Tupras AS (TUPRS.IS)

Alert: Initial Reaction – Strong but Expected 4Q11 Results

4Q11 results strong as expected

– Tupras posted 4Q11 net income of TL323mn; (+396%), in-line with consensus estimate of TL315mn. Adjusting for the TL181mn pretax; provision for tax penalty in 4Q10, adjusted earnings growth in 4Q11 is 54% yoy.; EBITDA at TL509mn (+20% yoy) beat consensus by 9%, probably due to higher-thanexpected; inventory gains booked towards the end of the quarter with the recovery in oil; prices after mid-December and weaker Turkish Lira vs the US Dollar throughout; November and December.; Working capital increase driven by receivables from highway authority of Turkey;

– As refining margin and capacity utilization rates along with sales & production data by; product were already released in mid-February, the key take-away from the 4Q11; results was the increase in working capital. We estimate that Tupras’ working capital; needs increased by TL1.1bn from end of 3Q11 to end of 4Q11. At first glance, the; increase seems to be driven by lower payables and slightly higher inventories.; Management mentioned that there is a TL660mn outstanding receivable from the; highway authority of Turkey for asphalt sales provided by Tupras. Management has; also increased inventories above normal levels by TL300mn for tactical reasons. Thus,; working capital needs in the next quarter should correct by TL960mn while the; remaining, i.e. TL140mn, increase should stay or even increase with potentially lower; supplies from Iran, where Tupras enjoys higher payable day terms.; Net cash position in 3Q11 moved to net debt position in 4Q11

– Tupras moved; from a net cash position of TL577mn at end of 3Q11 to a net debt position of TL1.1bn; at end of 4Q11 on the back of the increase in working capital needs as described; above and increasing capex with spending for residuum upgrade project accelerating.; We estimate that capex spent in 4Q11 reached cTL920mn including an advance; payment of TL450mn.; Guidance for 12E

– Net refining margin guidance of US$4-4.5/bbl (excluding any; inventory gains/losses) is broadly in-line with our expectations for 12E. Management; thinks that margins would be near the lower end if Tupras cannot source from Iran in; 2H12. Capacity utilization rate budgeted was 85% but first two months run rate is; signaling that CUR may be lower in 12E, possibly around 80% levels. Recall that net; refining margin was USD5.4/bbl in FY11 (including an inventory gain of USD1.1/bbl); while CUR was 74.4% (79.9% including semi-finished product charge).