Aygaz Report

Record gross margin achieved in 4Q15

Aygaz beat both our expectations and the Research Turkey consensus on better than expected operating performance. Its gross margin grew1.9 ppt q-q, achieving a double-digit margin of 11.7% in 4Q15. This was also the highest gross margin on a quarterly basis since 4Q10. Part of the gross margin expansion is simply due to lower LPG/oil prices overall, but this is not the whole story considering the TRY187m gross profit obtained in 4Q15 vs the average of TRY135m per quarter achieved in between 2012 and 2014.

Diversified LPG sourcing and depressed ex-refinery prices

We believe Aygaz is taking advantage of its sizeable import fleet which would enable the company to purchase LPG from many more sources than its local competitors and the depressed ex-refinery LPG prices from low oil prices in achieving better gross margins.

Impressive operating expense decline supported higher EBITDA

Operating expenses which peaked in the last fourth quarters at Aygaz, have risen sharply by 40% q-q over the last five years, but declined 6% q-q and 17% y-y in 4Q15. Together with the strong gross margin, favourable operating expenses enabled an EBITDA of TRY105m vs our/Research Turkey consensus estimates of TRY46m/TRY59m, respectively.

Net profit strong on operating performance and Tupras

Net profit came out at TRY146m in 4Q15, again above our/Research Turkey consensus estimates of TRY77m/TRY96m, respectively. Net profit performance was strong also due to the TRY78m equity pickup from Tupras whose earnings rose nearly 300% y-y, partly on a low comparison base but also on significantly higher volumes enabled by a new unit and its prices being effectively linked to USD, which rose 28% y-y vs TRY. teb ytr