Buy - Sell

HALKB SPO will be placed @ 15.10TL/share – closer to the upper end of expectations and @ a 5% discount it’s closing price. Singapore’s GIC already snapped up 18m shares in name. Demand, according to market rumours, was very strong, and with books now closed we expect pressure on the index to abate. On the international side things are looking brighter too. Expectations that Congress may reach a budget agreement sooner than expected are growing, Greece’s aid payment looks likely to be stitched together this week, and chances of “unlimited” monetary easing by Japan’s central bank are now relatively high. All of which reduce the risk of an external shock to Turkey’s financing requirements, and continue to divert attention away from the fact that rebalancing is beginning to lose pace as domestic demand ramps up. Heads up for the CBRT’s MPC meeting tmrw where we expect a 50bps rate cut to both the upper and lower band – but the move is not guaranteed thanks to recent lira weakness. Support and resistance @ 71.4K and 71.5K, respectively.

 

SECTOR/COMPANY NEWS

 

HALKB (BUY; TP  TL18.72) > SPO price @ TL15.10/shr => 5% lower than the high-end of the TL13.80-15.90 range. All 299 million shares offered (including greenshoe) sold at pre-determined allocation of 80% international institutional (135 investors), 10% domestic institutional (268 investors), and 10% domestic retail (29,869 investors). Accordingly, Government of Singapore Investment Corporation bought 6% of total offering (only name buying more than 5% of shares offered). Trading to resume Nov 21 following completion of sale at wholesale market on Nov 20.

 

TKFEN (BUY; TP TL8.18) > Tekfen-TML Consortium reaches agreement with Libyan Authority on stalled Al Khufra project => Tekfen has agreed; i) On a payment plan for pending receivables, ii) To restart the project, and iii) An inspection on the site to assess the damages, co expects mobilization to start in six months (will receive ~USD20m pre-

mobilization, and the remaining amount before the project starts). Note: i) The agreement with the authority does not include compensation for damaged machinery = > will be carried out by the Libyan government according to the agreement between the Libyan and Turkish govs. We expect some lead-time for progress (estimated size $30m), ii) Recall that according to mgmt guidance => worst-case scenario indicated potential net loss of TL152m (6.6% of Mcap) from Libya (which we fully incorporate to our valuation), iii) TKFEN has written off TL20m related to its Libyan exposure in 4Q11, and iv) The remaining backlog on TKFEN’s book for Libya was $103m. We understand there will be some expansion in the backlog. Comment: We believe the agreement with the Libyan Man-Made River Authority is a major step towards the resolving of the issue, which created a major overhang on the share price

 

3Q12 EARNINGS REVIEWS

 

·         THYAO (BUY; TP TL5.67) > beat on operating perf => surprise came from higher-than-exp rev (TL4.48b, +21% y-y, BNPP/Cons: TL4.31b/TL4.38b) & lower-than-exp costs, leading to EBITDAR @ TL1.31b (+128%, BNPP/Cons: TL0.92b/TL0.90) => main profit drivers => strong traffic growth & further gains in load factor. Upg to BUY from HOLD => we raise our earnings forecasts by avg 65% over 2012-14. Rev surprise => better-than-exp passenger rev yields +12% y-y in 3Q12 to EUR0.083 per RPK following 4% y-y growth in 2Q12 & 7% contraction in 1Q12. Nonfuel unit cash cost declined 6% y-y to TL0.069 per ASK after only 1% y-y growth in 1H12. Despite 9% ytd expansion in seat capacity, net debt fell 10% ytd to TL5.6b, both on strong profits & appreciation of TL against USD. Our new 2012 f/casts indicate 4.7ppt y-y EBITDAR mrg expansion to 17.8%, leading to 74% y-y EBITDAR growth & 7ppt incr in net mrg to 7.4% => 46% EBITDA CAGR over 2011-14 & rev CAGR of 26%. THY trades @ 60% discount to peers’ 2013 P/E & c.15% discount on 2013 EV/EBITDA both based on Bloomberg cons est => imply 30% discount to our fair value est => we think too high given recovery momentum @ THY & its weight in EU aviation (no longer a marginal player).

 

·         KRDMD (BUY; TP TL1.55) > broadly in line => NI @ TL47m (-43% y-y,) vs BNPP/Cons: TL49m/TL53m.  EBITDA @ TL84m (-19% y-y) vs BNPP/Cons: TL83m/TL89m). Revenues @ TL429m (-3% y-y) vs BNPP/Cons: TL466m/TL426m). NET/NET: Maintain BUY => We raise our 2012 NI est by 42% to TL0.25/shr in order to account for the 9M12 YTD earnings realisation. We adj our f/casts for the later years per our new steel and raw material price est as discussed in our Erdemir update report of Oct 19, 2012 Our D-class share valuation is based on application of int’l peers’ 2013E and 2014E P/E and EV/EBITDA multiples after 20% and 40% discounts, resp’ly, while taking into account board privileges assigned to other share classes. The biggest risks to our f/casts are execution risks attached to capacity expansion plans and steel prices.

·         AKENR (HOLD; TP TL2.10) > in line => NI @ TL18m vs our & cons est @ TL20m. EBITDA @ TL35m sl. better than our & cons est @ TL30m => contribution of hydro plants. We exp profitability to come under pressure in 4Q12 & 1Q13 as natural gas prices were incr’d by a much higher rate than electricity prices in Oct.

 

·         AKSEN (HOLD; TP TL4.10) > worse => NI @ TL40mn vs our & cons est @ TL49m => weaker than exp operational perf on lower electricity prices in 3Q12. EBITDA @ TL91m below cons & our est @ TL97m & TL105m. We exp profitability to come under pressure in 4Q12 => had to cease high mrg electricity sales to Syria for more than 1-month in 4Q12 & also higher natural gas prices as of Oct. 

 

·         GUBRF (BUY; TP TL18.5) > better => NI @ TL70m vs our & cons est @ TL15m on strong oper perf of Iran. EBITDA @TL160m above our cons est @ TL55m. Iran operations => rev above our est & costs remarkably lower than our est. We believe Iran operations had some accounting convention differences, which led to an understatement of NI in 2Q12 & accordingly, an overstatement of NI in 3Q12 => we exp recovery in oper perf to continue into 4Q12. Local operations posted TL5.4m operating loss (TL3m loss in 2Q) due to high-cost inventory.

 

·         SISE (NR) > NI @ TL71m (-61% y-y) vs cons est of TL114m. Operating perf was weaker than exp’d w TL237m EBITDA (-32% y-y) and TL1.33b sales (+3% y-y) vs cons exp of TL299m and TL1.41b resp’ly.

 

·         TRKCM (NR) > NI @ TL11m (-85% y-y) vs cons est of TL31m. Operating perf was weaker than exp’d w TL42m EBITDA (-56% y-y) and TL302m sales (-2% y-y) vs cons exp of TL71m and TL319m resp’ly.

 

·         ANACM (NR) > NI @ TL32m (-21% y-y); no cons estimates available. TL94m EBITDA (-56% y-y) and TL414m  sales (+16% y-y)