abc Turkey Q Earnings Preview Boost in industrials income; banks income contraction continues Global Research Equities Turkey 22 July 2014

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1 Global Research Q Earnings Preview Boost in industrials income; banks income contraction continues We expect non-financial companies under our coverage to post growth of 12% in revenues, 10% in EBITDA and 45% in profits y-o-y in Q2 We estimate 16% fall in bank earnings y-o-y and expect Q2 to be the last weak quarter before a much stronger H2 We expect strong Q2 profits from Akcansa, CCI, Kardemir, Sisecam, TAV, Torunlar and Tupras. From banks; on a y-o-y basis, we expect a net income improvement from Isbank and Albaraka Cenk Orcan* cenkorcan@hsbc.com.tr Bulent Yurdagul* bulentyurdagul@hsbc.com.tr Tamer Sengun* tamersengun@hsbc.com.tr Levent Bayar* leventbayar@hsbc.com.tr View HSBC Global Research at: *Employed by a non-us affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it Key trends in Q2 for non-financials: We estimate the nonbank segment to post y-o-y adjusted growth of 12% in revenues and 10% in EBITDA while we expect them to post a very strong 45% boost in net profits in Q due to lower financial expenses with TRY s strength. Top-line growth continues to benefit from TRY s y-o-y weakness and companies with revenues linked to FX should post strong growth and this factor also contributes to the EBITDA growth we project. In addition, we expect various consumer names, such as BIM and CCI, to post decent operational results owing to relatively more stable businesses. With the recovery in TRY against USD and EUR, we think Q2 has been a quarter with slight FX gains for most of the corporates with debt in FX. This has a materially positive impact on some companies such as Anadolu Efes, Migros, CCI, Aygaz, Turk Telekom and utilities. In the medium to large-cap universe, we expect Akcansa, CCI, Kardemir, Pegaus, Sisecam, TAV, Torunlar and Tupras to post strong profits y-o-y; however, we look for a weaker net profit performance from Bizim, Koza, Sabanci Holding, Sinpas and Teknosa. Key trends in Q2 on banks: We expect a 16% y-o-y contraction/2% q-o-q rise in earnings in aggregate terms. On operational items, we expect Q2 to be the last quarter before the much stronger H2. Among the large-cap banks, our earnings estimate for Vakif is 5% higher than consensus, whereas our estimates are lower for Albaraka (9% lower than consensus) and Bank Asya (we foresee a TRY25m loss versus consensus estimate of zero 0 net income). On a year-on-year comparison, we expect a net income improvement from Isbank (+2% y-o-y) and Albaraka Turk (+8% y-o-y).

2 2 Q2 preview (TRYm) Revenues EBITDA Net profit Company name Q2 2014e Q chg (%) Q chg (%) Q2 2014e Q chg (%) Q chg (%) Q2 2014e Q chg (%) Q chg (%) Comments Akcansa % % % 85 17% % 68-9% Profitability improvement in Q2 based on strong demand and prices Akenerji % 219-9% % 8 20% 15-7 n.m. -90 n.m. Weak EBITDA generation to continue in Q2 due to low hydro output and lack of EGEMER gas fired capacity Aksa Enerji % % % 73-18% n.m. -9 n.m. Slower y-o-y growth in profitability due to repairs in May and cooler than expected June, but EPS will be stronger TL Arcelik 3,017 2,665 13% 2,802 8% % 295 7% % % We are looking for similar Q2 profit as in 2013, while slightly better operating margins with EBITDA margin of 10.5% Aygaz 1,700 1,391 22% 1,777-4% % 62-9% % 84-5% Stronger profitability in Tupras and TRY strength to drive higher profits despite pressure on EBITDA Bagfas % % % 19-34% 7-2 n.m % Improving pricing outlook, stable currency and demand environment to support growth from the weak base of 2013 Bizim Toptan % % % 16-2% % 5 5% Credit card instalment restriction continued to weigh on performance in Q2 BIM 3,450 2,834 22% 3,395 2% % 160-3% % 108 0% Strong growth continues in Q2 despite some seasonal pressure on margins Coca-Cola Icecek 1,850 1,574 18% 1,148 61% % % % % Despite slowdown in international markets, strong growth continues. TRY strength also supports bottom line Cimsa % % % 59 43% % 36 55% Profitability improvement in Q2 based on strong demand and prices. Q2 EPS drop is because of one off gain in 2013 Dogus Otomotiv 1,771 1,614 10% 1,354 31% % 44 94% % % Strong relative sales performance in the market and TRY stabilisation to bring Q2 results closer to last year's solid numbers Dogan Holding 1, % % % % 1-12 n.m. -61 n.m. New wind projects to support revenue growth, offsetting the weak media business Dogan Yayin % % % % 0-2 n.m. -64 n.m. Operations to recover q-o-q owing to seasonal effects (Q2 being the best quarter). Financial expenses to weigh on the bottom-line Emlak Konut REIT % % % % % % Q2 numbers will be driven with Varyap Meridian, My Towerland, Evostar and Studyo 24 projects Enka Insaat 3,473 3,142 11% 3,265 6% % % % % Expecting slightly lower Q2 EBITDA due to high base from construction in 2013 but profit support from net financial income Erdemir 2,950 2,618 13% 2,935 1% % 630 3% % % Lower raw material costs and relatively better products prices support margins but TRY strength is putting pressure on profits Ford Otosan 3,424 2,912 18% 2,046 67% % % % % We expect Q2 results to show sequential improvement in margins vs Q1 as new models' contribution builds up Gubretas % % % 106 8% % 19 91% Improving pricing outlook, stable currency and demand environment to support growth from the weak base of 2013 Hurriyet % % % % % -25 n.m. We expect weaker EBITDA in Q2 compensated by FX gains Is REIT % 31 12% % 24 8% % 18 26% Q2 EPS will be supported with TL appreciation and deliveries in Cinarli Bahce Kardemir % 550-8% % 97 0% n.m % Lower raw material costs, relatively better products prices and TRY strength are positive for Kardemir Kiler % % % 5 375% 2-6 n.m. -19 n.m. We expect positive bottom line with TRY strength Source: Company data, HSBC estimates Equities

3 3 Q2 preview (TRYm) Revenues EBITDA Net profit Company name Q2 2014e Q chg (%) Q chg (%) Q2 2014e Q chg (%) Q chg (%) Q2 2014e Q chg (%) Q chg (%) Comments Koc Holding 17,210 15,939 8% 15,621 10% % 784-3% % 562-2% Lower banking profits we expect y-o-y to drag down Koc's consolidated profits, which tax reversals should support Koza Gold % % % % % % Lower gold price, lower volumes and higher costs to put pressure this quarter Migros 1,950 1,721 13% 1,773 10% % 102 3% n.m. -61 n.m. Strong demand and high margins also supported by fx gains this quarter Petkim 1, % 1,190-4% % 73-31% % 37-52% We expect Petkim's earnings to decline sequentially on account of weaker product spreads and stronger TRY Pegasus % % % -71 n.m % -103 n.m. We expect strong Q2 profit despite continued yield pressure, on the back of strong traffic and good cost control Sabanci Holding 6,390 6,036 6% 6,366 0% 1,331 1,614-18% 1,030 29% % % Overall numbers to be dragged down by banking despite good operating performance by non-finance segments in general Sisecam Holding 1,738 1,502 16% 1,638 6% % 347 9% % % Capacity additions in flat glass and positive FX impact on chemicals and glass packaging to drive Sise profits Sinpas REIC % 92 19% % 2 109% % 5 139% High operational expenses and lower number of deliveries will likely result in weaker numbers in Q2 Tat Gida % 219-3% % 11 26% % 3 37% Our estimate excludes possible one-off gains from sale of Maret TAV Airports % % % % % % Solid Q2 results on the back of margin expansion as operational leverage kicks in more visibly Turkcell 3,057 2,855 7% 2,855 7% % 881 7% % % We look for EBITDA margin improvement in both and Ukraine operations Turkish Airlines 5,859 4,646 26% 5,128 14% % % % -226 n.m. We expect return to positive profits in Q2 but continued pressure on revenue yield to keep the recover vs Q1 muted Tekfen Holding % 1,149-21% n.m % n.m % We expect flat Q2 revenues y-o-y but return to profit in both construction and fertilisers driven by better margins Teknosa % 682 7% % 12 13% % -4 n.m. Restrictions on credit card instalments hurt sales performance and puts a major pressure on profits due to rising costs Tofas 1,898 1,778 7% 1,676 13% % 235 5% % % FX driven export revenues, take or pay protected margins and tax incentives to continue to drive profits in Q2 Turcas na na nm na nm na na nm na n.m n.m. 21 n m. One off expenses related to sale of refinery stake will lead to losses this quarter Torunlar REIT % % % 52 0% 94-8 n.m % Q2 numbers will be boosted with deliveries in MoI project and FX gains from TL appreciation Turk Telekom(*) 3,300 3,343-1% 3,195 3% 1,253 1,252 0% 1,097 14% % % Turk Telekom posted Q2 numbers on July 21 Turk Traktor % % % 90 17% % 69 17% Solid unit sales and revenue performance but slightly softer operating margins as FX related cost push becomes visible Tupras 10,902 10,086 8% 9,276 18% % 313-9% % % Lower FX losses, higher USD/TRY rate, better capacity utilisation and inventory gains to support profits Ulker Biskuvi % % % 88-15% % 51 7% Falling chocolate demand and rising costs puts pressure on EBITDA but strong TRY supports net income Zorlu Enerji % % % 48 10% n.m. -87 n.m. Q2 sales will be supported with new capacity additions, EBITDA will improve with higher margin geopower and Pakistan windfarm s full output impact Total 89,347 80,818 11% 80,410 11% 10,896 10,194 7% 8,744 25% 6,383 4,413 45% 4,320 48% Total (adj.) 65,747 58,843 12% 58,422 13% 8,806 7,985 10% 6,930 27% 5,935 4,177 42% 4,398 35% Source: Company data, HSBC estimates (*) Turk Telekom posted actual results on July 21 Equities

4 4 Q2 preview Banks (TRYm) Net profit Company name Q2 2014e Q chg (%) Q chg (%) Comments Akbank % % We expect a NIM contraction of 11bp q-o-q, owing to higher deposit costs in April and May and (unlike peers) no positive impact on CPI-linkers on a q-o-q basis due to usage of expected inflation in CPI-linker yield calculation. Yet, on a y-o-y basis, the fall in Akbank s NIM will be lowest among peers at 21bp, on our estimates resulting in a 10% rise in NII y-o-y. On the trading front, we expect the swap costs to be high but partially offset by some securities trading gains. Our trading expense estimate is TRY50m in Q2 versus TRY234m in Q1. However, Q trading income was very strong at TRY363m, creating an unfavourable base for Akbank s revenues. Owing to the expected developments on the trading item, we foresee revenues going up by 8% q-o-q, but falling 10% y-o-y. We also expect Akbank s operating expenses performance (on y-o-y terms) to be much better than peers with just a 9% rise y-o-y. All in all, we expect to see sequential earnings growth (18% q-o-q) thanks to lower trading loss in Akbank, but a fall of 16% y- o-y due to the high base of last year. Albaraka Turk % 62-19% Albaraka Turk was slow in terms of lending growth in Q1 2014, but we expect the bank s lending volume to gain pace in Q2, owing to a higher liquidity in the quarter (with sukuk issuance of USD350m). We expect the NIM to be flattish and the NII at TRY152m, up by 4% y-o-y. We foresee a slight improvement in the fee income (up by 2% q-o-q and 3% q-o-q). Operating expenses growth will be strong in Q2 at 15% y-o-y and the provisioning expenses will be also higher y-o-y by 31%, mainly owing to a high NPL coverage ratio in the north of 90%. All in all, the bank will be posting net income growth of 8% y-o-y, yet due to a high base of trading income and lower provisioning expenses booked in Q1, we foresee the net income being down by 19% y-o-y. Bank Asya n.m. 41 n.m. Bank Asya s difficulties are likely to have persisted in Q2. Despite the A101 stake sale income of TRY250m, we expect Bank Asya to post a net loss of TRY25m in Q It is not only the balance sheet has been shrinking over the last two quarters putting sizeable pressure on core revenues (expecting NII at TRY171m Q2 2014vs TRY219m in Q1 2014), but also the bulky NPL inflows resulting in higher specific provisions (TRY350m for Q2 2014e vs. TRY141m booked in Q and TRY103m in Q2 2013) that will result in weak financial performance in Q All in all, we expect the bank to be posting a loss in Q2 vs. TRY41m net income booked in Q1 and TRY55m booked in Q Garanti Bankasi % 760 0% We expect a NIM expansion of 28bps q-o-q from Garanti Bank owing to higher yields on CPI-linkers and well-protected core spreads. We therefore foresee a 11% q-o-q rise in net interest income. However, that rise will be offset by trading losses expected in Q2 (TRY80m) owing to rising swap costs and almost no securities income gains. Revenues will be down by 3% both y-o-y and q-o-q due to trading losses mainly. We expect operating expenses growth to be faster than at Akbank (at 14% y-o-y). However, an improving trend in the cost of risk (14bp lower y-o-y) would support the bottom line. We expect earnings to be down 12% y-o-y. On q-o-q basis, we forecast reported earnings to be flat, yet we note that in Q there was a free-provision set aside amounting TRY100m, which creates a low base on a q-o-q basis. Halkbank % 530 8% As guided by management after Q1 results, we expect to see improvement in the fundamentals and the earnings performance of Halkbank on a sequential basis. On NIM, -owing to the positive impact of CPI linker yields, we foresee 11bps rise q-o-q, and on cost of risk we foresee a 12bps fall. In addition, we expect a positive trading income result (TRY25m in Q2 2014) versus a loss booked at TRY80m in Q1. Taking all of those into account, we forecast a 14% rise in the revenues q-o-q. The high base of dividend income booked in Q1 (TRY99m) vs. a smaller amount expected in Q2 (TRY16m), is the main reason of a relatively small expansion in the net income (+8% q-o-q). The y-o-y fall in the earnings is mainly due to a higher base of trading and dividend income booked in Q Is Bankasi % % Isbank s dividends will be decided on the announced results of the bank in Q2. We expect dividend income of TRY363m (c40% of our expected net income) to be booked by Isbank in Q2, which will help the bank to announce a stronger earnings performance both on q-o-q and y-o-y terms.. On core revenue and expense items: 1) we foresee a 14bps fall in NIM (owing to a flattish CPI-linker yields accounting methodology) and lower core spreads in Q2 versus Q1; 2) a trading loss of TRY20m versus gains of TRY142m in Q and TRY86m in Q1 2014; 3) flattish CoR at around 78bps; and 4) the strong rise of 26% in operating expenses q-o-q (owing to the collective-bargainingrelated wage increases and seasonality). All in all, supported by the dividend income performance and virtually lower Q1 net income, we expect both a y-o-y and q-o-q increase in Isbank s net income. Vakifbank % % Vakifbank s Q2 results will be shaped by: 1-a q-o-q rise in the NIM (+10bps), yet the sharpest fall in NIM on a y-o-y comparison (+141bps), 2- significantly (-20%) lower fee and commissions y-o-y, despite some improvement on q-o-q terms, 3- increase in the NPL recoveries on y-o-y terms, 4- a very high rise in operating expenses (+19% y-o-y), owing to a change in the accounting of personnel dividends, and 5- a significant improvement in the CoR (down by 88bps y-o-y). The sequential improvement in the operational revenues will be more than offset with a high base of dividend income booked in Q1 (TRY65m). Adjusted with the dividend income impact the bank will show a q-o-q improvement in the net income. Y-o-y fall in net income is mainly attributable to the sharp fall in NIM and fee and commissions income. Yapi Kredi % % Despite operational improvements, ie, stronger volume growth, margin expansion of 25bp q-o-q (and a relatively slower fall of 40bp y-o-y) and lower CoR (down c15bp y-o-y and q-o-q), compared to its peers, we expect stronger fall in earnings of Yapi Kredi Q2 both y-o-y and q-o-q. The main reasons of fall in y-o-y earnings are 1- trading loss expected at TRY180m in Q vs. gain of TRY138 in Q2 2013, 2-15% higher operating expenses y-o-y and 3- a higher general provisioning expenses y-o-y. On the other hand, the fall in q-o-q earnings is mainly attributable to 1- the seasonally higher operating expenses (+11% q-o-q) and 2- the dividend income booked in Q1 at TRY174m vs. no dividend income booked in Q2. Total 3,781 4,479-16% 3,720 2% Source: Company data, HSBC estimates Equities

5 HSBC coverage universe Ticker Company Closing price* TP Rating AEFES Anadolu Efes Neutral AKBNK Akbank Neutral (V) AKCNS Akcansa Neutral AKENR Akenerji Underweight AKSEN Aksa Enerji Overweight (V) AKGRT Aksigorta Neutral ALBRK Albaraka Turk Neutral (V) ANHYT Anadolu Hayat Overweight ANSGR Anadolu Sigorta Neutral ARCLK Arcelik Neutral (V) ASYAB Bank Asya Neutral (V) AYGAZ Aygaz Overweight BAGFS Bagfas Overweight BIZIM Bizim Toptan Overweight BIMAS BIM Overweight CCOLA Coca-Cola Icecek Overweight CIMSA Cimsa Overweight DOAS Dogus Otomotiv Overweight (V) DOHOL Dogan Holding Overweight DYHOL Dogan Yayin Holding Neutral EKGYO Emlak Konut REIT Neutral (V) ENKAI Enka Insaat Neutral EREGL Erdemir Overweight FROTO Ford Otosan Neutral (V) GARAN Garanti Bankasi Neutral (V) GUBRF Gubretas Neutral (V) HALKB Halkbank Overweight (V) HURGZ Hurriyet Neutral ISCTR IS Bankasi Neutral (V) ISGYO Is Reit Overweight (V) KRDMD Kardemir Overweight (V) KILER Kiler Neutral KCHOL Koc Holding Neutral KOZAL Koza Gold Overweight (V) MGROS Migros Overweight PETKM Petkim Neutral PGSUS Pegasus Neutral (V) SAHOL Sabanci Holding Overweight SISE Sisecam Holding Overweight SNGYO Sinpas REIC Neutral (V) TATGD Tat Konserve Neutral TAVHL TAV Neutral (V) TCELL Turkcell Overweight THYAO Turkish Airlines Overweight (V) TKFEN Tekfen Holding Neutral TKNSA Teknosa Overweight (V) TOASO Tofas Neutral (V) TRCAS Turcas Overweight TRGYO Torunlar REIT Overweight (V) TTKOM Turk Telekom Neutral TTRAK Turk Traktor Neutral (V) TUPRS Tupras Neutral ULKER Ulker Biskuvi Neutral VAKBN Vakifbank Neutral (V) YKBNK Yapi Kredi Bankasi Underweight (V) ZOREN Zorlu Enerji Neutral (V) Source: HSBC estimates, Thomson Reuters Datastream * Prices as at 18 July

6 Disclosure appendix Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Cenk Orcan, Bulent Yurdagul, Levent Bayar and Tamer Sengun Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past 6

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9 Turkish Research Team Cenk Orcan Co-Head of Equity Research Bulent Yurdagul Co-Head of Equity Research Levent Bayar Tamer Sengun Melis Metiner Economist