ALKIM KIMYA (Company Update - BUY (maintained), 66% upside)

· Leading Sodium Sulphate producer in the world... Alkim Kimya is a mining/chemicals company and is one of the leading Sodium Sulphate producers in the world (5th). Beside natural Sodium Sulphate, the company produces salt (raw and refined) and is in the paper production business with its 79.93% subsidiary Alkim Kagit (Alka) <ALKA TI> (fully consolidated). Alkim meets most of the domestic demand with around 85% market share and is the sole natural and high quality Sodium Sulphate producer in the region.

· … is up for sale now... On 17 October 2012, Alkim Kimya shareholders (Kora Family) mandated an investment bank for the possible sale of 67.28% total stake in the company. We believe Alkim to generate significant investor interest given its valuable assets and unique strategic position being a regional player. Sodium Sulphate demand is strong in Turkey and abroad. Alkim expects strong demand in coming years as a result of soaring detergent consumption. The company works with almost all detergent producers like Unilever, P&G etc, which have production facilities also in the neighboring countries.

· Margin recovery on the way starting from 2H12… Alkim had announced that in June and July 2011, there was heavy rain which had a negative impact on the natural Sodium Sulphate production in 4Q11 and partially in 1Q12 together with the start-up costs of Cayirhan mine. The company guides for a turnaround in 2H12 in profitability and targets 20% top line growth in 2012. For the long term, we estimate normalized EBITDA margin of 38% for the Chemicals/Mining segment (vs. 44% historic peaks) and 9% for the paper segment (vs. 15% historic peaks).

· BUY maintained with 66% upside potential… Alkim trades at 2013E P/E of 8.0x and EV/EBITDA of 5.3x. Other projects such as Leonite, Chromium Mining, and Magnesium Chloride will offer long term value. Overall, Alkim is a defensive play with its strong balance sheet and cash generation capability, but could also be considered as a growth play with its new Cayirhan mine.

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