margin 36.6% 26.2% 22.7% 22.8% be harder for Cimsa. Yet we expect a slight recovery in 2010. EBITDA Margin 37.4% 29.2% 25.4% 24.9% Net Margin 50.5% 12.5% 11.7% 11.4% • We assumed a 8% YoY contraction in cement sales volumes in Valuation Multiples 2009 and we believe Cimsa’s domestic cement prices will further slide P/E 1.8 7.0 7.9 7.3 by 7% YoY in 2009 after the sharp decrease in 2008. We project a 5% EV/Sales 1.3 1.3 1.3 1.2 YoY decline in net sales in 2009, and a 9% growth in 2010. EV/EBITDA 3.6 4.3 5.3 4.9 Stock Market Data (25 June 2009) • Contracting margins in 2009. We forecast a 3.8pp narrowing in Relative Performance: 1mth 3mths 12mths Cimsa’s 2009F EBITDA margin to 25.4% with decreasing cement -8.7% -7.3% -1.7% prices. Going forward we estimate EBITDA margins to stabilize 52 Week Range (TL): 2.2 - 5.3 around 26%. Market Cap (TLmn): 532 Average Daily Vol (TLmn) 3 mth: 0.5 • Will be removed from ISE-100 on July, 1. We believe that investor’s YTD TL Return(%): 42.2 interest might decline with decreasing trading volume. Free float (%): 29

CONGLOMERATES

Summary Valuation and NAV Tables...

Summary Valuation Table (25 June 2009)

Price Mcap Current NAV Discount/ Target NAV Premium/ Target Mcap Target Upside/ Recom

(TL) (US$mn) (US$mn) Premium (US$mn) Discount (-) (US$mn) Price (TL) Downside (-)

DOHOL 0.95 1,504 950 58% 950 58% 1,827 1.16 22% Market Perform

DYHOL 1.33 532 1,088 -51% 1,092 -51% 552 1.38 4% Underperform

KCHOL 2.62 4,088 4,999 -18% 5,948 -31% 5,354 3.44 31% Outperform

SAHOL 4.36 5,071 7,837 -35% 8,172 -38% 6,130 5.28 21% Market Perform

SISE 1.25 888 1,359 -35% 1,495 -41% 1,200 1.69 35% Outperform TKFEN 3.52 842 842 0% 1,041 -19% 1,041 4.36 24% Market Perform

DOGAN HOLDING (DOHOL.IS) / Conglomerates Market Perform Current/ 2009-end Target Price: TL0.95/ TL1.16 Current/2009-end Target Mcap:US$1,504mn/US$1,827mn

Radical break away from NAV discount yet to come… Dogan Holding (2008-2009) 1.5 • Unlikely to break away from high NAV discount in the near term. 1.3 Dogan Holding currently trades at 39% discount to its current NAV, in 1.0 line with its average last 12-months discount. We use 30% holding TL 0.8 discount in our target value calculations, yet still very high compared 0.5 to other conglomerates as we believe the markets will continue to at- 0.3 tach huge discount to Dogan. Our 2009-end target Mcap for Dogan 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 Holding of US$1.83bn indicates 22% TL based upside potential. DOHOL ISE-100

• Petrol Ofisi’s contribution continue to increase. Petrol With a better than expected EBITDA margin of 7% in the 1Q09 results, we ex- Summary Financials & Ratios pect Petrol Ofisi to underpin the overall operational performance of (TLmn) 2007 2008 2009E 2010E Net Sales 10,262 12,505 9,900 10,692 the Holding. DOHOL’s recent purchases on the ISE have raised its EBITDA 575 696 430 473 stake in Petrol Ofisi to 54.2%, driving up its contribution in the NAV. Net Income 395 71 100 120 Petrol Ofisi’s share price have climbed amid the recent rumours of a EBITDA Margin 5.6% 5.6% 4.3% 4.4% possible stake sale by Dogan Holding. We believe the realization of a Net Margin 3.8% 0.6% 1.0% 1.1% stake sale could lead to another upward move in the share price of Valuation Multiples P/E 5.5 30.4 21.6 18.0 Petrol Ofisi and Dogan Holding. P/Sales 0.2 0.2 0.2 0.2 P/EBITDA 3.7 3.1 5.0 4.6 • DYHOL’s negative financial results were reflected in 1Q09 finan- Stock Market Data (25 June 2009) cials. The net debt of the Company was US$766mn which was cou- Relative Performance: 1mth 3mths 12mths pled with an fx loss of US$106mn. Financials are unlikely to post 3.6% 31.8% -1.5% much better picture going forward. Furthermore the tax fine 52 Week Range (TL): 0.5 - 1.1 Market Cap (TLmn): 2,328 (TL826mn) case still creates an uncertainty. Average Daily Vol (TLmn) 3 mth: 17.4

YTD TL Return(%): 53.8 • DOHOL is now a direct shareholder in Hurriyet. With its recent Free float (%): 34% purchases from ISE, Dogan Holding reached a direct stake of 11.1% in HURGZ, contributing positively to its NAV.

DOGAN YAYIN HOLDING (DYHOL.IS) / Conglomerates Underperform Current/ 2009-end Target Price: TL1.33/TL1.38 Current/ 2009-end Target MCap: US$532mn/US$550mn

Not all smiles in the world of entertainment… Dogan Yayin Holding (2008-2009) 5.0 • Our NAV valuation for Dogan Yayin Holding implies a target 4.0 Mcap of US$550mn. Applying the historic discount to our NAV value 3.0

our target Mcap points to a slim 4% upside in TL terms. TL 2.0

1.0 • Television to gain a larger slice of the ad market, although the 0.0 continued rise in the cost of television productions has put a cap

on broadcasting margins. Nevertheless, we still think broadcasting 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 growth will be limited in 2009. Broadcasters will struggle with cut DYHOL ISE-100 throat competition as they battle to capture market share in a slowing market. In such an environment, we think that Dogan Yayin Holding Summary Financials & Ratios will suffer a slowdown in revenue growth in 2009. (TLmn) 2007 2008 2009E 2010E

Net Sales 2,559 2,815 2,956 3,104 • Massive FX position due to debt taken out to fund recent EBITDA 247 282 290 301 international acquisitions. The appreciation of the US$ against the Net Income 617 -53 20 65 TL precipitated losses in 2008 which look set to continue in 2009, EBITDA Margin 9.7% 10.0% 9.8% 9.7% making the Company one of the more risky picks on the ISE. Net Margin 24.1% NM 0.7% 2.1% However, FX losses are set to decrease in 2009, setting the stage for Valuation Multiples an improvement at the bottom line. In 1Q09 net debt of the company P/E 1.3 NM 41.1 12.6 P/Sales 0.3 0.3 0.3 0.3 was US$766mn which was coupled with an FX loss of US$106mn. P/EBITDA 3.3 2.9 2.8 2.7

• Tax fine regarding the Dogan TV sale. A tax fine of TL826mn was Stock Market Data (25 June 2009) imposed on Dogan Yayin Holding by the tax authority in February Relative Performance: 1mth 3mths 12mths 20.4% 88.2% -14.6% regarding the sale of a 25% stake in Dogan TV to Axel Springer. 52 Week Range (TL): 0.45-2.30 Dogan Yayin Holding has objected to this fine and the legal process is Market Cap (TLmn): 823 continuing. This has deepened the discount on the conglomerate’s Average Daily Vol (TLmn) 3 mth: 10.6 NAV and depressed the share price. YTD TL Return(%): 101.5 Free float (%): 34

KOC HOLDING (KCHOL.IS) / Conglomerates Outperform Current/ 2009-end Target Price: TL2.62/ TL3.44 Current/2009-end Target Mcap:US$4,123mn/US$5,354mn

Emerging stronger from the crisis… Koc Holding (2008-2009)

6.0 • Our 2009-end target Mcap for Koc Holding of US$5.35bn indi- 5.0 cates 31% TL based upside potential. The Company also trades at 4.0

a considerable 18% discount to its current NAV. Recent performance TL 3.0 of the stock suggests that Koc Holding’s current discount to NAV sta- 2.0 bilizes at around 10% levels in the last couple of months. 1.0 • An ISE proxy. With most of its subsidiaries listed on the ISE, Koc 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

Holding provides exposure to Turkey’s growth sectors of banking, en- KCHOL ISE-100 ergy, automotive and consumer durables, commanding leading posi-

tions in each. • Lucrative business segments in a balanced portfolio. Yapı Kredi Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E Bank has one of the most extensive branch and alternative delivery Net Sales 46,802 55,631 41,934 44,030 channel networks in the Turkish banking sector and is expected to EBITDA 4,449 4,640 3,505 3,566 benefit from this structure once growth begins. Tupras, Turkey’s sole Net Income 2,295 2,024 1,563 1,101 refiner, is expected to post bulk profits coupled with generous divi- EBITDA Margin 9.5% 8.3% 8.4% 8.1% dend payments going forward. Ford Otosan and Tofas has become Net Margin 4.9% 3.6% 3.7% 2.5% Valuation Multiples the production hub of Ford Motor Europe and Fiat, holding leading po- P/E 3.1 3.5 4.4 6.4 sitions in the automotive industry. Arcelik remains Turkey’s largest and P/Sales 0.2 0.1 0.2 0.2 Europe’s number three consumer durable manufacturer. For con- P/EBITDA 1.6 1.5 2.0 2.0 sumer durables, Holding has declared its intention to acquire new Stock Market Data (25 June 2009) brands and networks in the global arena to ensure growth in this seg- Relative Performance: 1mth 3mths 12mths -12.8% -4.5% -6.6% ment. 52 Week Range (TL): 1.7 - 3.9 • A cash rich company in turbulent times. With its US$800mn stand- Market Cap (TLmn): 6,328 alone net cash position, Koc Holding is well positioned to embark on a Average Daily Vol (TLmn) 3 mth: 40 new acquisition spree. Depressed asset prices may offer some lucra- YTD TL Return(%): 22.7 Free float (%): 20% tive opportunities to enter new businesses, which may even fuel further growth for Koc Holding.

SABANCI HOLDING (SAHOL.IS) / Conglomerates Market Perform Current/ 2009-end Target Price: TL4.36/ TL5.28 Current/2009-end Target Mcap:US$5,071mn/US$6,130mn

Waiting for further energizers… Sabanci Holding (2008-2009) 7.0 • Sabanci Holding outperformed the ISE-100 by 23% since March 9 6.0 (the beginning of the latest rally). Sabanci Holding’s current Mcap 5.0

is trading at a 13% discount to its listed participation portfolio, effec- TL 4.0 tively meaning that if you buy Sabanci shares you get the unlisted as- 3.0 sets, including Enerjisa, Teknosa and Philsa for free. Our target mar- 2.0 ket cap for SAHOL points to a 21% upside potential, broadly in-line 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

with our ISE-100 upside potential. SAHOL ISE-100

• Akbank still accounts for 55% of the NAV. Sabanci Holding also outperformed Akbank by 8% since March 9. We therefore expect Summary Financials & Ratios some profit taking in the shares in the short term. Sabancı Holding (TLmn) 2007 2008 2009E 2010E aims to lower the weight of the financial services segment in its NAV Net Sales 18,382 19,797 20,520 22,982 from the current 61% to 40%, although this remains a long term goal. EBITDA 3,015 2,474 2,440 3,332 Net Income 969 1,189 885 1,195 • Sabanci Holding has long been naming “Energy” as its next EBITDA Margin 16.4% 12.5% 11.9% 14.5% growth area, however the realization has been slow. Sabanci Net Margin 5.3% 6.0% 4.3% 5.2% Holding and Verbund are investing in power plants with Enerjisa, Valuation Multiples while targeting a 10% market share in 2015. The energy group will P/E 8.0 6.5 8.8 6.5 P/Sales 0.4 0.4 0.4 0.3 require US$8bn of investment by 2015 to raise its total installed P/EBITDA 2.6 3.1 3.2 2.3 capacity to 5,000MW, compared to the current installed capacity of Stock Market Data (25 June 2009) 455MW. While these plans are very demanding, we will await more Relative Performance: 1mth 3mths 12mths details before including them into our valuation. -5.8% 8.1% 8.2% 52 Week Range (TL): 2.3 - 6 • Lucrative growth prospects for Bedas (Baskent electricity distri- Market Cap (TLmn): 7,848 bution) company. Through their 50-50 JV in Enerjisa, Sabanci and Average Daily Vol (TLmn) 3 mth: 20 Verbund now operate Baskent electricity distribution. As electricity dis- YTD TL Return(%): 30.7 tribution is a steady cash cow business, we expect this new business Free float (%): 28 to add value to the Holding.

SISE CAM (SISE.IS) / Conglomerates Outperform Current/ 2009-end Target Price: TL1.25/ TL1.69 Current/ 2009-end Target Mcap: US$888mn/ US$1,200mn

Value Play… Sise Cam (2008-2009) 2.2 1.9 • Sise Cam is trading at an attractive 35% discount to its current 1.6

NAV and a 40% discount to our target NAV. As Sise Cam’s historic TL 1.3 discount to its NAV is 20%, the current price offers an attractive entry 1.0 level. Our 2009-end target share price of TL1.69 offers an attractive 0.7 35% upside potential.

01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Sise Cam’s performance is behind its listed subsidiaries in the SISE ISE-100 past month and it offers a cheaper way to get exposure to the glass sector. Sise Cam stock also boasts greater liquidity. Another advantage is its unlisted subsidiaries and their hidden assets. Pasa- Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E bahce, Sise Cam’s unlisted subsidiary, owns a 117 thousand sqm plot Net Sales 3,228 3,744 3,741 4,039 of land on the prestigious Bosphorus shore, which could add a hand- Gross Profit 960 1,069 963 1,094 some US$100mn to Sise Cam’s valuation that we have not incorpo- EBITDA 736 914 816 901 rated in our target calculation. Net Income 278 159 160 206 Gross Margin 29.8% 28.5% 25.7% 27.1% • Better quarters ahead. We expect Sise Cam’s bottom line to climb EBITDA Margin 22.8% 24.4% 21.8% 22.3% into the black in 2Q09. The TL11mn loss recorded in 1Q09 mainly Net Margin 8.6% 4.2% 4.3% 5.1% Valuation Multiples came as a result of FX losses, and a stronger TL in 2Q will provide FX P/E 4.9 8.7 8.6 6.7 gains in the income statement. Meanwhile, the 18% and 26% cuts in P/Sales 0.4 0.4 0.4 0.4 natural gas prices on February 1 and on May 1 will offer some sup- P/EBITDA 1.9 1.5 1.7 1.5 port for operating profitability, as Sise Cam’s main subsidiaries - Tra- Stock Market Data (25 June 2009) kya Cam and Anadolu Cam - use natural gas for their production. In Relative Performance: 1mth 3mths 12mths 2% -4% -3% addition, the SCT rate cut in the automotive and white goods sectors, 52 Week Range (TL): 0.81-1.57 effective from March 16, will support revenues in 2Q and in 2H09. We Market Cap (TLmn): 1,375 expect a further improvement in profit margins in 2010 as capacity Average Daily Vol (TLmn) 3 mth: 7 utilization levels increase. YTD TL Return(%): 25.4 Free float (%): 30

ANADOLU CAM (ANACM.IS) / Glass packaging Market Perform Current/ 2009-end Target Price: TL1.54/ TL1.79 Current/ 2009-end Target Mcap: US$344mn/ US$400mn

High debt is a burden on valuation… Anadolu Cam (2008-2009) 3.2 • Our US$400mn 2009-end target Mcap for Anadolu Cam is derived 2.7 2.2

from DCF analysis and international peer group comparison, TL 1.7 suggesting a 16% upside potential in TL terms. As indicated by 1.2 1Q09 results, 2009 will be a tough year both at home and abroad. 0.7 Due to the contraction in demand, sales volume was down by 40%

YoY in 1Q09. Meanwhile, international revenues declined by 45% YoY 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 ANACM ISE-100 while revenues at home declined by 15% YoY.

• The Company’s rapid expansion has led to a ballooning of its net debt, which is US$406mn at the end of 1Q09. Such a high net debt Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E position is a burden on the valuation as shareholders equity is Net Sales 894 1054 1037 1268 US$393mn at 1Q09-end. Gross Profit 245 290 215 293

EBITDA 254 282 226 299 • Recovery in oil prices may positively affect Russia, thus Anadolu Net Income 71 11 32 77 Cam. 50% of Anadolu Cam’s revenues come from Russia and Geor- Gross Margin 27.4% 27.5% 20.8% 23.1% gia, which were dealing with their own economic crises. Anadolu EBITDA Margin 28.4% 26.8% 21.8% 23.6% Cam’s share price was depressed in 1Q09 yet with the recent upward Net Margin 7.9% 1.0% 3.1% 6.0%

movement in oil prices, the stock is recovering. Valuation Multiples P/E 7.5 48.9 16.5 7.0 • 1Q results will drag 2009 margins despite the easing in natural EV/Sales 1.4 1.1 1.2 1.0 gas prices. Anadolu Cam uses natural gas in production and natural EV/EBITDA 4.8 4.3 5.4 4.1 gas prices have increased by almost 70% in Turkey in 2008 while Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths there has been an 18% cut as of February 1 and 26% cut as of May 4% -1% -32% 1. We expect improvement in the financials in the upcoming quarters 52 Week Range (TL): 0.88-2.41 yet coupled with lower capacity utilization rates, we expect a 5pp con- Market Cap (TLmn): 533 traction in the EBITDA margin to 22% in 2009. We expect an improve- Average Daily Vol (TLmn) 3 mth: 0.6 YTD TL Return(%): 34 ment in margins in 2010 with increase in demand. Free float (%): 19

TRAKYA CAM (TRKCM.IS) / Glass Outperform Current/ 2009-end Target Price: TL1.35/ TL1.74 Current/ 2009-end Target Mcap: US$467mn/ US$600mn

Shining glass… Trakya Cam (2008-2009) 2.7 • Our 2009-end target share price of TL1.74, derived from DCF 2.3 analysis and international peer group comparison, offers a 29% 1.9 upside potential. Trakya Cam is trading at a deep discount on the TL 1.5 basis of its 2010E EV/EBITDA and P/E multiples, and at a slight dis- 1.1 count on the basis of its EV/Sales multiple when compared to global 0.7

glass producers. We believe the share price is likely to continue its re- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 cent upward trend and its discount to global peers will narrow amid TRKCM ISE-100 recovery in underlying sectors of the glass sector.

• We believe Trakya Cam is now next in line to benefit from a share Summary Financials & Ratios price bounce, hot on the heels of the recovery in automotive and (TLmn) 2007 2008 2009E 2010E cement stocks. Since the beginning of April, while the stock has Net Sales 872 976 998 1,069 Gross Profit 328 316 274 310 slightly underperformed the ISE100, its performance was behind ma- EBITDA 276 303 286 305 jor automotive and cement sector stocks. Net Income 174 121 84 96 Gross Margin 37.6% 32.4% 27.5% 29.0% • EBITDA will be resilient in 2009 and 2010. Trakya Cam uses natu- EBITDA Margin 31.7% 31.1% 28.7% 28.6% ral gas for production and production costs account for nearly 25% of Net Margin 19.9% 12.4% 8.4% 9.0% total COGS. Natural gas prices declined 18% on February 1 and 26% Valuation Multiples on May 1. Combined with a rise in value added products and decline P/E 4.2 6.0 8.7 7.5 in energy costs in 2009, we expect Trakya Cam to report an EBITDA EV/Sales 1.1 1.0 1.0 0.9 EV/EBITDA 3.6 3.2 3.4 3.2 parallel with its 2008 performance at TL286mn. We project lower de- Stock Market Data (25 June 2009) preciation expense in 2010 yet EBITDA will be at around TL300mn Relative Performance: 1mth 3mths 12mths with improvement in the gross profit. 7% 4% -7% 52 Week Range (TL): 0.78-1.72 • New investment ventures abroad. Trakya Cam recently announced Target Mcap (TLmn): 723 that it would form a JV with St. Gobain in Tatarstan and join St. Go- Average Daily Vol (TLmn) 3 mth: 4 bain’s Egypt investment. While these investments are still in a very YTD TL Return(%): 47 early stage, the news flow is likely to positively affect the stock. Free float (%): 32

TEKFEN HOLDING (TKFEN.IS) / Conglomerates Market Perform Current/ 2009-end Target Price: TL3.52/ TL4.36 Current/ 2009-end Target Mcap: US$842mn/ US$1,041mn

Positive Newsflow… Tekfen Holding (2008-2009) 8.0 • Our 2009-end target price of TL4.36 suggests 24% upside poten- 6.6 tial. Tekfen Holding recently announced that Tekfen Insaat had signed 5.2

a US$165mn deal in Qatar and a US$225mn in Abu Dhabi. The TL 3.8 shares have outperformed the index with the news about new pro- 2.4 jects. We believe that similar news flow will support stock’s perform- 1.0 ance, going forward. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Recently, Socar announced that that it is still interested in pur- TKFEN ISE-100 chasing a 50% share in Tekfen Holding’s subsidiary, Tekfen In- saat. The deal was put on hold during the crisis, but the recent announcements created a positive sentiment. In case of an agreement Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E Tekfen Holding would be affected positively. Net Sales 1,902 2,518 2,392 2,631 • High growth business lines - contracting and agri-industry - hit EBITDA 201 259 251 289 by declining oil and fertilizer prices, low demand and the post- Net Income 279 91 86 130 ponement of Socar deal. Thus the stock has underperformed the EBITDA Margin 10.6% 10.3% 10.5% 11.0% Net Margin 14.7% 3.6% 3.6% 4.9% ISE-100 index by 50% in the last year. The contracting group’s 2008 Valuation Multiples backlog was realized as US$1.33bn - short of the management’s tar- P/E 4.7 14.3 15.1 10.0 get of US$2bn, mainly due to the lack of new projects and delays in EV/Sales 0.8 0.6 0.6 0.6 existing projects. We project a further 5% decline in the backlog in EV/EBITDA 7.5 5.9 6.0 5.3 2009 to US$1.27bn. Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths • Contraction in 2009 estimates. We expect a 5% decline in the con- 13.2% 7.8% -46.9% tracting group’s backlog in 2009 due to the slowdown in contracting in 52 Week Range (TL): 2 - 7.5 MENA region resulting from the decline in oil prices. On the agricul- Market Cap (TLmn): 1302 tural side, we expect the fertilizer prices to decline in 2009 and we Average Daily Vol (TLmn) 3 mth: 31.2 YTD TL Return(%): 50.3 thus project a 7% contraction in agri-group revenues this year. In to- Free float (%): 34 tal, we forecast a 28% decline in Tekfen Holding’s top line in dollar terms.

CONSUMER DURABLES

Capturing export market share in the recession… Domestic White Goods Sales (000 units)

• 2009 is proving to be a challenging year for the white goods sec- 6,000

tor, which is struggling with low domestic and export demand. 5,000 We expect the impact from the ongoing crisis to be reflected to white 4,000 goods producers in 2009, with a 10% decline in domestic sales volume. For 2010, we expect a recovery in the consumer sentiment and 3,000 we estimate domestic white goods sales to increase by 8% YoY. 2,000

1,000 • 2009 sales supported by extension of cut in 6.7% SCT rate for 0 another three month period. The government’s decision to keep the 2002 2003 2004 2005 2006 2007 2008 2009E 2010E incentive in effect by only raising the rate of SCT to 2% until 30 Sep-

tember may further underpin domestic demand in 3Q09, although the Source: BEYSAD, Garanti Securities Estimates sector will need a more substantial recovery in consumer confidence if sales are to embark on a solid upward trend. On the export side, 2Q09 orders are close to their previous year’s levels, pointing to a lim- Domestic WG Sales Volume Growth vs. GDP Growth ited contraction for 2009. For 2010, we project a recovery in export demand, especially in the major European markets with the rise in 80% 12.0% consumer sentiment. 60% 9.0% 40% 6.0% • Turkey exports more than 60% of its production to Europe. The 20% 3.0% recent global crisis exacts a heavy toll on Europe and producers com- 0% 0.0% pete fiercely to gain market share. Any opportunity to raise exports to -20% -3.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 European countries will provide a cushion against the domestic mac- -40% 2009E 2010E -6.0% roeconomic stagnation. On a positive note, consumer preferences -60% -9.0% change towards lower priced higher quality white goods. Europe is thus turning from China to Turkey, where manufacturers are able to Domestic White Goods Grow th (lhs) GDP Grow th (rhs)

provide faster and smaller orders and Turkish producers are increas- Source: BEYSAD (White Goods Producers Association) ing their market share in Europe.

ARCELIK (ARCLK.IS) / Consumer Durables Market Perform Current / 2009-end Target Price: TL2.42/ TL2.78 Current/ 2009-end Target Mcap: US$1.03bn/ US$1.18bn

Restructuring to become leaner… Arcelik (2008-2009) • We welcome Arcelik’s restructuring efforts yet we still believe Ar- 6.0 celik remains vulnerable to the current economic downturn. Our 5.0 valuation, updated following the restructuring news, indicates a target 4.0 TL 3.0 Mcap of US$1,181mn, pointing to 15% TL-based upside potential, in 2.0 line with the ISE-100 index. 1.0

• The merger with Grunding will not only provide savings by elimi- nating duplicate processes but also provide tax savings. The 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 ARCLK ISE-100 most important benefit of the Grundig merger for Arcelik will be ap- proximately TL60mn of tax savings to be realized in 2009 due to the accumulated losses. We deem the merger to be neutral for Arcelik’s Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E financials as the Company had already been fully consolidating Grun- Net Sales 6,623 6,776 6,729 6,934 dig Elektronik. Gross Profit 1,772 1,870 1,783 1,907

• TL500mn cash inflow from KFS stake sale and rights issue to EBITDA 682 632 500 569 Net Income 158 40 151 83 support Arcelik, raising leverage capacity in balance sheet. Arce- Gross Margin 26.7% 27.6% 26.5% 27.5% lik recorded a one-off pre-tax profit of TL112mn in 1Q09 from the sale EBITDA Margin 10.3% 9.3% 7.4% 8.2% of a 3.68% stake in KFS, notching up 74% of our net profit forecast Net Margin 2.4% 0.6% 2.3% 1.2% for 2009. Valuation Multiples P/E 10.1 39.9 10.5 19.2 • We expect Arcelik to generate TL6.7bn in revenues in 2009, EV/Sales* 0.5 0.5 0.5 0.5 slightly lower than in 2008. The depreciation of the TL will positively EV/EBITDA* 4.7 5.0 6.4 5.6 affect revenues. Yet, we project a 1.9pp contraction in the EBITDA Stock Market Data (25 June 2009) margin, and an EBITDA of TL500mn, indicating a 21% YoY contrac- Relative Performance: 1mth 3mths 12mths tion in 2009. We expect a significant YoY increase in the bottom line 6.0% 24.5% -24.2% 52 Week Range (TL): 1-3.7 in 2009 thanks to one off gains derived from the restructuring proc- Market Cap (TLmn): 1,597 ess, with a net profit of TL151mn. For 2010, we expect a slight im- Average Daily Vol (TLmn) 3 mth: 25.88 provement in operating profitability while we project the Company’s YTD TL Return(%): 57.2 debt position to continue to shrink. Free float (%): 21.00 * Net debt adjusted for trade receivables from dealers.

VESTEL (VESTL.IS) / Consumer Durables Market Perform

Current / 2009-end Target Price: TL1.54/ TL1.80 Current/ 2009-end Target Mcap: US$334mn/ US$390mn

Adjusting to a brighter picture with LCD… Vestel (2008-2009)

2.8 • Our valuation for Vestel indicates a 2009-end target value of 2.3 US$390mn, suggesting a limited 17% TL based upside potential. 1.8

Vestel, a key exporter, will be hit by the decline in export demand in TL 1.3 2009, and with negative sentiment dominating the white goods and 0.8

TV sectors; we expect the stock price to remain under pressure. 0.3

• Restricted rights issue completed in April. In the restricted 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 TL160mn rights issue, new shares were sold to Collar Holding, the VESTL ISE-100 majority shareholder, in the ISE wholesale market on 20 April. The cash inflow will help the Company leverage its balance sheet and help alleviate its huge TL573mn net debt position (as of 1Q09). Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E • Transition period for Vestel still underway. Vestel’s sales and oper- Net Sales 4,627 4,694 3,990 4,389 ating performances have taken a hammering from an unhappy combi- Gross Profit 533 900 618 746 EBITDA 70 402 279 373 nation of weak domestic demand, the transition from CRT to LCD sets Net Income 18 -408 -138 -48 and a fiercely competitive international environment. We expect the Gross Margin 11.5% 19.2% 15.5% 17.0% transition period in the TV sector to continue, together with the ongo- EBITDA Margin 1.5% 8.6% 7.0% 8.5% ing economic stagnation, which promises an even harder year for the Net Margin 0.4% n.m. n.m. n.m. beleaguered manufacturer in 2009. On the other hand, LCD sales Valuation Multiples P/E 28.7 n.m. n.m. n.m. continue its upward trend despite the contraction in the total demand. EV/Sales 0.2 0.2 0.3 0.2 • We estimate a 15% YoY decline in revenues in 2009. We project an EV/EBITDA 15.6 2.7 3.9 2.9 EBITDA of TL279mn, implying a tumble of 31% YoY in 2009. Accord- Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths ingly, we expect the Company’s EBITDA margin to contract from 8.6% 2.6% 34.5% -14.7% in 2008 to 7.0% in 2009. We expect a TL138mn net loss in 2009, 52 Week Range (TL): 0.6-1.9 dragged lower by the Company’s TL1,613mn short FX position as of Market Cap/ Target Mcap (US$mn): 517 1Q09 financials. We expect improvement in demand in 2010, yet we Average Daily Vol (TLmn) 3 mth: 10.63 YTD TL Return(%): 81.2 still believe the bottom line will remain in red with high financial ex- Free float (%): 36.00 penses.

VESTEL WHITE GOODS (VESBE.IS) / Consumer Durables Market Perform Current / 2009-end Target Price: TL2.20/ TL2.37 Current/ 2009-end Target Mcap: US$270mn/ US$290mn

Needs further incentives... Vestel White Goods (2008-2009) 4.5 • Our 2009-end target of US$290mn points to 8% upside potential 3.7 in TL terms for Vestel White Goods. Vestel White Goods, 72.46% 2.9 owned by Vestel Elektronik, is fairly valued at its current Mcap, trading TL 2.1 in line with its peers based on 2010 projections. 1.3 0.5 • The difficult macroeconomic conditions have dealt a hammer

blow to domestic and export markets on the back of weaker con- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 sumer confidence in 2009. We expect a 10% decline in the domes- VESBE ISE-100 tic white goods market and a 5% contraction in the European market, with Vestel White Goods suffering from the decrease in export and Summary Financials & Ratios domestic white goods demand in 2009. However, the continuation of (TLmn) 2007 2008 2009E 2010E the cut in the rate of SCT can inject some momentum into the Com- Net Sales 1,179 1,259 1,196 1,316 Gross Profit 81 123 108 125 pany’s sales in 3Q09. EBITDA 65 126 102 118

Net Income 74 31 28 37 • We forecast a 5% YoY decline in net sales in 2009 to TL1,196mn Gross Margin 6.9% 9.8% 9.0% 9.5% with EBITDA tumbling by 20% YoY to TL102mn. Accordingly, we EBITDA Margin 5.5% 10.0% 8.5% 9.0% expect a 1.5pp contraction in the company’s EBITDA margin to 8.5% Net Margin 6.3% 2.4% 2.3% 2.8% in 2009, down from 10.0% in 2008. For 2010, we estimate a 10% YoY Valuation Multiples increase in revenues with EBITDA margin improving slightly 9%. P/E 5.7 13.6 15.2 11.3 EV/Sales 0.3 0.3 0.3 0.3 • Negotiations with Whirlpool for partnership in white goods busi- EV/EBITDA 6.1 3.1 3.9 3.3 ness had been halted due to the ongoing global financial crisis. Stock Market Data (25 June 2009) Recall that negotiations were continuing for the purpose of strength- Relative Performance: 1mth 3mths 12mths 27.8% 40.1% -40.0% ening commercial activities in foreign and domestic white goods mar- 52 Week Range (TL): 1.0-4.1 kets and developing cooperation in these areas. In a gloomy environ- Market Cap (TLmn): 418 ment, halting the deal will have a negative effect on the Company, Average Daily Vol (TLmn) 3 mth: 4.00 and the share price, in 2009. YTD TL Return(%): 86.5 Free float (%): 31.00

FOOD & BEVERAGE

Continuing growth despite challenges ahead... Turkey's total beer sales (mn liters)

• The food and beverage sector is a safe haven in volatile times. 1200 Basic consumption products are less susceptible to slowing growth as CAGR: %5 consumers tend not to change their consumption behaviour for basic 1000 consumption products. In contrast with the gloomy outlook surround- 800

ing the macro environment, we expect sales volumes in the food and 600 beverage sector to sustain their growth in 2009, albeit at a slower 930 950 1000 400 800 845 pace. Furthermore, the beverage sector is subject to seasonal demand, so we expect the summer season to take some of the sting out 200 of the contraction. Thus, we believe that the negative outlook will have 0 a relatively mild impact on the 2009 year end results and leave the 2006 2007 2008 2009E 2010E beverage sector relatively unscathed in 2009. We expect that growth Source: Anadolu Efes, Garanti Securities Estimates will speed up in 2010. • Ramadan moving into Q3 to change the balance. As Turkish people tend consume less alcohol in the holy month of Ramadan, com- Tomato Paste Production and Export (mn tonnes) bined with Ramadan coinciding with peak season will affect beer sales volumes negatively. We believe that this effect will be more se- 500 vere in the following years as Ramadan moves towards the middle of 400 the peak season. 300 • Smoking ban to change the consumption habits. Alcohol con- 200 sumption habits are also expected to change as the new smoking ban enters force. With smoking banned in all closed spaces from July 19, 100 smokers’ alcohol consumption is also expected to decrease, as many 0 of these people tend to consume alcohol while smoking. However, we 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E doubt that there will be a significant drop in overall alcohol consump- Production Export tion as on-premise beer consumption is relatively low in Turkey. Source: Tomato Paste Exporters and Producers Association, Garanti Securities Estimates

ANADOLU EFES (AEFES.IS) / Food & Beverage Market Perform Current/ 2009-end Target Price: TL13.60/ TL14.76 Current/ 2009-end Target Mcap: US$3,954mn/ US$4,284mn

Growth continues despite domestic negatives… Anadolu Efes (2008-2009) 15.0 • Our sum of the parts valuation, which consolidates domestic 13.0 beer, international beer and soft drink operations indicates 9% 11.0 upside potential in TL terms with a 2009-end target Mcap of TL 9.0 US$4.3bn. Anadolu Efes trades in line with peers based on its 6.6x 7.0 2010F EV/EBITDA multiple. 5.0 • Domestic beer sector to be negatively affected by Ramadan mov- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 ing into Q3 and smoking ban. With Ramadan coinciding with the AEFES ISE-100 peak demand season and the smoking ban spreading to all enclosed spaces on July 19, domestic beer sales are expected to suffer. Summary Financials & Ratios • We nevertheless expect a stable cash flow for the beer business (TLmn) 2007 2008 2009E 2010E in 2009. We believe a combination of Anadolu Efes’ popular brand Net Sales 3,030 3,670 3,953 4,484 name and leading position (86% domestic market share) will keep the Gross Profit 1,535 1,808 1,930 2,182 Company one step ahead of its competitors. We think the downturn EBITDA 735 837 957 1,100 will level off in 2H09 with the Company will end the year with 2% Net Income 375 310 355 485 Gross Margin 50.6% 49.3% 48.8% 48.7% growth in sales volumes in its domestic beer operations. We project EBITDA Margin 24.3% 22.8% 24.2% 24.5% the growth to increase to 4% in 2010. Net Margin 12.4% 8.4% 9.0% 10.8% • We forecast a mere 1% decline in sales volumes for international Valuation Multiples beer operations (EBI) in 2009. We forecast a 13% decline in EBI’s P/E 16.3 19.8 17.3 12.6 EV/Sales 2.4 2.0 1.8 1.6 average beer prices in 2009, yet our model points to 2% growth in EV/EBITDA 9.9 8.7 7.6 6.6 EBI’s net sales in 2009 and 13% increase in 2010 in TL terms. Mean- Stock Market Data (25 June 2009) while, we forecast a 17% climb in 2009 in international EBITDA in TL Relative Performance: 1mth 3mths 12mths terms as declining commodity costs reflect positively to profit margins. 4.9% -3.7% 28.2% • We forecast a 1.4pp rise in EBITDA margin in 2009 on a consoli- 52 Week Range (TL): 9.3 - 13.8 Market Cap (TLmn): 6,120 dated basis, with a 0.6pp improvement in the net margin on the back Average Daily Vol (TLmn) 3 mth: 8.3 of easing FX losses in 2009. YTD TL Return(%): 34.8 Free float (%): 45

COCA-COLA ICECEK (CCOLA.IS) / Food & Beverage Market Perform Current/ 2009-end Target Price: TL8.75/ TL10.00 Current/ 2009-end Target Mcap: US$1,438mn/ US$1,641mn

Defensive nature ensures continued growth… Coca-Cola Icecek (2008-2009)

14.0 • Our US$1.64bn 2009-end target for CCI, blending DCF analysis 12.0 and international comparison with equal weightings, suggests 10.0

14% upside potential in TL terms. The stock currently trades at par TL 8.0 with its emerging market peers based on its 6.3x 2010F EV/EBITDA 6.0 multiple. 4.0 • Expansion continues. With operations in Pakistan being reflected to the financial statements for the full year (rather than just the fourth 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 CCOLA ISE-100 quarter in 2008), the top line is set for significant growth in 2009. We also believe CCI will continue to raise its sales through the tea business, focusing on the premium segment under the Dogadan brand. Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E • We believe that CCI will benefit from Ramadan moving into Q3. Net Sales 1,929 2,258 2,496 2,795 We expect Turkish people to consume more non alcoholic beverages Gross Profit 758 911 952 1,068 in the high season and forecast 4% growth in domestic sales volumes EBITDA 340 365 397 478 in 2009. Meanwhile, we believe CCI will continue to raise its domestic Net Income 154 81 152 218 prices broadly in line with inflation. In sum, we expect an 11% in- Gross Margin 39.3% 40.4% 38.1% 38.2% EBITDA Margin 17.6% 16.2% 15.9% 17.1% crease in domestic net sales in 2009 and 12% in 2010. Net Margin 8.0% 3.6% 6.1% 7.8% • Revenue growth set to continue, specifically in Central Asia and Valuation Multiples the Middle East. We have assumed that CCI’s international sales P/E 14.5 27.4 14.6 10.2 volume will grow by 12% in 2009 and 2010 with growth tailing off at EV/Sales 1.6 1.3 1.2 1.1 10% beyond 2011. However, we believe CCI’s international average EV/EBITDA 8.8 8.2 7.5 6.3 unit case prices will slide by 9% in US$ terms as local currencies de- Stock Market Data (25 June 2009) Relative Performance: 1mth 3mths 12mths preciate against the US$. 0.7% -14.0% -21.4% • We forecast CCI’s net profit to nearly double in 2009, after a 52 Week Range (TL): 5.6 - 11.9 sharp YoY decline in 2008 due to FX losses. We expect lower fi- Market Cap (TLmn): 2,226 nancial expenses in 2009. We also project a net margin improvement Average Daily Vol (TLmn) 3 mth: 2.7 YTD TL Return(%): 38.8 of 1.7pp in 2010. Free float (%): 25

TAT KONSERVE (TATKS.IS) / Food & Beverage Outperform Current/ 2009-end Target Price: TL2.22/ TL3.08 Current/ 2009-end Target Mcap: US$195mn/ US$270mn

Taste of growth and profitability… Tat Konserve (2008-2009) 4.5 • Our valuation for Tat Konserve, based on DCF and peer compari- 3.7 son, indicates 39% upside potential in TL terms with a 2009-end 2.9 target Mcap of US$270mn. Tat Konserve, one of Turkey’s leading TL 2.1 food production companies, is set to double its revenues by 2013 with 1.3 its Harranova project in the South East of Turkey, aiming to become 0.5 fifth largest tomato producer in the world with 1mn tonnes of produc- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 tion capacity. TATKS ISE-100 • The food sector promises to be one of the least affected sectors during the economic crisis, less prone to contractions in consumption. We believe Tat Konserve will chalk up 3% growth at the Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E top line with full year sales of TL649mn in 2009 and 16% in 2010. Net Sales 547 629 649 753 • Improving operating efficiency. Morning Star, one of the world’s big- Gross Profit 97 114 129 160 gest players in the tomato processing business and a strategic inves- EBITDA 45 54 68 93 tor in Harranova Besi, will provide valuable know-how in efficient or- Net Income 11 -4 21 32 Gross Margin 17.8% 18.1% 19.8% 21.2% ganic growth. Additionally, Harranova Besi benefits from the fertile EBITDA Margin 8.3% 8.6% 10.5% 12.4% land in Turkey’s South East. Tat Konserve’s operating profitability is Net Margin 2.1% n.m. 3.2% 4.2% set to improve as Harranova’s share in production increases. We be- Valuation Multiples lieve Tat Konserve’s EBITDA margin will reach 10.5% in 2009, further P/E 26.9 n.m. 14.7 9.5 EV/Sales 1.1 0.9 0.9 0.8 improving to 12.4% in 2010. EV/EBITDA 13.1 10.9 8.6 6.3 • Financial expenses to reverse. The TL has appreciated by 6% Stock Market Data (25 June 2009) against TL so far in 2Q09; assuming a similar exchange rate at the Relative Performance: 1mth 3mths 12mths end of the quarter, Tat Konserve will record FX gains in 2Q09 due to 19.0% 36.6% -25.9% its short FX position. With a slight improvement in margins, we esti- 52 Week Range (TL): 0.92 - 3.22 Market Cap (TLmn): 302 mate Tat conserve to write a net profit of TL21mn in FY09 vs. a net Average Daily Vol (TLmn) 3 mth: 2.8 loss of TL1mn in 1Q09. YTD TL Return(%): 83.5 Free float (%): 41.2

FOOD RETAIL

The continued rise in organised retail… Market Growth (Food & Non-alchoholic Beverages)

• Food retail will continue to grow in 2009. We think discount stores 25,000 in particular will benefit from the financial crisis as shoppers will be in search of cheaper buys and prefer these stores over others. The 20,000 15,000

consolidation in the food retail sector will continue in 2009, albeit with n

a slowdown. TLb 10,000 • The portion of organised retail has increased to an estimated 38% in 2008 and this trend looks set to continue in 2009. We 5,000

think the economic slowdown in the economy will adversely affect 0 small food stores and thus the market will be comprised more of 2003 2004 2005 2006 2007 2008 2009E organised retail chain stores in 2009. We expect organised retail to

increase its share in the market in 2010 to over 45%. Source: TurkSTAT, Garanti Securities Estimates • The average basket size is to contract. Food retail will relatively be less vulnerable to the economic slowdown. However, we think that the Food Retail Market—2008YE basket size on the average will shrink by 3% in 2009. • A Retail Law prepared by the Ministry of Industry and Trade has Metr o CarrefourSA been pending for more than seven years. The draft law restricts the BIMAS 2% 2% Migros 2 6% T.Kipa opening of retail stores with over 400 m of retail space within city lim- 7% its. The law, if enacted, will have no effect on the existing stores. The 2% Yimpas law’s motive is to protect the traditional bakkal stores that have been 2% badly hurt by the expansion of supermarket formats offering better pricing to customers. The retail law, if passed, will hinder organic

growth in the retail sector. However, it may also act as a catalyst for Other organised Other M&A activity as companies rush in to secure retail space. 18% 61% • Population and urbanization will support growth in 2010. We expect retail sales to pick up in 2010 as the economy is expected to grow 3% versus a contraction of 3.5% expected in 2009. Source: Company data. Garanti Securities estimates

BIM (BIMAS.IS) / Food Retail Market Perform Current/ 2009-end Target Price: TL49.50/TL55.19 Current/ 2009-end Target MCap: US$2,428mn/US$2,637mn

A hard sell for hard times ahead… BIM (2008-2009) 55.0 • Our target Mcap of US$2.6bn for BIMAS is based on global peer 45.0 comparison and DCF analysis and indicates 11% TL based up- 35.0 side. BIM trades at a premium to its peers in terms of 2010E EV/ TL 25.0 EBITDA and P/E multiples. Yet due to its high growth potential, the 15.0 stock has historically traded at a premium compared to similar compa- 5.0 nies. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Economic slowdown could be an opportunity. BIM is well BIMAS ISE-100 positioned to benefit from the shift of customers to organised retail and to cheaper alternatives. The expectation that the traditional stores will go out of business in 2009 will benefit BIM as its stores are a Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E substitute for these stores. Net Sales 2,978 4,242 5,586 7,140 • Expanding in international markets. BIM entered the Moroccan Gross Profit 196 697 987 1,261 market in April 2009 with 10 store openings. BIM plans to increase EBITDA 161 191 270 350 this number to 50 by the end of the year. The Moroccan market offers Net Income 108 114 188 246 Gross Margin 6.6% 16.4% 17.7% 17.7% high growth potential and the company plans to reach break even in EBITDA Margin 5.4% 4.5% 4.8% 4.9% five years. We welcome the move but think that the positve effects will Net Margin 3.6% 2.7% 3.4% 3.4% be evident in the medium term. Valuation Multiples • BIM projects over 40% revenue growth for 2009. The company P/E 34.8 33.0 20.0 15.3 EV/Sales 1.2 0.9 0.7 0.5 had opened 366 new stores in the first 3 months of 2009 reaching a EV/EBITDA 22.7 19.1 13.5 10.4 store network of 2,351, the largest in Turkey. We think that the Stock Market Data (25 June 2009) company will struggle to realise a growth of over 40% in 2009 due to Relative Performance: 1mth 3mths 12mths the economic slowdown. Moreover, the company policy has been to 0.7% 5.5% 17.5% preserve volume growth rather than pursuing margin growth. 52 Week Range (TL): 19.17 - 52.5 Market Cap (TLmn): 3,757 • Revenue growth with little margin improvement. We project a Average Daily Vol (TLmn) 3 mth: 7.7 revenue increase of 32% in 2009 coupled with an EBITDA margin of YTD TL Return(%): 56.1 4.8%, up by 30bps yoy. Free float (%): 50

MEDIA

Sector growth to falter amid weakening ad spending… Ad Spending Growth

• Ad market growth in Turkey set to contract in 2009. Ad market 40% spending is expected to decrease by 3-5% as stated by the head of 30% the Advertisers Association in Turkey. We think the contraction in the 20% ad market will be higher in 2009 as hinted by the 1Q09 figures in 10% which the market contracted by 24% YoY. We think this will curb 0% growth in the media sector, and a recovery will be way into 2010. -10%

2001 2002 2003 2004 2005 2006 2007 2008 • Per capita ad spending will still remain low in 2009. Turkey re- -20% 2009 E 2010 E corded a low ad spend/capita ratio of just 0.47% in 2008. We expect -30% this ratio to decrease in 2009 as cost cutting measures will initially af- -40% fect ad spending in a downturn economy. This ratio is low when com- GDP Grow th Ad Market Grow th

pared to the levels of over 1.3% in Eastern European countries. Source: Company data, Garanti Securities Estimates

• Television to dominate the ad market. Broadcasting ad revenues will continue to increase their share in the ad market as newspapers Distribution of Ad Market are likely to lose share to 20% in 2009 from 24% in 2008.

• Competition to gain momentum. The sale of the Sabah newspaper Internet Radio 7% and ATV television to the Calik Group was completed and the Group Cinema 3% TV has been active in increasing its total market share to 25% from 20% 3% 49% in 2008. We think that intensifying competition will lead to margin con- Outdoor traction in the sector in the second half of 2009. 7%

• New legislation to lift foreign investment. The draft law aimed at doubling the share of maximum foreign ownership in broadcasting as-

sets to 50% from 25% is expected to be enacted within 2009. If the Print Media law is enacted, we think it will help promote M&A activity in 2010. 31%

Source: Company data

HURRIYET (HURGZ.IS) / Media Market Perform Current/ 2009-end Target Price: TL1.12/TL1.35 Current/ 2009-end Target MCap: US$297mn/ US$400mn

Not a good year for print media… Hurriyet Gazetecilik (2008-2009) 4.0 • Our target Mcap of US$400mn for Hurriyet is based on global 3.2 peer comparison and DCF analysis. The company is also trading at 2.4

a premium, in terms of its 2010F EV/EBITDA multiple of 3.9x, when TL 1.6 compared to its peer group. Our valuation implies an upside potential 0.8 0.0 of 20%.

• Declining share of newspapers in the ad market. The share of 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 newspaper advertising in the overall ad market will dip further as tele- HURGZ ISE-100 vision will become the preferred medium for advertising in an economic downturn. Thus, Hurriyet will experience a contraction in its Summary Financials & Ratios business in 2009. We have predicted an ad revenue growth for Hurri- (TLmn) 2007 2008 2009E 2010E yet of a mere 2%. Net Sales 914 1,118 1,114 1,228 Gross Profit 376 462 461 508 • 1Q09 financial results are not promising. The company recorded a EBITDA 188 216 208 232 net loss of TL38mn as sales dropped 21% YoY while EBITDA Net Income 94 -12 68 103 dropped 51% YoY as the total ad market contracted 24% in the Gross Margin 41.2% 41.4% 41.4% 41.4% EBITDA Margin 20.6% 19.4% 18.6% 18.9% quarter. Net Margin 10.3% NM 6.1% 8.4% • Flat growth in 2009. Considering the gloomy outlook for the media Valuation Multiples sector in 2009 we estimated flat revenue and EBITDA growth while P/E 5.5 NM 7.5 5.0 we expect a shrinkage in the EBITDA margin to 18.5%, a decrease of EV/Sales 1.2 1.0 1.0 0.9 6bps. We expect fx losses to continue in 2009, however the EV/EBITDA 5.8 5.0 5.3 4.7 Stock Market Data (25 June 2009) magnitude will not affect the bottom line as it did in 2008. Relative Performance: 1mth 3mths 12mths • Modest improvement in 2010... We expect the internet to take a 14.3% 44.0% -19.4% larger share of the ad market going forward. However we think that 52 Week Range (TL): 0.45 - 1.95 Market Cap (TLmn): 515 the sector will continue to bear modest growth going forward. M&A Average Daily Vol (TLmn) 3 mth: 7.8 activity could bring new momentum to the sector which we expect to YTD TL Return(%): 72.3 see in the medium term. Free float (%): 40

OIL

Will oil prices move up again?... Crude Oil Prices (US$/bbl)

• Oil prices to sway between US$60-70/bbl this year. Following a 160 plunge to US$38/bbl, crude prices have hit a high of US$72/bbl re- 140 cently following a steady rise in the last two months. We expect this 120 upward move to continue for the rest of the year with the conviction 100 that the worst of the economic downturn is now behind us. 80 60 • A brighter outlook for 2010. Refining margins are expected to con- 40 tinue to weaken in 2009 alongside lower capacity utilization rates. 20 0 However, we do not expect the petrochemical business to suffer from

the slump in domestic demand in 2009. Looking forward to 2010, 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 however, global oil consumption is expected to grow by 700,000 bbl/d on the back of a rebound in the global economy. Future prices reflect Source:Reuters this expectation averaging US$65-75/bbl for 2010. We use US$70/bbl Product Prices (US$/ton) in our average crude assumptions for 2010.

• Some relief from recent increase in product prices. TL has appre- Diesel 1500 Jet Fuel ciated by 7% since the end of 1Q09, and we expect the US$/TL ex- 1260 1550 1020 1300 change rate to remain near 1.55 levels by the year-end. Thus, we do 1050 780 800 not expect the financial results to be distorted by huge FX losses in 540 550 300 2009. 300

06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • No significant developments on new projects. While Tupras recon-

firmed its intention to realize the so called “residuum upgrade project”; Naphtha Gasoline 1250 Turcas-Socar revealed that they will begin to build a refinery in Petkim 1030 810 area as soon as all licensing issues are cleared. Both companies 1200 950 590 700 450 370 need to fulfil these projects to increase their competitiveness and prof- 200 150

itability for the mid-term. However, we still do not include these pro- 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 jects into our valuations as the investment environment is highly risky 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 for project financing. Source: Tupras, Bloomberg

AYGAZ (AYGAZ.IS) / LPG Distribution Market Perform Current/ 2009-end Target Price: TL3.42/ TL4.04 Current/2009-end Target Mcap:US$663mn/US$790mn

Running out of mileage... Aygaz (2008-2009)

5.0 • Our target value of US$790mn implies a 2009-end target price of 4.2 TL4.04, now implying a mere 18% upside potential. Although Ay- 3.4

gaz has one of the most defensive businesses on the ISE with a pre- TL 2.6 dictable cash-flow, we believe a temporary weakening in commodities 1.8 will limit further upside for Aygaz. 1.0

• Multiples now look slightly demanding on a comparative basis. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 The Company trades at an EV/EBITDA of 3.4x and a P/E of 6.9x AYGAZ ISE-100 based on our 2010 forecasts, pointing to a slight discount compared to oil distribution companies. Summary Financials & Ratios • LPG continues to suffer from a fall in demand. We believe the cur- (TLmn) 2007 2008 2009E 2010E rent economic outlook will precipitate a 10% YoY contraction in vol- Net Sales 3,157 3,579 3,369 3,839 Gross Profit 403 476 503 463 umes for bulk-LPG and LPG canisters, while we have assumed a 7% EBITDA 265 342 439 370 YoY contraction in auto LPG sales in 2009. However, we forecast a Net Income 440 26 136 148 recovery in 2010 with 10% overall growth, especially in auto LPG. Gross Margin 12.8% 13.3% 14.9% 12.1% Aygaz marked remarkable margins in its 1Q09 results and we expect EBITDA Margin 8.4% 9.6% 13.0% 9.6% this high margin performance to continue in 2Q09 as well. However, in Net Margin 13.9% 0.7% 4.0% 3.8% Valuation Multiples our 2010 assumptions and onwards, we employed a slight decrease P/E 2.3 39.8 7.5 6.9 in the margins due to the increase in the oil prices. EV/Sales 0.4 0.3 0.4 0.3 EV/EBITDA 4.7 3.7 2.8 3.4 • Limited catalysts for further upside. Since the beginning of rally Stock Market Data (25 June 2009) (March 9) Aygaz has outperformed ISE100 by 25%, leading to an ab- Relative Performance: 1mth 3mths 12mths solute return of 94%. Although our 1H09 operational expectations re- 21.6% 27.8% 30.9% main very similar to the 1Q09 results, we believe these positive ex- 52 Week Range (TL): 1.5 - 3.5 pectations are already priced in and there is currently no major cata- Market Cap (TLmn): 1,026 Average Daily Vol (TLmn) 3 mth: 3.76 lyst which could lead to a further upward move. YTD TL Return(%): 78.9 Free float (%): 18%

PETKIM (PETKM.IS) / Petrochemicals Market Perform Current/ 2009-end Target Price: TL6.25/ TL7.00 Current/2009-end Target Mcap:US$827mn/US$925mn

Can Petkim repeat its strong 1Q margin performance?... Petkim (2008-2009) 9.5 • Our 2009-end target Mcap for Petkim stands at US$925mn, im- 8.2 plying 12% TL based upside potential over its current Mcap. Pet- 6.9 kim trades at EV/EBITDA of 5.6x and a P/E of 21x based on our 2010 TL 5.6 forecasts - broadly in line with its peers. 4.3 • We expect a slight decrease in the gross margin when compared 3.0 to 1Q levels. The recent upward movement in oil prices has led to a 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 rise of around 7% in naphtha prices while product prices remained PETKM ISE-100 unchanged in the same period. Therefore we do not believe the second quarter margins will have trumped their 1Q showing, although Summary Financials & Ratios stronger volumes and a seasonality impact could yet produce a posi- (TLmn) 2007 2008 2009E 2010E tive surprise in the overall results. Net Sales 2,175 2,320 2,487 2,607 • Refinery plans still on the agenda, but licensing remains a prob- Gross Profit 205 -35 199 209 EBITDA 227 6 222 229 lem. Although the new owner of Petkim, Socar-Turcas Energy, sus- Net Income 66 -151 56 60 pended its refinery plans in the Ceyhan region, Petkim’s refinery Gross Margin 9.4% n.m. 8.0% 8.0% plans continue. However, the project remains mired in bureaucratic EBITDA Margin 10.4% 0.3% 8.9% 8.8% delays on licensing. Petkim plans to supply 40% of domestic demand Net Margin 3.0% n.m. 2.2% 2.3% by 2018 (currently 27%), which would only be realized through the re- Valuation Multiples finery investment. P/E 19.4 n.m. 23.1 21.5 EV/Sales 0.6 0.6 0.5 0.5 • Will JV with NPC work? Petkim signed a memorandum of under- EV/EBITDA 5.7 n.m. 5.8 5.6 standing with the Iranian energy firm, NPC International, to set up a Stock Market Data (25 June 2009) JV in Iran. Each party will hold a 50% stake in the JV, which will have Relative Performance: 1mth 3mths 12mths an annual capacity to produce 300,000 tonnes of LLDPE/HDPE and 8.1% 10.0% 12.4% 1.65mn tonnes of methanol. The project is in its initial phase and the 52 Week Range (TL): 3.5 - 6.3 two parties will study the technical and economical feasibility of the Market Cap (TLmn): 1,280 project as a first step. With no concrete information available for now, Average Daily Vol (TLmn) 3 mth: 12.45 YTD TL Return(%): 35.3 we have not included a possible outcome in our DCF. Free float (%): 39

TUPRAS(TUPRS.IS) / Oil Market Perform Current/ 2009-end Target Price: TL19.20/ TL23.53 Current/2009-end Target Mcap:US$3,107mn/US$3,800mn

More refined results on the way… Tupras (2008-2009) 32.0 • Our 2009-end target market cap of US$3.8bn implies a 2009-end 27.0 target price of TL23.53, now offering a mere 23% upside potential 22.0

- equivalent to the upside potential for the ISE-100 index. The TL 17.0 Company also trades at an EV/EBITDA of 4.3x and a P/E of 6.2x 12.0 based on our 2010 forecasts, pointing to a slight discount compared 7.0 to its Mediterranean peers trading at a 2010F EV/EBITDA of 5.1x and 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

P/E of 8x. TUPRS ISE-100

• Tupras’ refinery margins beat Med-margins but low capacity usage and low demand still represent a problem. Gasoline and die- Summary Financials & Ratios sel ex-refinery prices have increased by around 10% with oil prices (TLmn) 2007 2008 2009E 2010E recently touching US$69/bbl. We expect 2Q09 refining margins to Net Sales 22,520 30,404 18,200 16,782 Gross Profit 1,807 1,899 1,551 1,648 reach US$10/bbl (company guidance) with Med margins averaging EBITDA 1,416 1,417 1,022 1,146 around US$3.5/bbl. Net Income 1,298 432 591 776

Gross Margin 8.0% 6.2% 8.5% 9.8% • 1H09 expectations already priced-in. Our revised EBITDA and net EBITDA Margin 6.3% 4.7% 5.6% 6.8% profit estimates for 1H09 stand at US$225mn and US$230mn. Tupras Net Margin 5.8% 1.4% 3.2% 4.6% holds TL1.6bn short FX position and we expect Tupras to broadly Valuation Multiples maintain its short FX position at its current levels, leading us to trim P/E 3.7 11.1 8.1 6.2 our FX loss forecasts. Moreover, TL appreciated against US$ and we EV/Sales 0.2 0.2 0.3 0.3 EV/EBITDA 3.5 3.5 4.9 4.3 expect some FX gains in the second quarter. Stock Market Data (25 June 2009) • Better entry points ahead. Although we still believe in Tupras’ resil- Relative Performance: 1mth 3mths 12mths ient business model and solid financials, we do not expect a major 3.5% -5.0% -17.6% change in the demand outlook and we believe the expected positive 52 Week Range (TL): 9.6 - 28 second quarter results have already been priced-in. Market Cap (TLmn): 4,808 Average Daily Vol (TLmn) 3 mth: 35.63 YTD TL Return(%): 37.7 Free float (%): 49%

REAL ESTATE

Declining rates to support real estate sector… Benchmark Bond Yield vs. Real Estate Index

30% 50,000 • The real estate sector has rallied on the back of the Central 24% 40,000 Bank’s rate cuts. As declining housing loan rates normally stimulate housing demand, the ISE REIC index has outperformed the ISE-100 18% 30,000 by 26% since the beginning of 2009, marking a 62% increase in TL 12% 20,000 terms. 6% 10,000 0% 0 • We have changed our stance for the real estate sector from 01.06 04.06 07.06 10.06 01.07 04.07 07.07 10.07 01.08 04.08 07.08 10.08 01.09 04.09 negative to neutral for 2009 amid declining construction costs Benchmark bond yield Real Estate Index and relatively low interest rates. Housing loan rates have fallen sharply but remain above their all time lows. In June CBRT cut rates Source: ISE by another 50bps. Although we believe the sector will continue to lan- guish amid low domestic demand and economic uncertainty in 2009, Summary Valuation Tables of REICs we believe housing loan growth will pick up in 2010. Current M.Cap Premium/ NAV (TLmn) (TLmn) (Discount) Akmerkez REIC 936 373 -60% • We expect rents to increase in 2010. We believe that REIC’s rental Alarko REIC 254 96 -62% revenues will start increasing in 2010 with the renewed optimism in Atakule REIC 182 102 -44% Dogus GE REIC 161 76 -53% the markets. Meanwhile, the development of new projects will speed EGS REIC 19 16 -16% up in 2010, meeting pent up demand. Is REIC 1,175 495 -58% Nurol REIC 54 28 -47% Ozderici REIC 12 12 -4% • There are a total of 14 REICs trading on the ISE. As of June 25, Pera REIC 100 60 -40% 2009, their combined market capitalization amounted to TL1.9bn, with Saglam REIC 63 50 -21% REICs now trading at a massive 55% discount to their combined net Sinpas REIC 1,093 537 -51% asset value of TL4.3bn as of March 31, 2009. Vakif REIC 94 32 -66% Yapi Kredi Koray REIC 113 57 -49% Y&Y REIC 24 21 -12% TOTAL 4,256 1,934 -55%

Source: ISE

IS REIC (ISGYO.IS) / Real Estate Market Perform Current/ 2009-end Target Price: TL1.10/ TL1.33 Current/ 2009-end Target Mcap: US$320mn/ US$386mn

Stable cash flow… Is REIC (2008-2009) 1.8 • Our 2009-end target price of TL1.33 suggests 21% upside poten- 1.5 tial, in line with the upside potential for the ISE-100. Despite a 1.2 somewhat positive outlook due to the decline in interest rates, we be- TL 0.9 lieve the stock is fairly valued. 0.6 0.3 • A rent focused portfolio. Is REIC’s main advantage over other 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 REICs is its ability to generate a continuous stream of rental income ISGY O ISE-100 from its real estate portfolio. Is REIC generated US$51mn in annual rental income, with the bulk of the flow coming from Is Towers and Kanyon in Istanbul, the Seven Seas Resort in Antalya and Is Towers Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E in Ankara. However, with the decline in rent rates, we expect Is REIC Net Sales 213 81 70 87 to generate US$38mn rental income in 2009. We expect an increase Gross Profit 77 34 28 35 in rent rates in 2010, positively affecting financials. EBITDA 93 52 41 47 Net Income 55 53 34 40 Gross Margin 36.0% 42.4% 40.0% 40.0% • Consistent growth. Is REIC expects its rental revenues to grow at a EBITDA Margin 43.9% 63.8% 59.1% 54.1% CAGR of 8% with the addition of the operation building in Halkali and Net Margin 25.8% 65.6% 48.4% 45.5% the service building in Sirkeci. Valuation Multiples P/E 9.0 9.3 14.7 12.5 EV/Sales 1.8 4.7 5.5 4.4 • Projects in the pipeline. Is REIC purchased a 7.2 hectare plot of EV/EBITDA 4.1 7.4 9.3 8.1 land in Kartal, where it plans to build a residential project for the mid- Stock Market Data (25 June 2009) dle income segment. Is REIC is planning to develop two residential Relative Performance: 1mth 3mths 12mths projects, one in Uskudar, Istanbul and another one in Izmir. We ex- -5.8% -12.5% 29.4% pect Is REIC to launch these projects in 2009. We have not included 52 Week Range (TL): 0.5 - 1.2 Market Cap (TLmn): 495 these projects in our valuation as there is no definite data regarding Average Daily Vol (TLmn) 3 mth: 1.8 the projects, which may face delays due to the ongoing demand YTD TL Return(%): 66.2 weakness and difficult financing environment. Free float (%): 42

SINPAS REIC (SNGYO.IS) / Real Estate Market Perform Current/ 2009-end Target Price: TL3.92/ TL4.70 Current/ 2009-end Target Mcap: US$347mn/ US$415mn

Attractive projects… Sinpas REIC (2008-2009) 8.5 • Our 2009-end target price of TL4.70 for Sinpas REIC suggests 6.9 20% upside potential. Sinpas REIC’s cash flow will be generated 5.3 from ongoing residential projects. We have not included projects TL 3.7 which currently lack construction permits in our valuation. 2.1 0.5 • Alluring payment terms. The Company has arranged attractive pay- 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 ment schedules with an interest rate of 0.99%. Compared to market SNGYO ISE-100 average of 1.40% Sinpas will benefit from its new payment plan. Also due to the agreement structure Sinpas decreases the risk on the Company. Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E Net Sales 0 72 142 425 • A good start for Bosphorus City project. The Bosphorus City pro- Gross Profit -10 20 30 54 ject in Halkali, Kucukcekmece has so far proved a success with 2,055 EBITDA -26 -4 6 22 units sold. The change in the payment plan and uniqueness of the Net Income 19 20 32 59 Gross Margin n.m. 27.9% 21.1% 12.7% project has helped boost sales. The Bosphorus City project is the key EBITDA Margin n.m. n.m. 4.2% 5.2% contributor to our valuation. Sinpas REIC expects to complete the Net Margin n.m. 27.1% 22.5% 13.9% construction of the 1st phase at the end of 2010. Valuation Multiples P/E 29.0 27.4 16.8 9.1 EV/Sales n.m. 6.3 3.2 1.1 • Other projects in the pipeline. Lagun, Ottomanors and Aquacity EV/EBITDA n.m. n.m. 75.6 20.6 2010 are the other main projects of Sinpas REIC. The Company has Stock Market Data (25 June 2009) 6 projects under its belt, which currently have no construction permits. Relative Performance: 1mth 3mths 12mths The Company started pre-sales of Aquacity in April 2009. Sinpas 2.8% 61.3% -5.1% REIC expects to complete the 3rd phase of its Lagun project in 2009 52 Week Range (TL): 1.3 - 4.7 Market Cap (TLmn): 537 and the 4th phase by 2010. The company plans to complete the con- Average Daily Vol (TLmn) 3 mth: 5.2 struction of the 1st phase of its Ottomanors project by the end of YTD TL Return(%): 137.2 2009. The projects will speed up depending on the economic upturn. Free float (%): 49

STEEL

Difficult year… Turkey Crude Steel Production (mn tonnes)

• Steel prices are down 40-50% YoY while steelmakers are cutting production. According to the World Steel Association (WSA) global 30 15% crude steel production for the first four months of 2009 totalled 354mn 25 tonnes, a 22.7% decrease when compared to the same period of 20 0% 2008. While we might have seen a bottom in prices, a revival in the 15 underlying sectors is imperative to secure a sustained upward move- 10 -15% ment in steel prices. As the current CURs are around 60%, we do not 5

expect a significant increase in steel prices both in 2009 and 2010. 0 -30% • The cut in production in Turkey is smaller than closest produc- 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ers. According to the WSA April statistics, Turkey jumped to 9th place 2009E (11th at the end of 2008), producing 7.5mn tonnes of crude steel be- Crude steel production YoY Growth

tween Jan-Apr09, down 19% YoY. We expect production to improve Source: WorldSteel.org, Garanti Securities slightly in the coming quarters now as automakers have depleted their inventories at home, thanks to the cut in the rate of SCT, and there is Steel Exports of Turkey a prospect of a revival in the construction sector in the summer. • The cost of raw materials has also fallen in parallel with the de- 24 cline in steel demand. Rio Tinto agreed to lower its iron ore contract 19.7 20 prices with Japan’s Nippon Steel by 33-44%, the first decline in seven 14.3 15.1 16.2 18.7 13.1 16 11.9 19.4 years. Coking coal price contracts are also expected to be reduced in 10.7 11.3 12 2009. However, margins set to remain under pressure in 2009 due to 11.0 lower CUR and leaner steel prices. We expect limited recovery in 8 3.7 2.5 2.8 11.4 8.7 margins in 2010. 4 6.9 6.7 • Exports going down. Around 75% of steel production in Turkey is 0 long products while half of this production is exported. With declining 2001 2002 2003 2004 2005 2006 2007 2008 demand and prices, steel exports have been nearly slashed in half 2009E mn ton US$bn from the US$2.0bn recorded in Jan-Apr08 to just US$1.2bn in Jan- Apr09. Source: Turkish Steel Exporters Association, Garanti Securities

EREGLI DEMIR ve CELIK A.S. (EREGL.IS) / Steel Market Perform

Current/ 2009-end Target Price: TL4.36/ TL4.96 Current/ 2009-end Target Mcap: US$3,239mn/ US$3,675mn

Narrow road… Eregli Demir Celik (2008-2009) • Our US$3.7bn 2009-end target Mcap for Eregli is derived from 11.0 DCF analysis and international peer group comparison, indicat- 9.2 7.4

ing 14% TL based upside potential. Erdemir trades in line with its TL 5.6 global peers with its 2010E EV/EBITDA and P/E multiples. 3.8 • Margins under pressure. Margins will remain under pressure amid 2.0 lower capacity utilization rates and depressed steel prices despite an

easing on the raw material prices. We forecast a 40% YoY decline in 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 revenues to US$3.1bn in 2009 with an EBITDA margin of 18%. Al- EREGL ISE-100 though Erdemir is set to enjoy a YoY improvement in margins, this is mainly a result of the inventory loss provision reported in 4Q08, Summary Financials & Ratios slashing the 9M08 EBITDA margin of 38% to 13% by the year-end. (TLmn) 2007 2008 2009E 2010E • Worst quarter may be over, expect better financials ahead. The Net Sales 5,453 6,809 4,712 6,096 Gross Profit 1,020 835 747 1299 majority of the investments are completed in 2008, which led to a high EBITDA 1,170 890 828 1,345 short FX position, creating FX losses in 4Q08 and 1Q09. Yet, as we Net Income 679 211 232 620 do not expect major change in TL/$ parity, we expect FX losses to Gross Margin 18.7% 12.3% 15.8% 21.3% partially reverse in the remaining part of the year. In addition, 35% cut EBITDA Margin 21.5% 13.1% 17.6% 22.1% Net Margin 12.5% 3.1% 4.9% 10.2% in payrolls effective May 1 will positively affect EBIT. Valuation Multiples • Principal payments deferred. Erdemir obtained US$550mn and P/E 7.4 23.8 21.6 8.1 TL900mn credits with 18 months and 24 months maturity, in order to EV/Sales 1.6 1.3 1.9 1.9 refinance its TL725mn and US$665mn principal payments due be- EV/EBITDA 8.0 9.9 10.6 6.5 tween May 20, 2009 and February 28, 2010. As Erdemir reported an Stock Market Data (25 June 2009) EBIT of TL45mn and an EBITDA of TL100mn in 1Q09, the fact that Relative Performance: 1mth 3mths 12mths -5% 1% -55% principal payments are deferred is beneficial for the Company. 52 Week Range (TL): 2.88-10.50 • Asset disposal on the cards. Erdemir plans to sell its 9.3% in Bor- Market Cap (TLmn): 5,009 celik and 25% stake in ArcelorMittal Packaging due to competition Average Daily Vol (TLmn) 3 mth: 45 regulations. While the cash inflow may be small, at around US$50mn, YTD TL Return(%): 5.8 Free float (%): 48 the news flow may create interest in the stock.

KARDEMIR (KRDMD.IS) / Steel Market Perform Current/ 2009-end Target Price: TL0.53/ TL0.61 Current/ 2009-end Target Mcap: US$206mn/US$235mn

Waiting for a sustained recovery at home… Kardemir (D) (2008-2009) 1.5 • Our target Mcap for Kardemir D of US$235mn, based on global 1.3 peer comparison and DCF analysis, indicates 14% TL based up- 1.0 side potential. Kardemir D’s multiples may seem attractive, yet, we TL 0.8 believe the stock is fairly valued. Despite a slight recovery in demand, 0.5 0.3

Kardemir’s billet list price is just up by 5% YTD, at US$390/tonne.

• Contraction in margins expected for 2009 due to lower capacity 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 utilization rates and decline in prices. We expect prices in the sec- KRDMD ISE-100 tor to remain depressed in 2009 while there is easing in the costs of raw materials. However, we believe EBITDA margin will be halved to Summary Financials & Ratios KRDMD 18%. We expect slight improvement in margins in 2010 with in- (TLmn) 2007 2008 2009E 2010E

creased sales volume. Net Sales 509 740 470 564 • Ready to benefit from a turnaround in the economy. Majority of Gross Profit 124 239 53 88 Kardemir’s revenues are generated at home (96% FY08). In August, EBITDA 145 263 85 123 Net Income 85 176 24 48 Kardemir’s annual liquid crude steel capacity was raised from 1mn Gross Margin 24.4% 32.3% 11.3% 15.7% tonnes to 1.5mn tonnes with the addition of a 4th furnace. Kardemir’s EBITDA Margin 28.6% 35.5% 18.0% 21.8% annual crude steel capacity will reach 2mn tonnes following the mod- Net Margin 16.8% 23.7% 5.2% 8.5% ernization of its blast furnace No:1, doubling its 2007 capacity. Valuation Multiples P/E 3.7 1.8 13.0 8.6 • Expanding product portfolio. Kardemir became the sole long rail EV/Sales 0.8 0.6 0.9 0.7 producer in the region following its rail & section mill with 400,000 EV/EBITDA 2.8 1.6 4.9 3.4 tonne annual capacity becoming operational in mid 2007. The mill has Stock Market Data (25 June 2009) specialty products which render the Company the sole choice for Relative Performance: 1mth 3mths 12mths some domestic infrastructure investments such as Eskisehir-Istanbul 3% 15% -25% 52 Week Range (TL): 0.25-0.80 railway project and international investments in the Middle Eastern Market Cap (TLmn): 320 countries. The share of export revenues increased from 5.0% of total Average Daily Vol (TLmn) 3 mth: 27 revenues in 2007 to 6.9% in 2008. We expect this ratio to increase in YTD TL Return(%): 69 line with the increase in value added products in overall sales volume. % in Free float: 68

TELECOMMUNICATIONS

MNP and 3G to bring new dynamics to the mobile market… Mobile Market Structure by Subscribers (1Q09 end) • New regulation to reshape mobile sector. Mobile Number Portabil- Avea ity (MNP) was introduced in Turkey on November 9, 2008. The new 19.6% regulation has changed the competitive forces in mobile telephony. The three mobile service providers Turkcell, Vodafone and Avea in- tensified efforts to lure subscribers through promotional campaigns,

which has taken a toll on margins in the sector. • 3G applications will contribute to revenue growth. All three mobile Turkcell operators participated in the 3G tender to obtain licences to offer 3G Vodafone 56.6% 23.9% services. The tax for mobile internet services which was reduced from 25% to 5%, will support mobile internet usage. However, we think that the proceeds from 3G will be limited as subscribers become more de- Source: Telecommunications Authority manding from operators after the introduction of MNP. • Little room for growth in mobile penetration. The mobile market reached full penetration levels in 2008 and we think that further Number of Mobile vs Fixed Line Subscribers additions in subscribers will be limited in 2009. Penetration stood at

91% at the end of 1Q09, and we think that this rate will remain level at 70 the end of 2009. We think that MNP will actually reduce the number of 60 subscribers compared to 2008 as double sim-card users will limit their 50 40 subscription to one line. 30 Mn Subs Mn • Fixed line growth on hold, with no substitute for mobile usage. 20 Fixed line penetration will continue to hover at the current penetration 10

level of 25% as subscribers continue to shift to mobile in 2009. 0 • Internet broadband revenues set to grow. Internet penetration in 2004 2005 2006 2007 2008 2009T 2010T Turkey is relatively low at 25%. We think that the tax on internet ser- Fixed line Mobile vices on mobile and broadband connections, which was reduced to

5% from 15% in March 2009 will increase usage in 2010. Source: Telecommunications Authority

ASELSAN (ASELS.IS) / Defense Electronics Market Perform Current/ 2009-end Target Price: TL4.38/TL5.00 Current/ 2009-end Target MCap: US$333mn/ US$380mn

Domestic defence expenditures grind to a halt... Aselsan (2008-2009) 6.5 • We arrive at a fair value of US$380mn for Aselsan based on a 5.5 US$ denominated DCF valuation which implies a 14% upside po- 4.5 tential in TL terms. The stock is trading at a discount in terms of TL 3.5 2010E EV/EBITDA and 2010E P/E multiples compared to its peers. 2.5 We do not expect it to outperform the ISE-100 in 2009 due to the 1.5

limited number of defense projects in the pipeline. 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 • Limited upside. The Company is projected to incur FX losses due to ASELS ISE-100 its short FX position, resulting in a cut in our net income projections for 2009 accordingly. Moreover, the company lacks any new long term Summary Financials & Ratios projects in the pipeline and as a small cap we think its performance (TLmn) 2007 2008 2009E 2010E will be limited, going forward in 2009. Net Sales 669 706 906 975 Gross Profit 221 213 308 331 • The R&D incentive offered has failed to have a significant EBITDA 163 146 230 246 impact, as anticipated. The R&D incentive offered at the beginning Net Income 100 12 97 104 of 2008 did not have a noticable positive impact on the firm. We think Gross Margin 33.0% 30.2% 34.0% 34.0% that in the absence of drivers for successful performance Aselsan will EBITDA Margin 24.3% 20.6% 25.4% 25.3% Net Margin 15.0% 1.7% 10.7% 10.6% not be a small-cap star in the market. Valuation Multiples • Margins to improve. We estimate a revenue increase of 28% to P/E 5.1 42.3 5.3 5.0 TL906mn, while we forecast an improvement in the EBITDA margin EV/Sales 0.8 0.7 0.6 0.5 towards 2007 levels. We also forecast a net income of TL97mn in EV/EBITDA 3.2 3.5 2.2 2.1 Stock Market Data (25 June 2009) 2009. Relative Performance: 1mth 3mths 12mths 4.3% 7.4% -20.6% 52 Week Range (TL): 2.30- 5.71 Market Cap (TLmn): 515 Average Daily Vol (TLmn) 3 mth: 4.8 YTD TL Return(%): 49.8 Free float (%): 15

NETAS (NETAS.IS) / Telecommunications Services Outperform Current/ 2009-end Target Price:TL24.60/TL32.00 Current/ 2009-end Target MCap: US$103mn/US$130mn

Corporate action on the cards… Netas (2008-2009) 30.0 • Our target Mcap of US$130mn for Nortel Netas implies an upside 25.0 potential of 30% in TL terms. The company trades at a 2010E EV/ 20.0

EBITDA multiple of 2.0x with a discount to its peers. We think the TL 15.0 current price levels are attractive for investors who would like to gain 10.0 exposure to the Turkish telecom equipment and services market. 5.0 • Corporate action expected. The parent Nortel Networks has applied 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 for chapter 11. Netas operations will not be affected by the NETAS ISE-100 restructuring plan which is expected to be announced in July 2009. We expect the newsflow regarding this process to act as a catalyst for Summary Financials & Ratios the stock. (TLmn) 2007 2008 2009E 2010E • A turnaround expected in telecoms. The liberalization of the Net Sales 154 183 218 231 telecom market through local loop unbundling will entice competition, Gross Profit 11 27 38 38 leading to a turnaround in the telecom equipment sector. The new EBITDA 0 19 28 33 market dynamics in the mobile sector will also spark up competition Net Income 9 12 17 22 Gross Margin 7.2% 14.6% 17.3% 16.4% with heavy investing as announced by Vodafone and Avea. EBITDA Margin 0.0% 10.2% 12.8% 14.4% • Strong balance sheet. Netas is one of the defensive stocks trading Net Margin 5.7% 6.7% 7.7% 9.4% at the ISE with a net cash position of US$70mn and no long term Valuation Multiples financial debt. The company also has a negligible short FX position. P/E 18.0 13.0 9.6 7.4 EV/Sales 0.4 0.4 0.3 0.3 • The R&D incentive to improve margins. The R&D incentive EV/EBITDA NM 3.6 2.4 2.0 extended to corporations which employ R&D personnel will provide Stock Market Data (25 June 2009) savings for Netas starting from 2009 on. Netas employs nearly 1,000 Relative Performance: 1mth 3mths 12mths R&D personnel and we estimate that the company will save TL15mn 18.6% 38.9% 74.4% per year from this incentive. 52 Week Range (TL): 7.59 - 24.75 Market Cap (TLmn): 160 • Expect better performance in 2010 with increased business flow. Average Daily Vol (TLmn) 3 mth: 1.5 We think 2010 will be a better year for Netas as investment spending YTD TL Return(%): 109.4 will increase. Free float (%): 32

TURK TELEKOM (TTKOM.IS) / Telecommunications Outperform Current/ 2009-end Target Price:TL4.90/TL6.34 Current/ 2009-end Target MCap: US$11,081mn/US$14,300mn More to communication than staying fixed… Turk Telekom (May 2008-2009) • Our target Mcap of US$14.3bn for Turk Telekom, based on a 5.0 blended approach of global peer comparison and DCF analysis, 4.3 3.6

indicates 29% TL based upside. At an 2010E EV/EBITDA of 5x, TT TL 2.9

also trades at a discount to its peers. 2.2 • Solid cash flow and high dividend yield lure investors. Turk 1.5 Telekom stands out as one of the strongest ISE-listed companies with

a solid cash flow yield for 2009 as well as a high dividend yield, as the 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09 TTKOM ISE-100 Company has a policy to distribute 100% of its distributable profit. • A leader in its field. TT dominates the fixed line business with a 95% market share and the ADSL market with a 94% market share in Summary Financials & Ratios Turkey with no major prospective rivals to enter the market in the near (TLmn) 2007 2008 2009E 2010E Net Sales 9,424 10,195 10,449 10,945 term. TT will benefit from a benign competitive environment in 2009. Gross Profit 4,165 5,309 5,309 5,478 • Turk Telekom offers diverse exposure to the telecom market in EBITDA 3,899 4,163 4,154 4,074 Turkey. TTNet, the ADSL service provider dominates the underpene- Net Income 2,547 1,752 1,919 2,003 trated market with a 95% market share while Avea, the mobile opera- Gross Margin 44.2% 52.1% 50.8% 50.1% tor has a 20% market share. Turk Telekom offers full exposure to the EBITDA Margin 41.4% 40.8% 39.8% 37.2% telecom market, with its fixed line, ADSL and mobile businesses Net Margin 27.0% 17.2% 18.4% 18.3% Valuation Multiples where growth will be supported by demographics and the macro envi- P/E 6.7 9.8 8.9 8.6 ronment. EV/Sales 2.1 2.0 1.9 1.8 • Limited growth in store for 2009. We forecast a 3% increase in EV/EBITDA 5.2 4.9 4.9 5.0 revenues, coupled with a slight 1pp deterioration in the EBITDA mar- Stock Market Data (25 June 2009) gin. We meanwhile project 10% growth in net income to TL2bn in Relative Performance: 1mth 3mths 12mths 10.1% -1.7% 26.8% 2009 amid easing FX losses during the remainder of 2009. We expect 52 Week Range (TL): 2.73 - 4.90 2010 to be a better year as revenues will increase 5%, however mar- Market Cap (TLmn): 17,150 gins will be hit by competition. Average Daily Vol (TLmn) 3 mth: 21.9 YTD TL Return(%): 55.0 Free float (%): 15

TURKCELL (TCELL.IS) / Telecommunications Market Perform Current/ 2009-end Target Price: TL8.40/TL9.80 Current/ 2009-end Target MCap: US$12,375mn/US$13,900mn

Strong cash generation to continue… Turkcell (2008-2009)

13.0 • Our target Mcap of US$13.9bn for Turkcell is based on global 11.2 peer comparison and DCF analysis, points to 17% TL based up- 9.4

side. Turkcell trades at an EV/EBITDA of 4.0x and P/E of 6.7x based TL 7.6 on 2010 prospective earnings. 5.8 • Strong financials. With its robust cash generation capacity as well 4.0 as its long fx-position, Turkcell stands out as one of the most 01.08 02.08 03.08 04.08 05.08 06.08 07.08 08.08 09.08 10.08 11.08 12.08 01.09 02.09 03.09 04.09 05.09 06.09

defensive stocks trading on the ISE. Note that the company has a net TCELL ISE-100 cash position of TL3.6bn as of 1Q09, comprising 28% of its total assets. Our revenue projections imply an increase of 7% in 2009 for which we expect the economy to contract. Summary Financials & Ratios (TLmn) 2007 2008 2009E 2010E • Still the king. Turkcell commands a 56.6% share of total subscribers Net Sales 8,187 8,436 9,011 10,263 at the end of 1Q09. We think that the company has the lions share of Gross Profit 4,195 3,732 3,921 4,507 the more valuable post-paid subscriber segment while we predict the EBITDA 3,395 3159 3372 3752 total number of subscribers to decrease in 2009 as double sim-card Net Income 1,759 2570 2409 2756 Gross Margin 51.2% 44.2% 43.5% 43.9% usage will decline with number portability. EBITDA Margin 41.5% 37.4% 37.4% 36.6% • Mobile Number Portabilty (MNP) to increase churn. MNP looks set Net Margin 21.5% 30.5% 26.7% 26.9% to squeeze margins. However, Turkcell has hinted that it will face Valuation Multiples competition proactively by launching pre-emptive campaigns. The first P/E 10.5 7.2 7.7 6.7 results related with MNP implementation actually point to a net inflow EV/Sales 1.8 1.8 1.6 1.4 of subscribers to Turkcell with more subscribers churning from the EV/EBITDA 4.4 4.7 4.4 4.0 Stock Market Data (25 June 2009) other two operators. We expect the EBITDA margin to decline to Relative Performance: 1mth 3mths 12mths below 38% going forward in the midst of rising competition. 0.8% -20.4% 15.7% • 3G to stimulate usage. 3G licenses were awarded on November 28 52 Week Range (TL): 6.48 - 8.78 and Turkcell obtained the A type license. We think 3G services Market Cap (TLmn): 18,480 Average Daily Vol (TLmn) 3 mth: 79.5 expected to be rolled out in the second half of 2009 will contribute to YTD TL Return(%): 2.3 revenues although at a limited scale. Free float (%): 33

99 VALUATION SHEETS

100

VALUATION SHEET I

Number of Lots Market Cap 2009 Return 2000-Today Low-High Float MCAP (float) 3-Month Avg. Foreign OwnerShip COMPANY Closing Price (TL) (mn) (mn TL) (TL) (%) Market Cap (mn TL) (%) (mn TL) Daily Vol. (mn TL) in Float (%) Anadolu Efes Biracilik 13.60 450.0 6,120 34.8 615 6,750 45 2,754 8.3 69.6 Akbank 6.85 3,000.0 20,550 47.0 1,500 32,400 37 7,604 53.0 54.4 Akcansa 3.36 191.4 643 55.7 167 2,106 20 129 1.0 37.5 Anadolu Cam 1.54 346.2 533 33.9 42 1,052 25 133 0.6 41.8 Arcelik 2.42 659.9 1,597 57.2 533 5,239 21 335 25.9 41.4 Aselsan 4.38 117.6 515 49.8 57 1,272 15 77 4.8 4.7 Anadolu Isuzu 4.92 25.4 125 67.3 28 391 16 20 0.8 23.3 Aygaz 3.42 300.0 1,026 78.9 350 1,441 45 462 3.8 67.4 Bim Birlesik Magazalar 49.50 75.9 3,757 56.1 683 3,985 50 1,879 7.7 64.6 Coca Cola Icecek 8.75 254.4 2,226 38.8 1,424 3,485 25 556 2.7 93.2 Cimsa 3.94 135.1 532 42.2 101 1,407 29 154 0.5 44.4 Celebi 10.00 24.3 243 92.5 30 533 23 56 1.9 20.3 Dogus Otomotiv 3.60 110.0 396 103.4 161 1,221 34 135 5.3 37.8 Dogan Holding 0.95 2,450.0 2,328 50.6 209 5,478 34 791 17.4 60.6 Dogan Yayin Holding 1.33 618.5 823 101.5 132 4,559 34 280 10.6 15.7 Eregli Demir Celik 4.36 1,148.8 5,009 5.8 399 12,063 50 2,504 45.7 14.6 Fortis Bank 1.39 1,050.0 1,460 90.4 74 3,183 6 88 3.3 2.7 Ford Otosan 6.05 350.9 2,123 47.3 556 5,018 18 382 7.4 62.2 Garanti Bankasi 4.12 4,200.0 17,304 58.5 715 23,100 56 9,690 362.8 89.2 Halk Bankasi 6.15 1,250.0 7,688 38.2 4,025 15,250 25 1,922 65.4 87.1 Hurriyet Gazetecilik 1.12 460.0 515 72.3 134 2,417 40 206 7.8 24.7 Is Bankasi (C) 4.46 3,079.6 13,735 23.5 2,634 26,187 33 4,533 135.9 62.3 Is G.M.Y.O. 1.10 450.0 495 66.2 121 1,274 55 272 1.8 35.3 Koc Holding 2.62 2,415.1 6,328 20.0 1,362 11,696 20 1,266 40.5 53.1 Kardemir (D) 0.53 601.4 319 69.4 8 542 100 319 27.0 13.6 Netas Telekom. 24.60 6.5 160 109.4 50 697 32 51 1.5 6.2 Otokar 12.80 24.0 307 54.6 36 557 28 86 1.4 32.8 Petkim 6.25 204.8 1,280 35.3 713 4,095 39 499 12.4 25.7 Sabanci Holding 4.36 1,800.0 7,848 26.7 1,875 14,310 28 2,197 20.1 42.4 Sise Cam 1.25 1,100.0 1,375 25.4 210 2,689 37 509 7.1 41.4 Sinpas G.M.Y.O. 3.92 137.0 537 137.2 186 1,164 49 263 5.2 50.1 Tat Konserve 2.22 136.0 302 83.5 28 533 48 145 2.8 48.8 Tav Havalimanlari 4.12 363.3 1,497 61.8 596 3,294 26 389 17.5 57.8 Turkcell 8.40 2,200.0 18,480 2.3 1,800 30,580 33 6,098 79.5 88.8 Turk Ekonomi Bankasi 1.20 1,100.0 1,320 46.3 66 2,446 20 264 18.4 36.7 Turk Hava Yollari 2.13 875.0 1,864 99.4 669 3,100 54 1,006 31.9 57.1 Tekfen Holding 3.52 370.0 1,302 50.3 724 2,864 34 443 31.2 54.0 Tofas Otomobil Fab. 2.64 500.0 1,320 138.7 213 3,425 24 317 15.2 63.6 Trakya Cam 1.35 535.6 723 46.7 171 1,521 34 246 4.3 45.7 Turk Telekom 4.90 3,500.0 17,150 55.0 10,500 17,150 15 2,573 21.9 58.9 Turk Traktor 5.80 53.4 310 51.6 186 855 22 68 2.6 52.6 Tupras 19.20 250.4 4,808 37.7 1,551 8,952 49 2,356 35.6 78.1 T. Vakiflar Bankasi 2.21 2,500.0 5,525 88.9 2,600 12,087 25 1,381 69.7 79.5 Vestel Beyaz Esya 2.20 190.0 418 86.5 194 832 31 130 4.0 36.7 Vestel 1.54 335.5 517 81.2 111 1,058 36 186 10.6 21.1 Yapi Ve Kredi Bankasi 2.23 4,347.1 9,694 6.2 752 15,559 24 2,327 90.4 51.7

*Last updated as of 25/06/2009

101

VALUATION SHEET II

COMPANY P / E (TL) Price / Book Value (x) FX adjusted Net Interest Margin (%) ROAE (%) 2007 2008 2009F 2007 2008 2009F 2007 2008 2009F 2007 2008 2009F Akbank 10.3 12.1 11.2 1.9 1.8 1.6 5.8% 4.9% 4.9% 22.6% 15.6% 15.2% Fortis Bank 9.7 10.1 8.1 0.9 0.8 0.7 7.3% 7.4% 7.4% 10.9% 8.4% 9.6% Garanti Bankasi 7.5 9.8 10.0 2.5 1.8 1.5 4.9% 4.8% N/A 38.5% 21.4% 17.8% Halk Bankasi 6.8 7.5 5.7 1.8 1.8 1.4 4.8% 4.5% 5.9% 27.7% 23.5% 27.4% Is Bankasi (C) 8.1 9.1 8.1 1.5 1.6 1.3 4.8% 5.0% 5.5% 23.6% 19.7% 20.1% Is G.M.Y.O. 9.0 9.3 14.7 0.6 N/A N/A N/A N/A N/A 6.2% N/A N/A Sinpas G.M.Y.O. 28.9 27.2 16.8 0.9 N/A N/A N/A N/A N/A N/A N/A N/A Turk Ekonomi Bankasi 10.1 8.0 7.1 1.5 0.9 0.8 5.9% 5.7% 5.8% 17.8% 14.1% 12.3% T. Vakiflar Bankasi 5.4 7.3 6.4 1.1 1.0 0.9 5.0% 4.6% 5.2% 21.8% 14.2% 14.8% Yapi Ve Kredi Bankasi 13.7 9.3 8.6 2.0 1.4 1.2 5.1% 4.7% 5.2% 17.2% 17.7% 15.3% COMPANY P / E (TL) EV / SALES (TL) EV / EBITDA (TL) P / BV EBITDA / SALES (%) 2007 2008 2009F 2007 2008 2009F 2007 2008 2009F 2009/03 2008 2009F Anadolu Efes Biracilik 16.3 19.7 17.3 2.4 2.0 1.8 9.9 8.7 7.6 2.5 25% 24% Akcansa 3.5 6.2 8.0 1.4 1.2 1.3 3.8 4.0 5.0 0.9 29% 26% Anadolu Cam 7.5 48.9 16.5 1.4 1.1 1.2 4.8 4.3 5.4 0.8 28% 27% Arcelik 10.1 40.0 10.5 0.6 0.6 0.6 6.0 6.5 8.2 0.8 10% 9% Aselsan 5.1 42.3 5.3 0.8 0.7 0.6 3.2 3.5 2.2 1.1 20% 25% Anadolu Isuzu 5.0 N/A 50.9 0.3 0.3 0.5 4.1 6.8 14.1 0.7 8% 5% Aygaz 2.3 39.6 7.6 0.4 0.3 0.4 4.8 3.6 2.9 0.7 8% 10% Bim Birlesik Magazalar 34.8 33.0 20.0 1.2 0.9 0.7 22.7 19.1 13.5 11.7 5% 5% Coca Cola Icecek 14.5 27.2 14.7 1.7 1.4 1.3 8.8 8.2 7.5 2.0 16% 16% Cimsa 1.8 7.0 7.9 1.3 1.3 1.3 3.6 4.3 5.3 0.7 29% 25% Celebi 9.3 6.9 4.9 1.1 1.0 0.9 3.8 3.5 3.1 3.5 28% 28% Dogus Otomotiv 6.2 N/A 51.6 0.2 0.3 0.2 5.6 9.3 7.1 1.2 4% 3% Dogan Holding 5.9 32.8 14.7 0.2 0.2 0.2 4.2 3.3 4.2 0.5 5% 6% Dogan Yayin Holding 1.3 N/A 41.1 0.3 0.3 0.3 3.3 2.9 2.9 0.6 10% 10% Eregli Demir Celik 7.4 23.8 21.6 1.6 1.3 1.9 8.0 9.9 10.6 0.8 21% 13% Ford Otosan 4.4 4.8 7.5 0.3 0.3 0.4 2.4 2.5 4.0 1.3 11% 11% Hurriyet Gazetecilik 5.5 N/A 7.5 1.2 1.0 1.0 3.8 5.0 5.3 0.6 19% 19% Koc Holding 2.8 3.1 4.3 0.1 0.1 0.2 1.4 1.4 1.9 0.4 9% 9% Kardemir (D) 3.7 1.8 13.0 0.8 0.6 0.9 2.9 1.6 4.9 0.6 29% 35% Netas Telekom. 18.0 12.9 9.6 0.4 0.4 0.3 n.m. 3.6 2.4 0.6 10% 13% Otokar 8.2 8.8 9.6 1.0 0.9 0.9 8.9 7.0 6.8 1.9 11% 13% Petkim 17.3 N/A 21.9 0.6 0.5 0.5 5.8 190.8 5.6 0.9 10% 0% Sabanci Holding 8.1 6.6 9.5 0.4 1.0 0.4 2.6 3.2 3.3 0.4 16% 33% Sise Cam 4.9 8.7 8.6 0.4 0.4 0.4 1.9 1.5 1.7 0.4 23% 24% Tat Konserve 26.9 N/A 14.7 1.1 0.9 0.9 13.1 11.0 8.6 1.9 8% 10% Tav Havalimanlari N/A 193.6 40.6 3.1 2.4 2.0 20.6 10.5 8.2 1.9 15% 13% Turkcell 10.5 7.2 7.7 1.8 1.8 1.6 4.4 4.7 4.4 2.1 37% 37% Turk Hava Yollari 7.0 1.6 4.1 0.6 0.5 0.5 3.5 3.0 3.3 0.6 21% 17% Tekfen Holding 4.7 14.2 15.1 0.8 0.6 0.6 7.3 5.8 6.0 0.9 11% 10% Tofas Otomobil Fab. 7.5 7.5 10.0 0.7 0.5 0.6 9.4 5.1 6.4 1.2 8% 10% Trakya Cam 4.2 6.0 8.7 1.1 1.0 1.0 3.6 3.2 3.4 0.6 31% 31% Turk Telekom 6.5 9.5 8.6 2.1 1.5 1.9 5.0 4.7 4.7 3.2 41% 40% Turk Traktor 3.4 4.6 10.1 1.5 1.0 1.2 7.1 8.5 13.7 1.2 21% 11% Tupras 3.7 11.1 8.1 0.2 0.2 0.3 3.5 3.5 4.9 1.6 6% 5% Vestel Beyaz Esya 5.7 13.5 9.4 0.3 0.3 0.4 6.0 3.1 7.9 0.9 6% 10% Vestel 28.7 N/A N/A 0.2 0.2 0.3 15.6 2.7 7.1 0.7 2% 9%

102

VALUATION SHEET III

Relative Performance (as of 25.06.2009) Company Ticker 1-mth 3-mth 6-mth YTD 12-mth Since 9 March Beta Anadolu Efes Biracilik AEFES 4.9% -3.7% 5.5% -0.3% 28.2% -17.4% 0.61 Akbank AKBNK -0.4% 0.2% 8.1% 8.7% 52.0% 15.4% 1.31 Akcansa AKCNS -7.9% 8.3% 15.5% 15.1% -12.9% 23.2% 0.84 Anadolu Cam ANACM 4.1% -0.1% 10.1% -1.0% -32.4% 4.3% 0.67 Arcelik ARCLK 6.0% 24.5% 31.2% 16.2% -24.2% 24.4% 0.78 Aselsan ASELS 4.3% 7.4% 12.3% 10.8% -20.6% 3.2% 0.80 Anadolu Isuzu ASUZU 7.8% 8.8% 24.6% 23.8% -40.1% 15.5% 0.75 Aygaz AYGAZ 21.6% 27.8% 39.5% 32.3% 30.9% 24.8% 0.77 Bim Birlesik Magazalar BIMAS 0.7% 5.5% 14.8% 15.5% 17.5% -7.0% -0.08 Coca Cola Icecek CCOLA 0.7% -14.0% -0.3% 2.7% -21.4% -16.6% -0.04 Cimsa CIMSA -8.7% -7.3% 7.3% 5.2% -1.7% -3.7% 0.77 Celebi CLEBI 9.7% 3.3% 37.2% 42.3% 43.0% 22.2% 0.84 Dogus Otomotiv DOAS 11.4% 28.6% 50.9% 50.4% 14.9% 38.1% 1.06 Dogan Holding DOHOL 3.6% 31.8% 12.1% 11.4% -1.5% 18.0% 1.05 Dogan Yayin Holding DYHOL 20.4% 88.2% 49.3% 49.0% -14.6% 44.8% 1.03 Eregli Demir Celik EREGL -4.5% 0.8% -20.5% -21.7% -54.7% -17.9% 0.96 Fortis Bank FORTS 11.2% 29.4% 38.9% 40.8% 49.5% 9.1% 0.98 Ford Otosan FROTO -14.6% 2.7% 8.4% 8.9% -30.3% 4.0% 0.73 Garanti Bankasi GARAN 3.5% 21.4% 15.6% 17.2% 30.7% 36.8% 1.33 Halk Bankasi HALKB 0.9% 21.6% -1.7% 2.2% 5.2% 24.0% 0.02 Hurriyet Gazetecilik HURGZ 14.3% 44.0% 27.7% 27.4% -19.4% 34.1% 1.02 Is Bankasi (C) ISCTR -8.9% -4.2% -10.3% -8.7% 16.9% 2.4% 1.30 Is G.M.Y.O. ISGYO -5.8% -12.5% 28.6% 22.9% 29.4% -21.0% 0.91 Koc Holding KCHOL -12.8% -4.5% -11.8% -11.3% -6.6% 3.2% 1.06 Kardemir (D) KRDMD 2.9% 15.2% 31.4% 25.2% -25.1% 12.6% 0.99 Netas Telekom. NETAS 18.6% 38.9% 65.1% 54.8% 74.4% 62.9% 0.73 Otokar OTKAR 4.1% 8.7% 14.8% 14.3% 0.5% 1.9% 0.75 Petkim PETKM 8.1% 10.0% -2.2% 0.0% 12.4% 0.2% 0.82 Sabanci Holding SAHOL -5.8% 8.1% -2.0% -6.3% 8.2% 21.4% 1.14 Sise Cam SISE 1.7% -4.3% -4.2% -7.3% -2.5% -4.4% 0.97 Sinpas G.M.Y.O. SNGYO 2.8% 61.3% 90.5% 75.4% -5.1% 97.9% 0.03 Tat Konserve TATKS 19.0% 36.6% 31.7% 35.7% -25.9% 51.5% 0.71 Tav Havalimanlari TAVHL 8.0% 1.4% 8.3% 19.7% -30.6% -11.1% 0.01 Turkcell TCELL 0.8% -20.4% -23.7% -24.4% 15.7% -26.4% 0.87 Turk Ekonomi Bankasi TEBNK 0.1% 32.6% 9.4% 8.2% 12.1% 29.9% 1.18 Turk Hava Yollari THYAO 16.8% 25.6% 52.1% 47.5% 111.8% 20.4% 0.76 Tekfen Holding TKFEN 13.2% 7.8% 8.1% 11.1% -46.9% 15.1% 0.15 Tofas Otomobil Fab. TOASO -2.6% 29.5% 77.2% 76.5% -29.4% 52.7% 0.98 Trakya Cam TRKCM 7.1% 3.8% 9.4% 8.5% -6.9% 3.5% 0.77 Turk Telekom TTKOM 10.1% -1.7% 9.9% -13.7% 26.8% -13.4% -0.09 Turk Traktor TTRAK 9.6% 11.0% 16.8% 12.1% -34.7% 8.9% 0.76 Tupras TUPRS 3.5% -5.0% 0.4% 1.8% -17.6% -8.0% 0.84 T. Vakiflar Bankasi VAKBN 0.0% 23.1% 36.6% 39.7% 23.6% 28.7% -0.07 Vestel Beyaz Esya VESBE 27.8% 40.1% 43.2% 37.9% -40.0% 38.7% -0.02 Vestel VESTL 2.6% 34.5% 45.7% 34.0% -14.7% 34.7% 0.77 Yapi Ve Kredi Bankasi YKBNK -9.3% -9.3% -22.2% -21.5% 1.1% -2.8% 1.14

103

VALUATION SHEET IV

Net Debt COMPANY Sales (mn TL) EBITDA (mn TL) Net Income (mn TL) (mn TL) 2008/06 2008/09 2008/12 2009/03 2008/06 2008/09 2008/12 2009/03 2008/06 2008/09 2008/12 2009/03 2009/03 Anadolu Efes Biracilik 1,125 1,109 778 764 302 288 98 196 186 130 -46 -25 1,222 Akcansa 247 220 179 135 82 67 43 33 62 36 -2 -3 214 Anadolu Cam 332 282 222 150 96 72 48 20 28 22 -46 -40 678 Arcelik 1,803 1,755 1,682 1,318 204 162 128 83 80 0 -95 53 2,499 Aselsan 188 145 221 167 43 18 46 57 40 16 -48 2 0 Anadolu Isuzu 136 122 86 28 11 4 -5 -8 12 -4 -19 -15 34 Aygaz 841 974 879 811 66 119 84 143 129 104 -168 8 223 Bim Birlesik Magazalar 1,058 1,149 1,068 1,223 50 43 45 82 33 25 21 55 -103 Coca Cola Icecek 664 772 430 439 128 162 20 47 95 107 -103 -59 964 Cimsa 204 164 144 111 67 46 28 23 61 22 -15 -13 185 Celebi 89 98 63 54 33 35 11 11 24 19 -3 -16 53 Dogus Otomotiv 605 578 404 415 19 31 0 16 16 1 -78 -17 200 Dogan Holding 3,458 3,688 2,826 2,169 256 202 140 68 114 61 -91 -11 -352 Dogan Yayin Holding 856 727 642 547 116 58 -21 -28 61 -12 -281 -165 1,626 Eregli Demir Celik 2,339 2,046 1,006 1,064 986 930 -1,313 100 603 578 -1,189 -137 3,775 Ford Otosan 2,143 1,711 1,128 839 228 162 118 82 131 87 50 31 -156 Hurriyet Gazetecilik 296 255 228 174 69 52 4 21 82 10 -95 -50 576 Is G.M.Y.O. 20 20 23 21 9 14 15 17 7 11 15 18 -113 Koc Holding 14,447 15,784 11,634 8,731 1,589 1,385 542 1,012 1,666 814 -502 3 6,388 Kardemir (D) 209 217 158 140 93 102 23 1 71 64 22 -14 96 Netas Telekom. 42 44 62 58 0 3 11 13 2 4 6 7 -116 Otokar 111 124 124 118 21 10 13 29 17 5 -5 15 124 Petkim 681 644 426 375 14 13 -34 56 -3 -35 -98 12 -40 Sabanci Holding 2,048 5,016 5,012 5,034 861 424 595 702 255 272 179 203 57,384 Sise Cam 1,062 946 867 790 282 234 188 137 116 85 -59 -11 1,480 Sinpas G.M.Y.O. 8 15 37 16 -6 -2 5 -2 -4 1 15 11 -94 Tat Konserve 136 191 153 152 8 14 16 20 1 3 -12 -1 288 Tav Havalimanlari 426 432 338 460 60 81 33 15 23 50 -11 -62 2,673 Turkcell 2,181 2,458 2,332 2,103 799 1,003 773 772 532 728 465 566 -3,612 Turk Hava Yollari 1,529 1,802 1,707 1,279 287 420 265 67 52 412 467 155 1,418 Tekfen Holding 570 550 739 644 75 78 -59 96 57 45 -127 6 215 Tofas Otomobil Fab. 1,478 1,103 908 872 160 109 116 97 69 15 8 33 1,200 Trakya Cam 273 265 206 184 90 88 46 26 57 56 -13 7 271 Turk Telekom N/A 2,615 2,603 2,508 1,090 1,228 849 1,073 N/A 654 73 291 3,068 Turk Traktor 241 187 156 156 33 25 0 8 33 24 -8 -9 449 Tupras 9,067 9,515 5,789 3,474 740 510 -140 135 678 427 -710 -37 157 Vestel Beyaz Esya 371 351 299 224 49 27 24 33 30 13 -15 11 -24 Vestel 1,102 914 1,659 859 33 38 171 89 38 -50 -276 -108 573

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