Global Investment Holdings

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1 Equity / Small Cap. / Conglomerate Global Investment Holdings Initiating Coverage Garnering growth assets 28/3/214 OUTPERFORM Upside Potential 48% We initiate the coverage of GLYHO with an OUTPERFORM rating and a 12M TP of TL1.75, offering a whopping 48% upside potential. Inclusion of Sirnak TPP project into our valuation would increase this upside to 78%. The shares currently trade at a 56% discount to its NAV, the highest print among the holding companies under our coverage. Growth & profitability wrapped in one package in the port business. The most valuable asset of the Holding is the port business with majority shares in three commercial and cruise ports. Commercial operations enjoy a very sanguine period, capitalizing growth in the Turkish foreign trade as well as in the Chinese residential construction sector and increasing containerization trend. Container volume posted a 23% CAGR since 27. We expect it to grow at a CAGR of 11% until 216. Cruise operations, on the other hand, leverages on the tourism growth of Turkey, capturing 38% of the total Turkish cruise passenger traffic. The cruise operations has posted a CAGR of 6% in number of cruise passengers since 29. Overall port operations posted a 67% EBITDA margin in 213, which we project it to rise to 72% in medium term, while we forecast EBITDA to grow at a 12% CAGR until 216, reaching to US$71mn. New acquisitions of Creuers del Port de Barcelona and Port of Bar will, no doubt, further boost the growth. CNG business poses exponential growth potential. Besides pursuing growth in the bulk compressed natural gas area, Naturelgaz, 8% owned by the Holding, plans to further expand into the transportation segment. The revenues have been growing at a CAGR of ca.4% since 27, while we believe the growth will accelerate on the back of increasing usage of CNG in the transportation market. Potentially, Naturelgaz is set to be a starperformer in growth for the portfolio and will be a litmus-test period for this, in our view. We conservatively forecast revenues and EBITDA to grow at a CAGR of 5% and 6%, respectively until 216. Sirnak TPP may bring more muscle with a 3% upside potential. The Holding is developing Sirnak TPP project. The project is estimated to cost US$35mn. In an effort to diversify away the execution and security risks as well as the financing needs, the Group signed a preliminary agreement to form a partnership with Akkok Group, in which the Holding will have 3% stake. We believe Akkok will be a strong partner with a know-how in the energy sector. The ongoing peace process may also ease the tension in the region, paving the way for the project. We value the project at US$185mn, though not included into our valuation as the financing is not closed yet. If included, it would have raised the upside potential of the stock to 78%. Intends to carry on with a steady dividend policy. The Holding has completed the share buyback after purchasing ca.2.8mn shares (9.24% of paid-in capital) at an average price of TL1.44 and provided its shareholders a dividend equivalent of TL3mn via share buyback. Moreover, it distributed TL13.4mn cash dividends in 213, corresponding to a dividend yield of 3.3% for the first time in its history. The Holding aims to continue to pay out dividends to its shareholders via share buyback and dividends in 214. Key risks: i) Deterioration in financing conditions may have an adverse impact on future growth plans, ii) Lower GDP growth in Turkey, lower construction sector growth in China and high dependency on a single product/market may dent ports volumes, iii) Resurfacing tension in eastern Turkey may cause a delay in the Sirnak TPP, iv) Possible divesture of treasury stocks, low liquidity and execution failures are other risk factors. Please refer to important disclaimer at the end of this report. 1 Ticker GLYHO Stock Data TL US$ Price at Target Price Prev.Target Price n.a. n.a. Mcap (mn) Float Mcap (mn) Avg.Daily Volume (3M, mn).4.2 No. of Shares Outstanding (mn) 24 Free Float (%) 44.7 Multiples 214E 215E 216E P/E n.a n.a 1.4 P/BV EV/EBITDA Price Perf. (%) 1 Mn 3 Mn 12 Mn TL US$ Relative to BIST Price / Relative Price GLYHO Close(LHS) Relative to BIST1 52 Week Range (Close TL) Foreign Share (%) Foreign Share (%) 3M Average Mustafa Kucukmeral

2 Investment Positives Our valuation for ports yields 8.8x 214E EV/ EBITDA, implying a 13% discount compared to its global peers. a budget of US$83mn combined EBITDA in 214 Market leader in cruise operations with 45% market share The most valuable asset is the port business. The main asset of the Global Investment Holdings (GIH) is its fully subsidiary Global Ports Holding (GPH), comprising 82% of the portfolio, solely focusing on port operations. GPH operates three ports under its umbrella; i) Port Akdeniz (99.8% stake) is a fast growing commercial and cruise port in Antalya on Turkey s Mediterranean coast, ii) Ege Ports (72.5% stake) is the largest cruise port in the region providing access to unique world heritage sites and, iii) Bodrum Cruise Port (6% stake) is a small size cruise operation. Our valuation for port business implies 8.8x/7.8x 214E/215E EV/EBITDA, indicating to average discounts of 13%/15% compared to global peers. The Holding recently added Port of Bar (62.1%) and Creuers del Port de Barcelona (21.5%) to its portfolio. The Holding budgeted a combined EBITDA of US$83mn for 214, including the contribution from Barcelona and Port of Bar. Therefore, based on the Company s 214 budget and a target EV/EBITDA multiple of 8.8x, we roughly estimate the total participated target equity value of Barcelona and Port of Bar as ca.us$5mn. Moreover, the Holding has plans to acquire the controlling stake at Port of Barcelona in 1H14 and has been selected as the preferred bidder for Lisbon Cruise Port. High growth & low competition & low Capex. GPH offers high growth potential, faces limited competition thanks to its unique locations and low Capex need with sufficient capacity going forward to sustain the growth. Commercial operations enjoy a strong growth in foreign trade of Turkey as well as in Chinese residential construction sector and increasing containerization trend in Turkey. The container handling volume in Turkish ports increased at a CAGR of 1%, while container handling volume in Port Akdeniz displayed a 23% CAGR since 27, outpacing the sharp containerization trend in Turkey, corresponding to 8xGDP growth and 2x of Chinese residential construction sector growth in the same period. We foresee the container volume to increase at ca.11% (1.5x of Chinese residential construction sector growth) until 216 on the back of Chinese marble demand as Chinese marble demand makes more than half of the total container volume. Note that Chinese residential construction sector is expected to grow at a CAGR of 7.2 until 216 according to Oxford Economics. Strong EBITDA margin. We forecast EBITDA to grow at a CAGR of 12% until 216 and EBITDA margin to hit 72% in medium term from 67% in 213. Our EBITDA expectation for 214 is US$56mn with a margin of 69%, excluding the new acquisitions. The management budged a US$83mn combined EBITDA in 214, including Barcelona and Port of Bar. Underpenetrated container market. The containerization rate of Turkey standing at 13 TEU/ thousand population is quite low compared to the global average of 19 TEU/per thousand population. Therefore, there is significant room for further growth in container handling volume in the sea transportation. Considering that the container business has higher margins than conventional cargo business, we believe the sharp containerization trend in Turkish foreign trade will further support Port Akdeniz s volume and profitability. Market leader in cruise operations. Cruise operations leverages on tourism growth in Turkey, capturing 38% of the Turkish cruise passengers traffic and 45% of calls. The cruise operations has recorded a CAGR of 6% in number of cruise passengers since 29. We expect the cruise passenger volume to grow at the same rate until 216. Recent port acquisitions offer significant potential. The Group aims to become an international port operator and expand its presence in the region via new acquisitions. GPH has recently acquired Port of Bar, Port of Barcelona and has been selected as first preferred bidder for Lisbon Cruise Port. The Group has been pre-qualified for the tender of Greek marina and tourist ports as well. We believe recent additions to the portfolio offer significant upside potential considering the excellent track record of "build and develop strategy" of the Holding. However, we attach no value for these assets as they are either in development stage and limited information available or the financing has not been completed yet. i) Port of Bar: GPH has completed the acquisition of unlisted 62.1% stake (the remaining shares are free float) at Port of Bar (Montenegro) to operate the port for a period of 3 years for a total consideration of 8.1mn. The Holding will invest 19mn in upcoming years. The Port has a current maximum capacity of 1mn TEU container and 6mn tons of general cargo; however, 2

3 Aims to acquire the controlling stake in Port of Barcelona in 1H14. The market attaches no value to CNG business in our view given that our target value only for port business is even higher than GLYHO s current Mcap CNG usage in transportation is expected to grow exponentially as it offers 35% savings over diesel due to the lack of proper highway, underutilization of the railway network and insufficient infrastructure, the port is currently not being used to its full potential. However, it represents important link in the chain of intermodal transport because of its integration with the Belgrade- Bar railway and road traffic network. GPH aims to direct the Serbian traffic back to the port to increase utilization and to reach US$4mn EBITDA in 214 on the back of operational improvements, traffic growth and most importantly ongoing redundancy program. ii) Port of Barcelona: Global Port Holding acquired 43% stake in a 5/5% JV with a leading cruise port operator Royal Caribbean Cruises in Creuers del Port de Barcelona, which operates the Barcelona Cruise Port (21.5% owned by GPH) and owns the majority share of Malaga (17% owned by GPH) and minority share of Singapore (9% owned by GPH) Cruise Ports. The Holding aims to acquire a controlling stake in the port in 1H14. Barcelona Port is one of the largest cruise port in Europe with 1.9mn passengers in 213. The concessions for Barcelona, Malaga and Singapore last until 23, 238 and 222, respectively. iii) Lisbon Cruise Terminal: Global Ports Holding has been selected as first preferred bidder, as part of a consortium comprising of Royal Caribbean Cruises (2%), Creuers del Port de Barcelona (1%) and Grupo Sousa - Investimentos SGPS (3%) for the Built Operate Transfer (BOT) contract of the Lisbon Cruise Terminal. GPH will be holding 42.15% stake, 4% of which is direct stake. The 35-year contract will include the construction and the operation of the terminal, on a public-service concession basis. With this new terminal, the Port Authority of Lisbon aims to double the current traffic of 55k passengers in the medium term. The new terminal is expected to provide the port with an estimated 1.8mn passengers. The construction of the new Lisbon Cruise Terminal, estimated to cost ca. 24mn, will start in early 214 and expected to be completed by the end of 215. iv) Greek marina privatization is also on radar screen: GPH has been pre-qualified by the Hellenic Republic Assets Development Funds (HRADF) for the tender of Greek marina and tourist ports group consisting of Alimos, Nea Epidaurus, Hydra and Poros covering the management, operation and exploitation of the related assets for a period of 4 years. CNG business offers significant growth potential, will be test years for the growth. Naturelgaz serves a wide array of customers ranging from big industrial enterprises to SMEs. Besides pursuing growth in its core business of sales & distribution of bulk compressed natural gas, the Company plans to further expand its existing core business into the transportation area by supplying required technology to convert public busses, garbage trucks and intercity heavy and mid-size commercial vehicles with diesel engines into CNG and to supply CNG, establishing a fueling station network that will cover central and western part of Turkey. We believe Naturelgaz bears the highest potential in the portfolio. The sales volume of the Company has been increasing at a CAGR of 27% since 27, while the revenues grew at a CAGR of ca.4% in the same period. We believe the revenues will accelerate on the back of increasing usage of CNG in transportation market. We conservatively forecast revenues and EBITDA to grow at a CAGR of ca.5% and ca.6%, respectively until 216. Turkey CNG market has displayed strong growth. Turkey s CNG consumption is increasing at a CAGR of 18% since 27 and we expect it to grow at accelerated pace on the back of increasing usage in transportation. Naturelgaz will be one of the main beneficiaries of the growth as it is well positioned in the market with 7% market share in bulk segment and 5% overall market share. Expansion to transportation area may boost growth. The Company currently has 19 stations across Turkey and carries out its investments at full speed in order to extend the reach of CNG and as such aims to have 22 more stations throughout the country by YE215, which may boost the usage of CNG in transportation as an extensive station network is crucial to enhance the market. The size of the market is estimated at 1.3mn vehicle; 4k busses, 4k garbage trucks, and the remaining is heavy-mid size commercial vehicles. The management aims to reach a 14.4k car park in 22 with annual 45k m3 per vehicle consumption in average. 35% price advantages over diesel gives a strong edge. CNG offers 35% and 45% fuel savings over diesel and LPG, respectively, which will support the usage of CNG in transportation sector. We believe the market is very price sensitive as evident from the current high penetration of LPG, which has a similar price advantage over Gasoline. 3

4 Turkish LPG market has reached 3.7mn tons of consumption and ranked 2nd in Europe after Russia in terms of total consumption with a total turnover of US$5bn. Auto gas segment comprises 71% of LPG consumption. Currently, LPG vehicles comprise around 4% of the passenger car park. We expect the penetration level of CNG vehicles in heavy and mid-size commercial vehicle segment and public transportation to exponentially increase on the back of significant fuel savings advantage and widening station network. We believe Naturelgaz s growth targets will be tested in period as the Company will be completing the major portion of its investments to expand the station network during the period. CNG consumption in public transportation is rapidly increasing. Turkish Metropolitan Municipalities like Istanbul, Ankara, Kocaeli, Kayseri and Bolu have purchased over 1 CNG buses and garbage trucks in the last few years and other municipalities are expected. The Ankara Municipality has not purchased any bus except original equipment manufacturer (OEM) CNG busses since 27 and currently over 6% of its bus park consist of OEM busses. Furthermore, Istanbul, Gaziantep and some other municipalities open tender for the conversation of diesel public transportation vehicles. We believe the imports of new busses and conversation of the existing buses to CNG will continue in the near future and Naturelgaz will be a main beneficiary thanks to its strong position in the market. Sirnak TPP may bring additional 3% upside potential Akkok Group will be a strong partner with a know-how in energy sector The Company won new contracts and others are on the way. The Company has recently signed new contracts in auto segment, including conversion of Istanbul Anatolian side s garbage trucks, Afyon s in city transportation vehicles and Reysas Group s trucks, one of the largest logistic company in Turkey. The Company won Bolu and Kayseri Municipalities tender as well. The Bolu tender includes the installation and operation of CNG refueling station for 15 years with BOT method and the Kayseri Municipality s tender includes a three-year rental contract to operate a natural gas station in Kayseri. The stations will serve to all public vehicles as well as private vehicles. Naturelgaz aims to participate all municipality CNG station tenders in upcoming years. In the bulk segment the Company captures the two largest LNG (a close substitute) users recently, Caykur and Saray with a total of 38mn m3, and others on the way. Sirnak TPP project to provide higher footing in energy. The Holding is developing Sirnak thermal power plant project owned by Galata Energy, a 85% subsidiary of the Holding. The Group holds a 49-year power generation license for the asphaltite-fired thermal power plant with an initial installed capacity of 27MW. The plant will be located in Sirnak, in eastern Turkey near to a coal mine owned by Gelis Mining, 85% subsidiary of the Group, which will source the needed coal to the plant. The Holding has already agreed with China National Electric Engineering Co. (CNEEC) for the construction of the plant. The project is estimated to cost US$35mn, requiring ca.us$95mn equity assuming a 65%/35% debt to equity ratio and US$3mn supplier credit. We expect the plant to be fully operational in 218. Since the financing of the project is not closed yet, we do not include the plant into our valuation. However, we run a DCF analysis to unveil the value of the project and derived US$185mn value, which would raise our TP to TL2.1, offering 78% upside potential at current price. Obtained incentives for the plant. Galata Energy s application to the Ministry of Economy with the purpose of obtaining a Regional Investment Incentive Certificate for the Sirnak power plant has been approved and Galata Energy was granted the Investment Incentive Certificate back in Dec 213. Sirnak thermal power plant project falls within the scope of State Incentive Practices given its location in the 6th region and the use of locally-procured raw material. As such, the Group will benefit from exemptions in custom duty and VAT, tax reductions (of 9% in corporate and income tax) and support in interest, insurance premium and withholding taxes. We calculate the NPV of the incentives to be around US$45mn. Yet, we have some concerns regarding the project. Possible resurfacing of the tension in the eastern Turkey is the major risk for the project due to security concerns. Therefore, the Company is required to have a higher equity/debt ratio and to give higher collateral to financial institutions, necessitating a partner for the project. Akkok Group will be a strong partner ensuring the completion of the project. Due to the execution risks and security concerns in the eastern Turkey and the financing need, the Group has signed a preliminary agreement to form a partnership with a prominent Akkok Group. Following the final agreement, the Holding will have 3% stake in the project. 4

5 We believe Akkok Group will be a strong partner with a know-how in energy sector and will ensure the completion of the project. May benefit from ongoing peace process. The completion of the peace process may significantly improve the investment climate in the region. Mining investment is not in the price. Straton Maden, in which Global Energy, a fully owned subsidiary of Global Investment Holdings, holds 75% stake, acquired feldspar and logistical mining operations including substantial feldspar reserves (25k tons of annual production) in Mugla - Yatagan (Aegean region of Turkey) for a total consideration of TL11mn. The transaction is completed in June 213 and price will be recalculated based on the 3. times of next 12-month- EBITDA of the Company. Turkey is the global leader in feldspar mining with 5mn tons of production per annum, accounting for 24% of the world s production. Straton Maden is among the top five feldspar producers in Turkey with 25k tons (5% market share) of feldspar production per annum 8% of which is exported. In 212, Turkey s feldspar exports of 3.9mn tons generated US$135mn revenues, amounting to 3.2% of Turkey s mine exports. Have excellent track record in built-develop-exit strategy Aims to continue to pay dividends via share buyback and dividends in 214. Winning the court case translates into 18% increase in our TP The Group targets to multiply EBITDA by 3-4 times following the completion of a new investment. The Company has secured 6mn loan to undertake a new investment to be able to increase the clarity of feldspar. Following the completion of the investment, the Company targets to multiply the EBITDA by around 3-4 times to TL1-12.5mn in 214. If the Holding achieves its target, it will create additional value, which is not included in our valuation. Acts like a private equity with a reputable track record in build-develop-exit strategy. The Group presents its difference from other listed holdings in Turkey as the Group is more flexible to enter and exit sectors as opportunities arise or the market conditions change. Thus, the Holding s business investment strategy functions similarly to a private equity firm with a build-develop-exit strategy. The Holding has limited but reputable track record. The Holding sold its stake in Energy Investment Holding back in July 212 for US$75mn with an IRR of 29% and sold sold Yesil Energy (five HEPP projects with a total 56MW capacity) for US$116mn to Statkraft of Norway with an IRR of 148% in 29. Share buyback program. Global Investment Holdings has recently completed the share repurchase program, unanimously resolving the repurchase of 2.8mn shares, corresponding to 9.24% of GIH s paid-in capital for a total amount of TL3mn, corresponding to an average TL1.44 per share price, which is clearly higher than current price levels, which we believe a good signal for the market that the share price is undervalued by the market. Intends to carry on with a steady dividend policy. The Holding distributed TL13.4mn gross cash dividends in 213, corresponding to a dividend yield of 3.3%, for the first time in its history. The Holding aims to continue to pay dividends via share buyback and dividends in 214. The major source of dividend income is Global Ports Holding. Global Ports Holding distributed TL54.4mn gross dividends in 213, TL24mn of which from Port Akdeniz, while the remaining ca.tl19.8m from Ege Ports. Given the strong profitability of Global Ports Holding we believe the dividend stream to Global Investment Holdings will continue in accelerated pace, which may be directed to investors as dividends or used for the new investments. The solution of the legal case regarding the letter of guarantee related to Baskent Natural Gas in Group s favor is an upside risk. The letter of guarantee given to Ankara Municipality (related to Baskent Natural Gas Distribution tender) worth US$5mn has already been paid in full by the Holding. Yet, the legal dispute is still ongoing. Mind that a JV, in which GLYHO has 52% share, had placed the winning bid for Baskent Natural Gas Distribution A.S. privatization for US$1.61bn back in 28, yet, couldn t finalise the deal. The Holding is expecting the suit to be resulted in its favor. We did not attached any value to our valuation regarding the possible positive outcome and cash inflow. The Group will receive US$5mn, if it wins the case, which will increase our target price to TL2.7 per share by 18%. Moreover, the Management stated that although they paid the full amount, they will be receiving US$24mn from the consortium partners even if they loose the case as their share in the consortium was 52%. In such case our TP increases to TL1.91 per share by 9%. 5

6 Investment Risks Antalya port revenues and profitability are highly sensitive to the fluctuations in GDP growth. Container and bulk cargo handling volumes are highly sensitive to the foreign trade volumes. Thus, a sharp contraction in the GDP growth and in foreign trade volumes would hurt Antalya Port s revenues and margins. Limited product range, which is also solely carried out to a single country is a major risk factor in revenue growth of commercial port activities. Dependency on a single country and a single product group are major risks The Holding s container handling business is hugely dependent on Chinese marble demand. The total marble handling volume dominates the total container volume with a 75% share. Moreover, the marble is carried out mainly to China, consisting of 72% of total trade volume. Thus, the slowdown in Chinese economy may seriously affect the marble export which might lead to a significant reduction in container revenues, which captures 63% share in total Port Akdeniz s revenues. However, it should be noted that, al least in the medium term no major risk seen related to marble export to China. The management expect the marble export to China to grow at 1-16% in period, higher than the growth of Chinese construction sector. Indeed, the container volume in the port has been growing at 2x of Chinese residential construction sector growth since 27 and the latter is expected to grow at a CAGR of 7.2 until 216 according to Oxford Economics. Dominating 67% of total conventional cargo, cement and clinker product group is crucial in future revenue growth of conventional cargo segment. That is the main reason behind the decrease in the volume of bulk and general cargo segments in last three years since cement exports to Middle East is down significantly due to the political unrest. It should be noted that the new acquisitions of Barcelona and Port of Bar will help the Holding to further diversify the port operations, reducing the single market/single product risks. Moreover, the management aims to steal shares from Istanbul and Izmir s import handling volumes, which may increase the diversity and boost the growth in medium term, in our view. The reversal risk of Ege Ports privatization seems to be eliminated. The government s decision against the court verdict for the cancellation of the tender of Ege Ports seems to eliminate the reversal risk of the privatization. The limited ownership of the controlling shareholder raises some concerns. The controlling shareholder and the CEO of the Holding, Mehmet Kutman, has only 25.8% direct stake. Holding itself and the Group companies, mainly fully owned subsidiary GES Energy, hold 29.3%. Accordingly, Mehmet Kutman s share reaches to 33.4%, including indirect stakes. Note that the Holding decided to cancel the 2.8mn (9.24% of paid in capital) shares, which has been purchased by the Holding itself via share buyback. We believe the move is positive as it will increase the ownership of the controlling shareholder Mehmet Kutman to some extent. A greater ownership would boost investor confidence helping the stock to trade at higher levels, in our view. Treasury stocks pose an overhang risk. Possible divesture of treasury shares (29.3%) pose an overhang risk despite the management considers to use these shares as collateral to raise fund for upcoming projects or to sale the shares via a private placement. Yet, the shares may come to the market eventually posing an overhang risk. We believe the management s decision to cancel the 9.24% of the treasury stock partially ease the overhang risk. Debt to EBITDA ratio increased to 12.5x even before the new port acquisitions High indebtness. High FX-denominated debt appears to be a major drawback. The Holding has TL758mn net debt (excluding treasury stock at hand worth TL77mn). The financial leverage of the Holding increased to 118%, while the net debt to EBITDA ratio increased to 12.5x as of 213. The investments in recent acquisitions in port business and investments in energy segment will further increase the leverage of the Holding. Besides, the fully subsidiary Global Ports Holding has decided to issue a Eurobond worth at US$3mn via private placement in upcoming periods to mostly refinance existing debt. The Holding carries a US$228mn short FX position as of 213, being prone to weakness in TL. However, the Company s revenues from the port business are in hard currencies. Therefore, this provides a natural hedging mechanism for the Holding. 6

7 Valuation Summary We use sum of the parts approach to value Global Investment Holdings. Accordingly, we employ discounted cash flow analysis for each port under the umbrella of the port division to estimate a fair value for Global Ports Holding and include GPH s solo debt position. We use DCF analysis to value Naturelgaz under energy division and use a 214E EV/EBITDA multiple of 5x for Straton Maden. We utilize hurdle rate valuation (Mcap x (1+CoE)) for listed Pera REIT (PEGYO) and Global Securities (GLBMD). Accordingly, we reach a target value of US$345mn for Global Ports Holding (82% of total participated value) and US$6mn for Global Energy (14% of participated value). In line with their Mcap, the real estate division is valued at US$17mn and finance division at US$1mn. The new acquisitions; Port of Bar is included with the transaction value, while Creuers del Port de Barcelona is not included in our valuation since the details is not available yet. Lastly, Sirnak TPP project is also not included in our valuation as the financing has not been closed yet. We attach a 4% discretionary conglomerate discount in arriving to our target value. The discounts we apply range from 1% to 3% to holding companies in our coverage universe. The main reasons for relatively higher discount applied to Global Investment Holdings are; ownership structure of the Group, treasury stocks in hand, lack of dividend income from some subsidiaries, asset composition (diversification, dependency on a single asset/sector/ country/product group), limited financial transparency, low liquidity of the stock and Holding s active portfolio management, which is especially unattractive for long-term investors. We believe over the long term the market also appears to reward 'earnings certainty' and penalize those stocks that carry a large degree of earnings risk. Since GLYHO s earnings shows large fluctuations due to the its active portfolio management, the market attaches it a higher discount, in our view. We believe the major events that may decrease the level of discretionary discount attached to the Holding are; i) any corporate action, which may crystalize the value of its assets, ii) the cancelation of treasury stocks at hand, which eventually will increase the shareholding of Mehmet Kutman and release the overhang risk, iii) addition of Sirnak plant and full integration of recent port acquisitions, which will increase the diversification. Figure 1: Global Investment Holdings SOTP (US$ mn) Business GLYHO's Current Current GLYHO's Weight Target Segment/Company Ticker Stake Valuation Method Value Stake in Part. Valuation Method GLYHO's Stake Global Ports Holding 99.9% Sum of the parts % Sum of the parts % Antalya Port 99.8% DCF % DCF % Ege Ports 72.5% DCF % DCF % Bodrum Cruise Port 6.% DCF % DCF % Solo Net Cash (Debt) of GPH ** NPV of GPH's Solo Opex Creuers del Port de Barcelona * 21.5%.%.% Port of Bar 62.1% Transaction Value % Transaction Value % Global Energy 1.% Sum of the parts % Sum of the parts % Naturelgaz 8.% Transaction Value % DCF % Straton Maden 75.% Equity Value % 5 x 214E EV/EBITDA % Sirnak TPP * 3.% DCF 185.% DCF 185.% Others % % Pera REIT PEGYO 49.9% Current Mcap % Current Mcap * (1+CoE) % Global Securities GLBMD 67.3% Current Mcap % Current Mcap * (1+CoE) % Target Value Weight in Part. Total Value from Participations 396 1% Total Value from Participations 42 1% Listed Participations 13 3% Listed Participations 15 4% Unlisted Participations % Unlisted Participations 45 96% Holding Only Net Cash (Debt) ** % Holding Only Net Cash (Debt) ** % Current NAV 251 Target NAV 275 Prem / (Disc) to Current NAV -52.3% Prem / (Disc) to Target NAV -56.4% Historical Average Discount n.a. Historical Average Discount n.a. Current Mcap 12 Target Mcap*** 164 * Sirnak TPP and Barcelona Cruise Port are not included in our valuation Target Share Price (US$).8 ** Net cash (debt) is as of YE213, and the net debt of GPH is adjusted with payments for new port acquisitions Target Share Price (TRY) 1.75 *** after applying 4% conglomerate discount Upside Potential 48% Source: Company, Is Investment 7

8 The Holding currently trades at a 56% discount to its NAV. It should be noted that the inclusion of Sirnak TPP and recent port acquisitions into our valuation would have further increased the discount attached to the Holding. The reasons behind the higher discretionary holding discount attached to the Holding are; i) limited ownership and the privilege to nominate board of directors of the controlling shareholder. The limited shareholding ratio and the privilege to nominate board of directors of the controlling shareholder, Mehmet Kutman, raises some concerns. We believe this is one of the reasons that the stock is trading at a high discount. Mehmet Kutman, holds only 33.4% of total shares, 25.8% of which is direct stake. Note that the Holding decided to cancel the 2.8mn (9.24% of paid in capital) shares, which has been purchased by the Holding itself via share buyback. We believe the move is positive as it will increase the ownership of the controlling shareholder Mehmet Kutman to some extent. A greater ownership would boost investor s confidence helping the stock to trade at higher levels, in our view. ii) treasury stocks pose an overhang risk. Global Investment Holdings subsidiaries, mainly its fully subsidiary GES Energy, hold 29.3% stake of the Global Investment Holding including the 9.24% shares that the Holding itself holds. Possible divesture of these shares pose an overhang risk, requiring higher discretionary Holding discount. However, the management s decision to cancel the 9.24% stake and plans to use the remaining shares as collateral to raise fund for new investments or to sale via a private placement may partially ease the overhang risk. iii) limited portfolio diversification with a high dependency on a single asset/sector. The port business makes up 82% of the portfolio, causing a high dependency on a single asset risk for the Conglomerate. However, we believe growing operations of Naturelgaz and addition of Sirnak power plant and new port acquisitions (in the sense of regional diversity) will further diversify the portfolio going forward, which may decrease the level of discount attached to the Holding by the market in the medium term. iv) liquidity discount. The average 3-month daily trading volume stands at US$.4mn is very low compared to BIST listed Holdings average of US$9mn, necessitating a liquidity discount. v) low dividend income from subsidiaries. The Holding only receives dividend from port business and does not receive dividends from other businesses. Moreover, we believe the dividend income from port business will be lower in 214 compared to last year s TL54mn due to the its financing need as a result of recent acquisitions. vi) financial transparency. There is limited information available on the unlisted subsidiaries, which creates some transparency discounts on NAV. The listed subsidiaries accounts for a mere 4% share in the NAV of the Holding. vii) its active portfolio management requires a relatively higher discount as long term investors may avoid such stocks since they could not foresee how the NAV would look like in the foreseeable future. Note that active portfolio management companies and private equity companies trade at a much higher discounts. viii) fluctuations in earnings. We believe over the long term the market also appears to reward 'earnings visibility' and penalize companies have a large degree of earnings volatility. As a result of active portfolio management; incurring profit/losses from asset sales, as well as other nonrecurring gains/losses such as project development expenses or high FX gains/losses due to large FX position, Global s earnings are subject to significant fluctuations. 8

9 Valuation of Global Ports Holding (82% of participated value) We employ a discounted cash flow analysis for each port under the umbrella of the port division based on the concession period of each port to estimate a fair value for Global Ports Holding (GPH). Accordingly, we derive a value of US$345mn for GPH. Our valuation offers an EV/EBITDA of 8.8x/7.8x for 214E/215E, implying discounts of 13% and 15%, respectively, compared to median multiples of its peers. We deem DCF to be a more appropriate tool in valuing each asset as opposed to a multiple based approach due to; i) Different concession periods of ports. Except the Bodrum Cruise Port, for which the operating rights will terminate at the end of 219, Port Akdeniz and Ege Port both have relatively long concession periods, which will end at the end of 228 and 233, respectively. Thus, a DCF over the concession period would better reflect ports values. ii) Cruise and commercial operations have different risk and growth dynamics. Since commercial and cruise operations have different growth & risk dynamics, a peer multiple analysis may not be appropriate as most peer companies have different commercial & cruise revenue mix. 1) Port Akdeniz (9% of participated value) Key valuation assumptions are as follows: Demand & Throughput: Demand growth is the main driver behind the revenue potential of Port Akdeniz, which is closely related to the GDP growth, population growth and the increase in foreign trade activities. The level of activity and the structure of national economies, as well as their trade patterns influence the national and global transportation systems. We forecast that the demand will increase at 11% (1.5x of expected Chinese residential sector growth) until 216 on the back of strong marble demand of China. Note that the Ports container volume has been growing at 2x of Chinese residential construction sector growth since 27 and the latter is expected to grow at a CAGR of 7.2 until 216 according to Oxford Economics. For period, we foresee the volume to increase at 2x of the expected GDP growth in Turkey (corresponding to a CAGR of 8%), which is a conservative assumption compared to the historical average demand growth of 8x of the GDP since 27. Please note that Port Akdeniz has certain capacity constraints and according to the feasibility studies, the Ports container capacity could be extended maximum up to gross 5K TEUs. We assumed Port Akdeniz s capacity would reach the maximum capacity by 221 and remain at this level thereafter. We expect conventional cargo volume to post a strong 14% CAGR until 216 due to low base year and expected recovery in Middle East, then to grow at a lower speed at 1x of the expected GDP growth. Figure 2: Port Akdeniz DCF Valuation (US$ mn) E 215E 216E 217E 218E 219E 22E 228E Revenues EBIT EBITDA EBITDA M argin 68.% 7.1% 7.4% 7.9% 71.3% 71.6% 72.1% 72.5% 72.9% 74.% NWC (-) Capex (-) Tax (-) FCF to the Firm EV 41 Net Debt (Cash) Target Equity Value EV/EBITDA 9.5x Source: Company, Is Investment Tariffs: All the tariffs of the port are announced and applied in US$ basis. The management introduced 5.5% tariff increase in average both in container and cargo tariffs in January 214. We do not implement any other adjustments in tariffs although the management stated that there is still room for an upward adjustment especially for export related container service tariffs. 9

10 Revenues: Parallel to the favorable demand conditions, we expect Port Akdeniz s container revenues to grow at a CAGR of 5.1% in US$ terms between period. While the growth will be relatively higher at ca.1% for period, it is expected to be flat for remaining part of the license period owing to the full capacity being reached in 221. We also assume general cargo&dry bulk cargo revenues to increase at a CAGR of ca.7% until the end of concession period. As a result, we forecast that Port Akdeniz s revenues will reach US$117mn by 228 up from US$56mn in 213, implying a CAGR of 5.1%. Operating Costs & EBITDA: Wages and salaries, fuel and electricity costs and third party contracts capture the majority stake in total operating costs of Port Akdeniz with 55% share as of 213. We forecast EBITDA to grow at a CAGR of 5.5% until the end of the license period, slightly higher than revenue growth since around 3% of the cost items like wages and salaries and half of third party contracts are fixed. EBITDA margin is set to touch 74% by 228 from 7% recorded in 213. Capex & Capacity: In line with the increasing demand, we assume Port Akdeniz s container handling volume will gradually increase to full capacity by 221, while the conventional cargo capacity of 5mn tons will be enough to meet the maximum demand for the concession period. Thanks to the favorable specifications of the port, the additions to the container handling capacity do not require a high amount of investment. Only a few number of cranes and stackers will be enough to carry the functional capacity to gross 5K TEU. We forecast US$2.6mn of average Capex per annum for period. Forecast period: Our forecast period is 15 years from 214 to 228, which is the end-date of the operating license for the port acquired from the Privatization Administration. WACC assumption: We use risk free rate at 6.5%, benchmarking to Turkish Treasury Eurobonds, equity risk premium as 5.5% and beta as.9x, slightly lower than market beta due to the defensive nature of the commercial port business, which is also in line with its global peers'. Our WACC calculation is ca.1.3% during the concession period. 2) Ege Ports (21% of participated value) Demand & Throughput: In our model, we assume the number of cruise calls to gradually increase to 67 as of 233 from 451 in 213, while the passenger number per each call reaches to 1,922 from 1,294 in 212 parallel to the expansion of the ship sizes. The new dock investment to be completed in 215, which will enable bigger sized ships to the dock, which is the major factor behind the growth in passenger numbers and revenues. The increase in the average tonnage of the ships will translate to an improvement in pilotage and towage revenues as well. Figure 3: Ege Ports DCF Valuation (US$ mn) E 215E 216E 217E 218E 219E 22E 233E Revenues EBIT EBITDA EBITDA M argin 77.1% 77.6% 78.5% 79.7% 79.6% 79.9% 8.2% 8.5% 8.% 81.7% NWC (-) Capex (-) Tax (-) FCF to the Firm EV 19 Net Debt (Cash) Target Equity Value EV/EBITDA 8.1x Source: Company, Is Investment Tariffs: All the tariffs of the port are announced and applied in US$ basis. Ege Ports is one of the most expensive cruise port in the region. Thus, we do not assume any upward adjustments in tariffs in order to be on the conservative side. 1

11 Revenues: We expect Ege Ports revenues to grow at a CAGR of 4.4% in US$ terms between period mainly fuelled by cruise revenues. Real drivers behind this growth could be listed as the increase in average GRT of cruise calls and increasing passenger numbers, which will be also positively affected from the new dock investment. Operating Costs & EBITDA: Wages and salaries, consultancy expenses, shopping mall expenses and commissions paid to the government capture the majority stake in total operating costs. We forecast EBITDA to grow at a CAGR of 4.6% until the end of the license period, carrying the EBITDA margin to 82% in long term from the 78% in 213 thanks to the operation leverage. Capex: Ege Ports completed a significant investment of US$13mn back in 25 including a new passenger terminal and a shopping complex. The most important investment plan is a new dock, with a total spending of US$13mn. We assume the Company to spend US$8mn in 214 and US$5mn 215 for the new dock. After 215, annual spending has been limited at US$.5mn until the end of the license period, which is mainly for maintenance. Forecast period: Our forecast period is 2 years from 214 to 233, which is the end-date of the operating license for the port acquired from the Privatization Administration. WACC assumption: We use risk free rate at 6.5%, benchmarking to Turkish Treasury Eurobonds, equity risk premium as 5.5% and beta as 1x. Our WACC calculation is 11.6% for the entire concession period. 3) Bodrum Cruise Port (1% of participated value) Demand & Throughput: We assume the number of cruise calls to gradually increase to 235 as of 219 from 136 in 213, while the passenger number per each call gradually increases to 413 from 212 in 213. Tariffs: All the tariffs of the port are announced and applied in US$ basis. We do not assume any upward adjustments in tariffs. Figure 4: Bodrum Cruise Port DCF Valuation (US$ mn) E 215E 216E 217E 218E 219E Revenues EBIT EBITDA EBITDA M argin 56.6% 53.9% 63.8% 66.4% 68.% 69.8% 71.1% 72.4% NWC (-) Capex (-) Tax (-) FCF to the Firm EV 9 Net Debt (Cash) Target Equity Value EV/EBITDA 4.8x Source: Company, Is Investment Revenues: We expect Bodrum Cruise Port s revenues to grow at a CAGR of 1% in US$ terms between period thanks to the rapid increase in the number of cruise calls. Operating Costs & EBITDA: Personnel, consultancy, security and insurance expenses have the majority share in total operating cost with 55% share as of 213. We forecast EBITDA to grow at a CAGR of 12% until the end of the license period, which is higher than the revenue growth due to the high share of fixed costs in operating costs of the port such as personnel expenses. Capex: Bodrum Cruise Port is one of the newest cruise terminals in Turkey and there is no substantial need for modernization and capacity expansion investment. We assume on average US$.1mn maintenance investment per annum until the end of 219. Forecast period: Our forecast period is 7 years from 213 to 219, which is the end-date of the operating license for the port. 11

12 Valuation of Naturelgaz (12% of participated value) Growth: We estimate that bulk CNG sales volume to grow at a CAGR of 12% in our 1-year forecast horizon, remaining lower than the last five year s CAGR of 22%. We anticipate the sales volume in transportation segment to grow at a CAGR of 45% until 223. Our growth estimate translates into an annual 45 NGV addition, reaching 4.7k car park in 223 and annual 35k m3 per vehicle consumption. Mind that the management expects to reach a 14.4k car park and over 45k m3 annual per vehicle consumption until 22. Price-cost spread: We assume that the price-cost spread will be around US$.22/cbm for bulk sales and US$.17/cbm for transportation sales. The management s long term forecast for the spread are around US$.29/cbm and US$.19/cbm for bulk and transportation segments, respectively, as they are more optimistic about the natural gas price and competition. Operating cost: We anticipate the current Opex/Sales figure of 32% to gradually decrease to 17% due to the economies of scale in medium term. Capex: We pencil in one station installment for each 45 NGV addition to the car park and needed trucks and tanks investments in upcoming periods. Accordingly, the investments require US$5mn Capex per year in average in our forecast horizon, except for period, in which we pencil in US$17mn Capex due to the planned station network establishment in line with the management s guidance. WACC: We use risk free rate at 6.5%, benchmarking to Turkish Treasury Eurobonds, equity risk premium as 6%. For beta calculation we use the unlevered beta of listed Clean Energy, which is a close peer, and calculated beta in a range of for Naturelgaz for our forecast horizon. Accordingly, our WACC calculation varies between 7.7% and 11.1% in US$ terms for the forecast horizon. Figure 5: Naturelgaz DCF Valuation (US$ mn) Source: Company, Is Investment Revenue EBIT EBITDA EBITDA Margin 1.1% 9.1% 9.3% 9.5% 9.8% 1.2% 1.5% 1.8% 11.% 11.2% NWC (-) Capex (-) Tax (-) FCF to the Firm WACC 7.7% 7.9% 8.3% 8.9% 9.5% 9.8% 1.2% 1.6% 1.9% 11.1% Discount Factor DCF Sum of DCF 19 Terminal Grow th 3.% Terminal value 66 EV 86 Net Debt (Cash) Target Equity Value 62 12

13 Sensitivity Analysis We ran different scenario analysis based on the key drivers. Our valuation is most sensitive to volume growth in transportation segment and price-cost spread. The volume growth depends on number of natural gas vehicle addition to the portfolio and annual per vehicle consumption. Therefore, we run different scenario analysis to see the impacts of these variables in our valuation for Naturelgaz. We pencil in 45 NGV addition per year to the car park with 35k/cbm per vehicle consumption assumption to derive US$62mn value for Naturelgaz in our base case scenario. Figure 6: NGV addition per year / Annual per vehicle consumption (m3) % 2, 3, 35, 4, 5, Source: Company, Is Investment Secondly, we run a sensitivity analysis to show the impact of number of NGV addition and pricecost spread in transportation market. We assume the price-cost spread to be US$.17/cbm for transportation sales vs. the management s forecast of US$19/cbm. For annual per vehicle consumption, we anticipate 35k/cbm while the management expects over 5k/cbm consumption in medium term. Figure 7: Annual per vehicle consumption (m3) / Price-cost spread (US$/m3) % , , , , , Source: Company, Is Investment Our last analysis is to show the sensitivity of our model for NGV addition per annum and price-cost spread in transportation segment. Figure 8: NGV addition per year / Price-cost spread (US$/m3) % Source: Company, Is Investment Valuation of Sirnak TPP (not included into our valuation) Financing is expected to be completed in 2H14. The Group holds a 49-year power generation license for the asphaltite-fired thermal power plant with an initial installed capacity of 27MW. The construction is planned to start in 214 and to be completed in 3 years. We expect the plant to be fully operational in 218. The total investment is around US$35mn. The project is estimated to be financed via 65/35% debt to equity combination, therefore given its expected 3% share in the project, and US$3mn supplier credit, Global Investment Holdings needs to raise ca.us$3mn as equity. The plant will be using the coal, which is sourced by another subsidiary of the Holding, Gelis Mining. The current extraction cost of the asphaltite is around US$ The Group will also benefit from exemptions in custom duty and VAT, tax reductions (of 9% in corporate and income tax) and support in interest, insurance premium and withholding taxes. We conservatively calculate the NPV of the incentives at US$45mn. 13

14 Figure 9: KPIs for Sirnak TPP Project Sirnak TPP may create additional upside potential of 3%. The project is not included in our valuation due the lack of financing. Yet, we run a DCF analysis and value the project at US$185mn, in which Global is expected to have 3% stake. We conservatively calculate 12% IRR and our target value for the project corresponds to 5.3x 218E EV/EBITDA multiple. If we had included the project into our valuation our TP would have been TL2.1 per share, offering additional 3% upside potential to the current price. Key Assumptions Installed Capacity (MW) CUR 78% 78% 78% 78% 78% 78% 78% 78% 78% 78% Total Sales Volume (mn KWh) 1,574 1,574 1,574 1,574 1,574 1,574 1,574 1,574 1,574 1,574 Coal Cost (US$/ton) Coal Consumption (US$/KWh) Other costs (US$/KWh) DUY electricity price (US$cent/KWh) Average electricity price (US$cent/KWh) Source: Company, Is Investment Source: Company, Is Investment Will have 3% stake in the project. Our revenue expectation stands roughly at US$142mn with an EBITDA margin of 52%. We estimate the participated EBITDA contribution to Global as ca.us$22mn as the Holding is expected to hold 3% stake in the project. Figure 1: Sirnak TPP DCF Valuation (US$ mn) Sensitivity Analysis Revenue EBITDA EBITDA Margin 52% 52% 52% 52% 52% 52% 52% 52% 52% 52% Depreciation NWC (-) 3 Capex (-) Tax (-) Cash Savings from Investment Incentive FCF to the Firm WACC 8.% 8.% 8.% 8.2% 8.5% 8.8% 9.2% 9.7% 1.3% 1.3% 1.3% 1.3% 1.3% Discount Factor DCF EV 11 Terminal Grow th.5% Terminal Value 174 Target Equity Value 185 IRR 12.1% EV/ 218 EBITDA 5.3x Our valuation for Sirnak TPP is most sensitive to average electricity price and coal extraction cost. To depict the valuation impact of these two variables, we run a sensitivity analysis. In our base case scenario, we use average electricity price of US$.9, slightly higher than our DUY market electricity price estimate of US$.86 as we believe certain amount of the sales can realized with bilateral contracts at a higher price. We pencil in US$34/ton coal cost for our forecast horizon. Figure 11: Coal coast (US$/ton) / Average electricity price (US$/kWh) Source: Company, Is Investment 14

15 Financial Highlights Revenues We expect Global Investment Holdings to post US$156mn of net revenues in 214, while expect the revenues to grow at a CAGR of 18% until 216. The revenues grew at a CAGR of 8% since 21 in proforma basis. Yet, the revenues in core businesses; port and CNG, grew at a CAGR of 17% in the aggregate in the same period. We expect the core businesses to grow at a CAGR of 22% until 216; the port business to grow at a 1% CAGR, while the natural gas business to grow at a 48% CAGR. You may see the details in related sub segments. (Note that the recent port acquisitions of Port of Bar and Barcelona Cruise Port are not included in the numbers. The past years figures are in proforma basis and excludes the one-offs). Figure 12: Revenues (US$ mn) E 215E 216E Source: Company, Is Investment Port Akdeniz Ege Port Bodrum Naturelgaz Others The major source of the revenues is port operations with 58% share, while CNG business captures 22% share in 213. Among the ports, Antalya Port is the major contributor to the topline with 44% share, while Ege and Bodrum Cruise Ports capture 13% and 2% shares, respectively. Operationally benefits from weak TL. It should be noted that around 9% of port revenues, corresponding to 54% of total consolidated revenues, is in US$. Therefore, the depreciation in TL boost company s revenues and operating income. Figure 13: Revenue Breakdown of Subsidiaries (213) Figure 14: Currency Breakdown of Revenues (213) 2% 44% 46% 22% 54% 2% 13% Port Akdeniz Ege Port Bodrum Naturelgaz Others Source: Company, Is Investment US$ TL 15

16 Financial Highlights EBITDA We forecast Global Investment Holdings to post US$47mn of EBITDA with a margin of 31% in 214. We expect EBITDA to grow at a CAGR of 12% until 216. The EBITDA grew at a CAGR of 14% since 21 in proforma basis. The major contributor to the growth will be port business. The port business is expected to reported 12% CAGR until 216, while the natural gas business to post 6% CAGR in the same period, yet due to the its lower base, the impact to the growth in consolidated EBITDA will be limited. The margin of port business is expected to increase to 72% in medium term from 67% in 213 thanks to the operational leverage and currency mismatch in revenues and expenses. Our EBITDA margin estimates for CNG business is around 1% in average during the period (the past years figures are in proforma basis and excludes one-offs). Figure 15: EBITDA (US$) and Margin 1 8 5% 45% 6 4% % 27% 29% 29% 31% 31% 32% 35% 3% 25% 2% -2-4 Port Akdeniz Ege Port Bodrum Naturelgaz Others Margin E 215E 216E 15% 1% Source: Company, Is Investment The major source of the operational profit is port operations, while CNG business has limited contribution. Other segments and solo Opex of the Holding have a dilutive impact on EBITDA. Among the ports, Antalya Port is the major contributor to the operational profit. Figure 16: EBITDA Breakdown of Subsidiaries (213) -54% 17% Port Akdeniz Ege Port 5% Bodrum 5% 36% Naturelgaz Others Source: Company, Is Investment 16

17 Debt Structure Increased Debt. Global Investment Holdings consolidated debt increased to US$398mn as of YE213 from US$127mn as of YE212. The debt proceeds were mainly used i) to fund US$5m payment in settlement of a disputed liability related to the Baskentgaz bid, ii) for acquisition of additional shares in Naturelgaz and acquisitions of Port of Bar, Barcelona Cruise Port, and Straton Maden, iii) for the repurchase of a 22% stake in the Global Ports Holding for US$92m from VEI Capital, iv) to finance the share buyback worth ca.tl3mn. The net debt position on the other hand (adjusted with the value of treasury stocks) stands at US$327mn as of YE213. Currency Breakdown of Debt. The 76% of the Holding s gross debt is Fx denominated; US$ denominated debt makes 69% of total, while denominated debt makes a mere 8%. The remaining 24% is mainly in TL. Therefore, the weakening of the TL versus these hard currencies acts unfavorably to the Holding's indebtedness. Figure 17: Currency Breakdown of Gross Debt (213) Figure 18: Segmental Breakdown of Gross Debt (213) 8% 9% 3% 24% 69% 51% 38% US$ (TL equivalents) TL (TL equivalents) Holding Standalone Ports Energy Real Estate Source: Company, Is Investment Gross Debt Breakdown of Subsidiaries. The majority of the debt is under solo holding at US$188mn and port business at US$193mn. The debt in Energy and Real Estate segments stand at US$35mn and US$1mn as of YE213, respectively. Debt Maturity Breakdown & EBITDA. The big portion of the Holding s debt is geared towards the long-term, while short-term debt makes 3% of total debt as of YE213. We expect the borrowing maturities to shift further to the long-term going forward. Although the current cash generation of the Holding is not sufficient to cover the short term debt, we believe the Holding will not struggle to roll over the existing debt. Figure 19: Maturity Breakdown of Current Debt and EBITDA (TL mn) Source: Company, Is Investment Total Maturity of debt EBITDA Currency Risk Sensitivity. Holding s currency risk is related to the changes in the value of the TL relative to the and the US$. According to the audit report, Global has a short FX position of TL489mn as of YE213, mainly stemming from its FX denominated debt. According to the audit report, the Holding s net income would decline by TL47mn in 213 in the face of a 1% depreciation of the Turkish Lira against hard currencies. Operationally benefits from weak TL. It should be noted that the depreciation in TL boost the Company s revenues and operating income, since more than half of the revenues in US$, in a way mitigating the negative impact of financial expense due to the FX losses. 17

18 Figure 2: Consolidated Financials (TL mn) Income Statement (TL mn) 212A* 213A* 214E 215E 216E 217E Revenues EBITDA Depreciation & Amortisation EBIT () Other income (expense), net Financial expenses, net (59) (99) (54) (6) (61) (59) Minority Interests 9 (3) Income before tax 15 3 (13) Taxation on Income 12 (3) 3 (1) (6) (11) Net income (1) Cash Flow Statement (TL mn) Net Income (1) Depreciation & Amortisation Indemnity Provisions Change in Working Capital 24 (1) (7) (9) (9) (8) Cash Flow from Operations Capital Expenditure Free Cash Flow 21 (457) Rights Issue Dividends Paid Other Cash Inflow (Outflow ) 88 (55) Change in net cash 19 (525) Net Cash (274) (798) (69) (666) (627) (572) Balance Sheet (TL mn) Tangible Fixed Assets Other Long Term Assets Intangibles Goodw ill Long-term financial assets Inventories Trade receivables Cash & equivalents Other current assets Total assets 1,334 1,978 1,852 1,85 1,829 1,84 Long-term debt Other long-term liabilities Short-term debt Trade payables Total Debt Other short-term liabilities Total liabilities 597 1,252 1,17 1,181 1,155 1,142 Minority Interest Total equity Paid-in capital Total liabilities & equity 1,334 1,978 1,852 1,85 1,829 1,84 Ratios ROE (%) ROIC (%) Invested Capital 1,2 1,531 1,58 1,487 1,469 1,452 Net debt/ebitda (x) Net debt/equity (%) Capex/Sales (%) Capex/Depreciation (x) EBITDA Margin EBIT Margin Net Margin Valuation Metrics EV/Sales (x) 3.3x 2.2x 3.2x 2.6x 2.2x 1.9x EV/EBITDA (x) 12.5x 8.8x 1.3x 8.4x 7.x 5.9x EV/IC (x).5x.4x.7x.7x.7x.7x P/E (x) 2.5x 11.3x n.a n.a 12.5x 7.x FCF yield (%) 8% -139% 8% 11% 18% 24% Dividend yield (%) % 4% 6% 8% 8% 9% *based on average Mcap during the year Sirnak TPP and new acquisitions of Port of Barcelona and Bar are not included Source: Company, IS Investment 18

19 Company Overview Figure 21: Overview of the Company Global Investment Holdings (GIH) dates back to the 199 s with a brokerage firm, namely Global Securities. Later, the Company was transformed thorough a reorganizational change and Global Investment Holdings established in 24, shifting from investment banking & brokerage to the real sector economy. Active portfolio management. The unique difference of the Group from other listed holdings in Turkey is that the Group is more flexible to enter and exit sectors as opportunities arise or the market conditions change. Thus, the Holding s business investment strategy functions similarly to a private equity firm as the Group defines itself. Currently, the Group holds diversified portfolio of investments in fast growing sectors and offers an attractive growth potentials. Port business is the core business comprising 82% of the portfolio. Currently, GIH has operations in four primary business; port infrastructure, energy, real estate and financial services. Port Infrastructure mainly consists of cruise and commercial seaport operations in Mediterranean and Aegean region. Energy includes compressed natural gas sales & distribution, integrated coalfired thermal power plant, renewable power generation projects and mining activities. Real estate includes planned and completed commercial mix use development projects and finance consists of non-banking financial services, including brokerage, research, financial advisory and asset management. The core business is port operations comprising 82% of total participation value. On the other hand, when the Sirnak power plant become operational, the share of energy will increase to 25% levels from current 14%. Shareholder structure. The Holding is listed in Borsa Istanbul under the ticker symbol GLYHO since January 25. The major shareholder of the Holding is Mehmet Kutman, a founding shareholder, the chairman, and the CEO, with his 25.8% direct stakes, while Erol Goker has.2% stake. The Group companies, mainly its fully subsidiary GES Energy, and the Holding itself holds 29.3% stake. The remaining 44.7% stake comprises of free float as of Jan 14. Note that the management decided to cancel the 9.24% of the treasury stock, which has been purchased by the Holding itself via share buyback. Following the cancelation, Mehmet Kutman s direct share and the free float will increase to 28.5% and 49.2%, respectively, while the treasury stocks will decrease to 22.1%. Source: Company 19

20 Business Segments 1) Global Ports Holding (82% of participation value) Global Ports Holding is a unique port conglomerate with a strong excellence in commercial and cruise ports operations throughout the Turkey and the Mediterranean region. The Group possesses two leading cruise ports (Ege Ports and Bodrum) and a mix used commercial and cruise port (Port Akdeniz) under its umbrella and provides strategic accesses to important trading and touristic hinterlands of the country. Port Akdeniz is a fast growing mixed used commercial and cruise port in Antalya on Turkey s Mediterranean coasts generating ca.75% of GPH s revenue in 213. Ege Ports is the largest cruise port in the region providing access to unique world heritage sites and Bodrum Cruise Port is a relatively small size operation capturing remaining 22% and %3 shares, respectively. At the end of 213, the Group also add Port of Bar (Montenegro) and Port of Barcelona, Malaga and Singapore cruise ports into its portfolio. Increased its share to 1%. In July 211, VEI Capital SpA, an investment company of the Italian Group Palladio Fnanziara had acquired 22.1% of Global Ports Holding, valuing the Company at US$415mn. Yet, the Group acquired back the stake in February 213 at a value of US$433mn. Aims to become an international port operator. The Group has recently acquired Port of Bar, Port of Barcelona and has been selected as first prefer bidder for Lisbon Cruise Port. The Group has been pre-qualified for the tender of Greek marina and tourist ports as well. Global Ports Holding has completed the acquisition of 62% stake in listed Port of Bar, Montenegro for a total consideration of 8.1mn back in Nov 13. The Group also acquired 43% stake (half of which owned by GPH) in Creuers in a partnership with leading cruise operator Royal Caribbean Cruises back in Nov-Dec 213. Creuers operates Europe's largest cruise port, the Port of Barcelona with a passenger capacity of 1.8mn, and is the majority shareholder of the Malaga Cruise Port (17% owned by GPH) and the minority shareholder of the Singapore Cruise Port (9% owned by GPH). Figure 22: Historical Overview of the Company Global Ports Holding is established as a 1% subsidiary of Global Investment Holdings April 24 GPH acquired operating rights of Port Akdeniz (4%) via a joint venture between Celebi Yatirim (4%) and Antmarin (2%) October 26 GPH acquired 6% shares of Bodrum Cruise Port) at TL1mn June 28 VEI Capital acquired 22.1% stake of GPH valuing the Company at US$ 414.7mn July 211 GPH acquired 62.1% of Port of Bar and 43% of Port of Barcelona Nov-Dec Ege Ports of GIH is transferred to Global Ports Holding July 25 Won the tender for Galata Port (The tender was later cancelled) September 25 Won the tender for the 3 year operation rights of Izmir port together with Hutchison Port Holding, DB Infrastructure Holding and EIB-Limas. (The tender was later cancelled). May 27 GPH purchased the remaining 6% stake of Port Akdeniz from Celebi and Antmarin at a value of US$49mn. July 21 GPH acquired back the 22.1% stake of VEI capital at a value of US$433mn. February 213 Source: Company 1.1) Port Akdeniz - Antalya Antalya Port has enough capacity to accommodate future growth. Port Akdeniz is located in the Southern part of Turkey, where export activities of cement, mining and agricultural products are concentrated. The city of Antalya is also the capital of tourism in Turkey and one of the top ten tourist destinations in the world. Port Akdeniz is a multipurpose port providing commercial services like container handling, general cargo and bulk cargo as well as the cruise and marina services. There is also a marina with a capacity of 4 yachts under operations. Port Antalya has gross 5k TEU of container and 5mn tons of conventional cargo capacity, which offers a significant upside potential based on the realized container handling volume of 217k TEU and cargo volume of 1.7mn in tons in

21 Global Investment Holdings Limited competition. Port Akdeniz is at least 35km distanced away from the nearest large size port in the region; thereby, exposed to a limited competition. The closest ports to Port Akdeniz s hinterland are Izmir, Mersin and Iskenderun Ports, and serve to different hinterlands. Main sources of revenue. Commercial port operations make up 93% of revenues in 213, while cruise and rental revenues make the remaining 7%. Container revenues comprise 63% of total revenues followed by general cargo, vessel handling and bulk cargo revenues having 14%, 11% and 6% shares, respectively. The share of container revenues is increasing gradually due to containerization trend and the decrease in general cargo and bulk cargo volumes in last few years. Figure 23: Revenue Breakdown 213 Figure 24: Volume Breakdown 213 Container 3% 4% 6% 11% 14% 63% General cargo Vessel handling Bulk cargo Cruise 23% 13% 65% Container Bulk cargo General cargo Rental and similar income Other income Source: Company Source: Company Mining legislation in 21 fueled the growth. Port Akdeniz container handling volume continues its strong growth this year reaching to 217k in 213, corresponding to 17% YoY growth over the last years strong growth of 1%. The CAGR of container handling between in Port Akdeniz was 23%, substantially exceeding the total CAGR of Turkish market (1%) for the same period. Main factors behind the boost in container volumes at the Port may be cited as: i) increasing containerization trend in export markets, ii) surge in export volumes of metals, marble and granites after the new mining legislation in 21, iii) the new container shipping lines like MSC, ZIM and CMA-CGM shifting their operations to the Port, due to the lack of modernization and congestion at other ports. Figure 25: Port Akdeniz: Container Growth Container Volume (TEU k) Source: Company 21

22 Global Investment Holdings General and bulk cargo segment shrinked in last three years. The turmoil in Middle East has continued to take its tolls in regions trading activities in 213. Genel cargo and bulk cargo segments have contracted by 16% and 43%, respectively in 213. The decreases in volumes reached 28% and 61%, respectively in last three years due to weaker cement export volume resulted from Middle East turmoil after displaying respective CAGRs of 38% and 4% between 27 and 21, surpassing Turkish cargo market growth of %6 by far in the same period. Figure 26: Port Akdeniz - Conventional Cargo Growth 1,8 1,6 1,4 1,2 1, General Cargo (tons k) Bulk Cargo (tons k) 1,64 1,545 1,244 1,165 1,238 1,23 1, , ,575 1,324 1,244 1,117 1,76 1, Source: Company Dependence on a single product, and a single destination is a major risk factor. The Company s container handling business is hugely dependent on marble exports. The total marble handling volume dominates the total container volume with a 75% share. Moreover, the export of marble is carried out mainly to China. The share of China in total trading volume is around 72%. Thus, the slowdown in Chinese economy may seriously affect the marble exports which lead to a serious reduction in container revenue, which captures 63% share in total Port Akdeniz s revenues. Despite its risky aspect, the dominant share of marble in total export volume was also the main reason behind the eye-catching growth of container volume in last three years since Turkey has the largest marble reserves in the world, mostly concentrated in the southern part of the country and exports of marble and granite have grown significantly during the past years. The same risk also exists in conventional cargo business. Dominating 67% of total conventional cargo, cement and clinker product group, is crucial in future revenue growth of cargo segment. That was the main reason behind the decrease in the volume of bulk and general cargo segments in last three years since cement exports to Middle East was down significantly due to the turmoil. At the other end of the spectrum, Turkey is the 3rd largest and fast growing cement exporter globally, still supporting the long term growth in conventional cargo business. Figure 27: Container Product Breakdown (213) Figure 28: Conventional Product Breakdown (213) 4% 4% 17% Marble Paper 4% 4% 4% 9% Bulk Cement & Clinker Coal Aluminum Hydroxide 75% Fertilizer Others 12% 67% Particleboard Fertilizer Others Source: Company 22 Source: Company

23 Total freight handling in Turkish ports has been increasing gradually between The total trading volume of Turkey has grown at a CAGR of 13% since 23, while the trading volume in the hinterland cities of Port Akdeniz has grown at a CAGR of 18% in the same period. On the back of accelerating foreign trade growth, the total freight handling in Turkish ports has steadily risen by a CAGR of 7% and reached to 385mn tons in 213. The region s freight handling volume outpaced the Turkey s volume at a CAGR of 9% in the same period. Figure 29: Total Handling in Turkish Ports (tons mn) Transit (CAGR:17%) Domestic (CAGR: 6%) Total CAGR: 7% Export (CAGR: 7%) Import (CAGR: 6%) Source: Undersecretariat for Maritime Affairs Region exports, mainly driven by mining and cement sectors, are on the rise. Following the new mining legislation, easing the mining license distribution in 21, there has been a visible increase in mining activities in region. This legislation also has affected Port Antalya s trading business positively since Antalya has rich marble and chrome reserves, mostly exported via containers. Moreover, cement exports of the region is tremendously increasing on the back of increasing demand from North Africa and Middle East although the turmoil in the Middle East has negatively affected the volumes in past few years. We believe the growth of cement exports should positively impact the conventional cargo business in future. Accordingly, the export performance of its hinterland cities of Port Akdeniz namely, Antalya, Konya, Denizli, Afyon, Burdur, and Isparta, have been growing at a CAGR of 17% in last ten years, slightly higher than the average growth rate of exports in Turkey (16%) in the same period. The Group should benefit from growing export activities since exported products makes 8% of total handling volume of the Group. The pace of containerization in Port Akdeniz outpaces GDP growth. Total container handling volume in Turkey has risen to 7.9mn TEU in 213 from 2.5mn TEU in 23 corresponding to a CAGR of 12% and to 2.5x of GDP growth rate in the same period. The containerization rate of the Port Akdeniz is even higher than Turkish ports. Port Akdeniz displayed a 38% CAGR in total container handling volume since 23 corresponding to ca.8x of GDP growth. Rich marble and chrome reserves, whose trading volumes were fueled after the new mining legislation in 21, were the essential factors that made Port Akdeniz outperform its peers. Figure 3: TEU Growth of Turkey, Antalya Port vs. Macro Indicators GDP Foreign Trade TEU Volume (Turkey) TEU Volume (Antalya) Source: Undersecretariat for Maritime Affairs, Is Investment estimates of 3.7% is used for 213E GDP growth 23

24 Eastern Europe Belgium Netherlands Cyprus Finland Spain Ireland Malta Estonia Germany Mediterranean Average Slovenia United Kingdom Sweden Denmark Portugal Italy Norway Lithuania Latvia Turkey Greece France Romania Croatia Bulgaria Poland Turkey Middle East Africa South Asia Far East World S.America South East Asia Latin America Carib/C.America Oceania South Europe West Europe North Europe North America Global Investment Holdings Under-penetrated container market offers strong growth opportunity for both Turkey and Antalya. The containerization rate of Turkey in the sea transportation is still quite low compared to the global averages. Total TEU per thousand population was around 13 in 213 (8 in 21) in Turkey while the figure was around 19 in the Mediterranean Region in 21. Besides, the containerization rate in Antalya region has been higher than Turkey s average growing at an average multiple of 2.8x over total container handling growth in Turkey in last ten years. Taking into account that container handling business offers higher margins than the conventional cargo business, we think that the positive trend of containerization in Turkish foreign trade will support Port Akdeniz s profitability and bottom line in the near future. Figure 31: Container growth rate and penetration (TEU / thousand people) of global markets % 19% 18% % %12% 11% % 11% 8% 4% 6 8% 8% 8% 7% 7% 7% % 5% 5% 4 3% % Source: Drewry, UMA Turkey targets to attain an export level of US$5bn in 223; at the centenary of foundation of Turkish Republic. Assuming a similar increase in import level, Turkey s total trading volume may reach over US$1,bn at that year. This huge growth potential has triggered new investments ments in the sector. Given ca.55% of the total foreign trade is handled through sea transportation, the increase in foreign trading activities will positively affect the sector in upcoming years. Port Akdeniz s cruise and marine activities. GPH primarily aims to convert Port Akdeniz to a home-port for cruises, rather than a port of call. The ports location coupled with strong city infrastructure and broad range of facilities and proximity to historical and touristic places makes it an ideal home port for the cruise passengers. Antalya is one of the top ten most visited cities in the world. In line with the opportunities offered by the city, one of the most important cruise lines in the world, new Cruise Lines, has gradually made Port Akdeniz a home-port while discussions and negotiations with other cruise lines are ongoing. The effect of the new cruise strategy has already been reflected to passenger numbers reaching 168k in 213, a significant growth over 29 figure of 14k. Figure 32: Port Akdeniz - Development of Cruise Revenues Cruise Passengers (k) Cruise Ships Source: Company 24

25 1.2) Ege Ports - Kuşadası Ege Ports-Kuşadası is the most frequently visited cruise port in Turkey. Ege port is a market leader in cruise calls with 29.7% shares, while holds second position in terms of cruise passengers with 27.1% share with over half a million visitors in 212. The port is located nearby Ephesus, the Temple of Artemis, one of the seven ancient wonders of the world, attracting 1.7mn visitors per year as well as the House of the Virgin Mary and the Basilica of St. John, one of the most visited sites in the vicinity of Ephesus. Ege Ports is located on a 23.m2 area with 2, ship capacity per year. Concession terms. A joint venture formed by Global Investment Holding and RCCL signed a Transfer of Operating Rights Agreement (TOORA) for Kuşadası Port on July 23 to operate the port for a term of 3 years in return for a payment of US$24.3 million. The concession agreement of the port will end in 233. Ownership structure. Global Ports Holding holds 72.5% stake at the port, while RCCL, a leading cruise line in the world, holds the remaining 27.5% of the shares. The competition is limited. Ege Ports directly competes with Izmir Port, as well as with other cruise ports like Marmaris port and the Eastern Mediterranean cruise ports. However, the proximity of Ege Ports to important historical sites, including Ephesus and the House of the Virgin Mary, provides a strong competitive advantage and limits the competition risk. Main sources of revenue. Ege Ports offers a variety of port services and also generates rental income from yachts, the shops that are operating in the Scala Nuova shopping mall and the offices in the terminal building. Duty free revenues from Setur and landing fees per passenger from the cruises are additional sources of revenue for the Port. Ege Ports is free to set its own tariff at its discretion. As of 213, 75% of the revenues came from the cruise segment, whereas rental income, ferry revenues and Setur duty free revenues held 16%, 4% and 6% shares, respectively. GPH has renewed the five year revenue-sharing contract, expiring in September 215, for the duty -free stores of Setur, one of the largest duty-free operators in Turkey and a subsidiary of Koc Holding (3% of duty-free revenues belongs to the Port). Figure 33: Ege Port - Revenue Breakdown (213) 4% 6% Cruise Revenue 16% Rental Income Ferry Revenue 75% Setur Duty Free Revenues Source: Company 25

26 Global Investment Holdings A diversified portfolio of cruise lines. Ege Ports serves 35-4 different cruise lines in a season. The main customers of the port are Greek Cruise Lines, Louis Cruise line and RCCL (the world's second largest cruise ship operator, holding a minority share at the port). Other than these lines, boutique calls organized by different small and middle sized international cruise operators also support the traffic at the port. Market leader in cruise calls. Ege port is a market leader in cruise calls with 29.7% shares, while holds second position in terms of cruise passengers with 27.1% share with over half a million visitors each year. Yet, the number of cruise passengers and calls have been decreasing since 211 mainly due to the current economic turmoil in Greece as Greek Cruise lines makes 25% of passenger traffic. The recovery in 213 is only at 3% in number of cruise passengers. However, the new bookings are made by larger vessels than the previous year s implying higher GRT/call figure, which has a positive impact on earnings through both increasing passenger fees and pilotage & towage revenues acquired by the vessels. Figure 34: Ege Ports: Cruise Calls and Passengers Cruise Passengers (k) Cruise Calls Source: Company The effect of decrease in ferry calls is limited. There is a gradual deterioration in number of ferry passengers and calls in recent years. Yet, it has limited impact on the revenues as ferry revenues comprises only 4% of total revenues of Ege Port. Figure 35: Ege Ports: Ferry Calls and Passengers Ferry Passengers (k) Ferry Calls Source: Company 26

27 1.3) Bodrum Cruise Port Bodrum, located on the Aegean coast of Turkey, is one of the most popular premium holiday resorts in Turkey for international visitors. Build in 26, Bodrum port is one of the newest cruise terminals in Turkey and is positioned to service cruise and ferry traffic around the Bodrum peninsula and between Turkey and Greece. The operating rights of the port was awarded within the BOT scheme. The port is positioned to harbor two big cruise ships concurrently with 4 ferries. It has a capability to host military ships as well. Its terminal building offers a duty-free shop, coffee & restaurants, travel agencies and other shopping stores. The main customers of the port are currently RCCL and Thomson Cruises. In December 27, Global Ports Holding acquired 6% of Bodrum Cruise Port. The remaining shares are belong to Yuksel Çaglar and Setur with their respective shares of 3% and 1%. Competition with municipality squeezes the margins. Bodrum s municipal pier, which currently receives ferry traffic between Bodrum and the Greek Islands is the closest competitor of Bodrum Port. For long time the Company did not charge ferry customers to compete with municipal port, aiming to compensate its revenue losses through the indirect revenues collected from Setur Duty Free stores. However, they both re-introduced passenger fees starting from 212, albeit at a limited degree. Other than the Bodrum region, Bodrum Cruise Port directly competes with the Group s Ege Ports-Kuşadası. Additionally, it competes with Izmir, Marmaris and various other Eastern Mediterranean cruise ports. Main sources of revenue. Bodrum Cruise Port s net sales are mainly consist of cruise revenues with a 41% share in 213. Setur shares 3% of its total gross revenues with Bodrum Cruise Port, making up 24% of total revenues. Yacht and ferry revenues make up 16% and 9%, respectively. Rental revenues makes 1% of total revenues. Figure 36: Revenue Breakdown (213) 9% 1% Cruise 41% Setur Duty Free 16% Yacht Ferry 24% Rental Source: Company 27

28 Global Investment Holdings 214 will be another tough year. We saw a significant decrease in number of cruise passengers and ferry calls in 213 and expect 214 to be no better than 213 due to the low demand from Europe. Yet, the number of passenger and calls is expected to pick up again starting from 215. Figure 37: Cruise Calls and Passengers Cruise Passengers (k) Cruise calls Figure 38: Ferry Calls and Passengers Ferry Passengers (k) Ferry Calls Source: Company Source: Company The progress of the Turkish cruise industry outpaced the European countries. Total number of cruise passengers reached to 2.1mn in 212, implying an annual average growth rate of 16% in since 25 thanks to 6% growth in international tourist arrivals and increasing share of cruisers. The share of cruise passengers in total international passenger arrivals reached 6.7% in 212 from 3.7% in 25. To demonstrate the strength of the positive trend in the Turkish market, we compared CAGR of Turkish Cruise Market with the growth figures attained at European countries. Accordingly, Turkish Cruise market has grown by an average 16% between , while this figure was 1% in EU countries over the same period. Moreover, cruise market of Turkey is much less saturated compared to the EU countries, offering a significant room for future growth. Figure 39: Cruise Passenger Volume of Turkey Cruise Passengers lhs (mn) Cruise Share in Int. Tourist Arrivals rhs (%) CAGR: 16% 7.5% 7.% 6.5% % 5.5% % 4.5% %.8 3.5% Source: Ministry of Culture and Tourism 3.% 28

29 2) Global Energy Global Investment Holdings energy division operates through Global Energy. Global Energy currently has investments in CNG distribution, thermal power generation and mining, and is currently developing projects in solar power generation and energy efficiency projects for SMEs. The Holding exited the distribution arm back in July 212 selling its 5% stake in Energy Investment Holding (EIH) to STFA for a total value of US$75mn. The Holding s primary strategic focus in energy is Naturelgaz and Galata Energy (Sirnak thermal power plant project), in which the Holding holds a 49-year generation license. However, the Company pursues growth with a well-balanced and diversified power generation portfolio that also includes high growth renewable energy sources in Turkey. 2.1) Naturelgaz 5% overall market share in CNG distribution market. Naturelgaz operates in sale and distribution of bulk compressed natural gas (CNG) since 24 providing bulk CNG to industrial facilities and commercial consumers such as hotels and shopping malls. Naturelgaz is the market leader with a 7% market share in bulk segment and 5% overall market share. Besides pursuing growth in its core business of sales and distribution of CNG, Naturelgaz aims to further expand its existing core business into the transportation area. GIH holds 8% of Naturelgaz. Energy Investment Holding (EIH), the 5-5 JV of GIH and STFA, acquired 5% stake in Naturelgaz for ca.tl17mn back in May 211. The shares corresponding to 25% of Naturelgaz that GIH indirectly owns through EIH have been transferred to Global Energy following the divesture of EIH. Afterwards, the Group increased its stake to 8% by i) acquiring 3% stake from the founders of the Company for US$12mn back in Dec 12, and ii) acquiring 25% of Naturelgaz from STFA for US$1mn back in Jan 13. Each transaction valued the Company at US$4mn. The remaining 2% is owned by Aksel Goldenberg, the CEO of the Company. The major growth expected to come from CNG consumption in transportation sector. Naturelgaz intends to expand into transportation sector. The Company aims to supply required technology to convert public busses, garbage trucks and intercity heavy and mid-size commercial vehicles with diesel engines into CNG and to supply CNG establishing a fueling station network that will cover central and western part of Turkey. CNG consumption in transportation is a very new concept in Turkey and Naturelgaz is aiming to benefit from this immature market. We expect this market to grow significantly as it offers approximately 35% and 45% fuel savings compared to diesel and LPG. Besides the efficiency it provides, it is also preferred by municipalities due to environmental issues thanks to lower carbon emissions. CNG consumption in public transportation is rapidly increasing. Turkish Metropolitan Municipalities like Istanbul, Ankara, Kocaeli, Kayseri, Bolu have purchased over 1 CNG buses and garbage trucks in the last few years. Ankara Municipality has not purchased any bus except original equipment manufacturer (OEM) busses since 27 and currently 6% of its bus park consist of OEM busses. Furthermore, Istanbul, Gaziantep and some other municipalities open tender for the conversation of diesel public transportation vehicles. We believe the imports of new busses and conversation of the existing buses to CNG will be the continues process in the near future and Naturelgaz will be a main beneficiary thanks its strong position in the market. The Company won new contracts and others are on the way. The Company has recently signed new contracts including conversion of İstanbul Anatolian side s garbage trucks, conversion of Afyon s in city transportation vehicles. The Company won Bolu and Kayseri municipalities tender as well. The Bolu tender includes the installation and operation of CNG refueling station for 15 years with BOT method and Kayseri municipality s includes a three-year rental contract to operate a natural gas station in Kayseri. The stations will serve to all public busses and garbage trucks of municipality as well as private vehicles. Mind that Naturelgaz aims to participate all municipality CNG station tenders in upcoming years. Lastly, the Company has signed a contract with Reysas Group, one of the largest logistic company in Turkey. 29

30 Distribution network. Naturelgaz continues its operations under the licenses issued by EMRA. It supplies natural gas directly from Botas, the state-owned enterprise. With the liberalizations of energy sector, the Company has started to purchase its gas from regional distribution companies also. The Company distributes CNG directly from the mother stations under its ownership and through secondary stations daughter stations that are either owned by the Company or local dealerships who receive commissions based on the sales volume. In mother stations natural gas supplied from the pipeline compressed into CNG, than it is stored and delivered to consumers in tanks which are transported in specialized trucks. In daughter stations gas is not supplied from pipeline but from the mother stations via trucks and then distribute to consumers. Figure 4: Supply Chain of the Company Source: Company Figure 41: Proposed Station Network The Company plans to established 22 more stations until 216. The Company currently has 11 CNG mother stations and 1 daughter and 7 dealer stations as of January 214. The management aims to have 6 more mother stations and 16 daughter stations in period. Source: Company 3

31 CNG business in Turkey is in its infancy phase yet. Currently, CNG is mainly consumed by hotels, asphalt plants, industrial facilities and other small enterprises due to the lack of natural gas pipeline infrastructure. However, it is currently getting popular transportation sector due to both economic and environmental issues. Turkey s CNG consumption is increasing at a CAGR of 14% since 27 and we expect it to continue in accelerated pace on the back of increasing usage in transportation business. The transportation segment makes only 17% of total consumption as of 212. We believe the interest of municipalities will help the development of CNG consumption in road transportation. Figure 42: Turkey CNG Volume (mn m³) 6 5 CAGR: 14% Source: EMRA High growth potential in price sensitive Turkish market. In the last decade, we have experienced the success of a similar business model, namely LPG. Turkey LPG market has reached 3.7mn tons of consumption and ranked 1st in Europe in terms of total consumption with a total turnover of US$5bn. Auto gas segment comprises 71% of LPG consumption in 212 and ranked 2nd in the world. The total LPG vehicles reached to 3.5 million, while the number of stations stands at over 9,3. Currently, market players has captured around 4% of the passenger car park. Currently, over 3k vehicles are converted each year. Currently CNG is taxed at same level as LPG and offers 35% and 45% price advantage over diesel and LPG, respectively. We expect the penetration level of CNG vehicles in Public transportation and heavy and mid-size commercial vehicles to exponentially increase on the back of significant fuel savings advantage and increasing availability of CNG stations. We believe Naturelgaz s growth targets will be tested in period as the Company will be completing major portion of its investment to increase the station network during the period. Nationwide station network is required. Although we expect CNG usage in transportation market to continue in accelerated pace, it will take at least a few years to see major improvements since Turkish CNG market is still at its investment phase and companies operating in this market tries to enhance the station network for more convenient usage to increase its markets size. We believe if the nationwide station network can be established, we may see huge increase in number of NGV among public and commercial vehicles. 31

32 Global Investment Holdings CNG market in the World in growing rapidly. The CNG market has jumped from 1.3mn to 16.7mn vehicles around the world, with an average growth rate of 22% since 22. The number of stations is extended to 22k. The rapid growth is due largely to economic factors, but is also attributed to increasing environmental awareness. Increasing number of CNG refueling stations network is essential for rapid growth. Top ten countries reached a significant 19% penetration level. Top ten countries in number of vehicles accounts for 86% of NGV car park as of 212, lead by IRAN based on NGVA Europe. If sufficient station network can be established, we can see very high penetration levels as we have experienced in examples of Pakistan, Bangladesh and Armenia with their respective penetration levels of 8%, 62% and 55%. The aggregate penetration level in top ten countries on the other hand stands at 25%. However, the penetration level in the world is still very low standing at 1.6% as of 212 since in many countries the usage of CNG in transportation does not exist. In the light of these news, we expect the usage of CNG in transportation business in Turkey to grow at an accelerated pace. Yet, we do not expect to see such high penetration levels in Turkey as many of these countries have rich natural gas resources and usage of CNG in transportation in these countries are incentivized by the government. Figure 43: Number of NGV and Stations Worldwide 2 25, 16 2, 12 15, 8 1, 4 5, Source: NGV Global, NGVA Europe # of NGV (mn, lhs) # of Stations rhs 32

33 2.2) Galata Energy The Holding s primary strategic focus in energy will be Galata Energy (Sirnak thermal power plant project). The Group holds a 49-year power generation license for the asphaltite-fired thermal power plant with an initial installed capacity of 27MW. The capacity may be increased up to 1,5 MW, based on the estimated asphaltite reserves at the site, according to preliminary studies. The Holding has already agreed with China National Electric Engineering Co. (CNEEC) for the construction of the plant. The project is estimated to cost US$35mn investment, requiring ca.us$95mn equity assuming a 65%/45% debt to equity ratio and US$3mn supplier credit. We expect the plant to be fully operational in 218. Since the financing of the project is not closed yet, we do not include the plant into our valuation. Favorable coal coast. The plant will be located in Sirnak, in eastern Turkey near to a asphaltite mine that is owned by Gelis Mining, 85% owned by the Group, which will source the needed asphaltite to the plant. Gelis Mining currently holds 3-year concession to operate eight known pylons in the region. The Company is now extracting asphaltite from only one of them, namely Avgamasya. According to analysis made in the phylon there is an asphaltite reserve of 4mn tons, enough to supply the required asphaltite for the power plant for 3 years. The extraction cost of the asphaltite is around US$ Obtained Incentives for the plant. Galata Energy s application to the Ministry of Economy with the purpose of obtaining a Regional Investment Incentive Certificate for the Sirnak power plant has been approved and Galata Energy was granted the Investment Incentive Certificate back in Dec 213. Sirnak thermal plant project falls within the scope of State Incentive Practices given its location in the 6th region and the use of locally-procured raw material. As such, the Group will benefit from exemptions in custom duty and VAT, tax reductions (of 9% in corporate and income tax) and support in interest, insurance premium and withholding taxes. Akkok Group will be a strong partner. The Holding reached a preliminary agreement with Akkok Group for the partial transfer of ownership in the Sirnak power plant. Following the due diligence and approvals of the Energy Market Regulatory Board and Turkish Competition Authority, 55% stake of both Gelis Mining and Galata Enegy will be transferred to Akkok Group. Following the share transfer Global Investment Holdings will be holding 3% stake in the project. 2.3) Straton Maden Global Investment Holdings enters the mining industry. Straton Maden, in which Global Energy, a fully owned subsidiary of Global Investment Holdings, holds 75% stake, acquired feldspar and logistical mining operations including substantial feldspar reserves (25k tons of annual production) in Mugla - Yatagan (Aegean region of Turkey) for a total consideration of TL11mn. The transaction is completed in June 213 and price will be recalculated based on the 3. times of next 12-month- EBITDA of the Company. Turkey is the global leader in feldspar mining with 5mn tons of production per annum, accounting for 24% of the world s production. Straton Maden is among the top five feldspar producers in Turkey with 25k tons (5% market share) of feldspar production per annum of which 8% is exported. In 212, Turkey s feldspar exports of 3.9mn tons generated US$135mn revenues, amounting to 3.2% of Turkey s mine exports. The Group targets to multiply EBITDA by 3-4 times following the completion of a new investment. The Company has secured 6mn loan to undertake a new investment to be able to increase the clarity of feldspar. Following the completion of the investment, the Company targets to multiply the EBITDA by around 3-4 times to TL1-12.5mn in 214. If the Holding achieves its target, it will create additional value, which is not included in our valuation. 33

34 2.4) Renewable Energy Intends to benefit of the advantageous geographical positions of Turkey. Although the primary focus of the Group is the development of Sirnak coal-fired power plant and the CNG distribution business, the Company pursuing growth with a well-balanced and diversified power generation portfolio that also includes high growth renewable energy sources in Turkey. The Group intends to benefit of the advantageous geographical positions of Turkey especially in terms of solar radiation. The renewable energy law brings guaranteed tariffs. Turkey has initiated a major renewable energy program that aims to increase its clean energy share to 3% by 223, in the hundredth anniversary of the republic. The revised renewable energy law was passed by Turkish National Assembly on January 211. According to the law, the renewable energy plants will benefit from the guaranteed electricity prices between 7.3 cent and 13.3 cent per kw/h. The solar energy plants will be awarded by the high end of the range at 13.3 cent. If the equipment and components manufactured in domestic market are used, than additional US$.4 to US 2.4 will be added to the tariff rate for a period of ten years. Plans to reach 45MW capacity in long term. Global Energy has developed a portfolio of 25 solar power plant projects with a total production capacity of 45MW, located mainly in eastern and southeastern part of Turkey and completed applications for pre-qualification for 8MW in June 213. Preliminary designs, yield calculations and initial lease agreements for the land plots have been completed. We do not include these projects in our valuation since they are under development stage, therefore any development in this area may bring additional upside potential. 2.5) Tres Energy Targets to reach 67MW capacity in 214. The Company designs, constructs and operates turnkey small to mid-size power plants for industrial and commercial customers consuming power for electricity, heating and cooling purposes. Global Energy established Tres Energy in 212. Tres Energy so far signed contracts for 16MW capacity and initiated the construction process of the facilities. Tres Energy plans to finalize additional contracts with a number of industrial and commercial consumers in the near future, and grow its cogeneration capacity throughout the country. As such, Tres Energy targets to exceed 67MW capacity by

35 3) Real Estate Division 3.1) Pera REIT The Group operates in real estate sector via Pera REIT since 1992 under the ticker of PEGYO. The Holding owns 48.4% of Pera, while the remaining is in free float. Pera is converted into real estate investment trust in 26, earlier it had been managed as a closed-end funds. The Company develops its real estate portfolio and makes investments in real estate backed securities in line with objectives and scopes identified in Capital Market Board's regulations for real estate investment trusts. The major investments held by the Company are Vakifhan No.6 building and Denizli Sumerpark projects. The other investments are Van Land Development and Aqua Dolce Resort and they both are still in development phase. Denizli Sumerpark Denizli Sumerpark project is a mixed-used development that includes a shopping mall, 68 residential units, a hotel complex and hospital located along the Izmir-Denizli highway, which is in the southwest of Turkey. The necessary permits for the zoning and possible construction of the apartments, the hospital and the hotel have been obtained. Under the first phase of the project, The Sumerpark Mall opened to the public in March 211. The tenants of the shopping mall includes the leading retailers like Tesco Kipa, C&A, Electroworld and Tekzen and the occupancy rate of mall stands at 95%. In 212, the mall received 5 million visitors. The Company has an annual rental revenue of TL6mn from Sumerpark Mall. As being part of the projects, residential unit is scheduled for completion in three phases and the first phase was completed on June 212. Vakifhan No. VI The project is based on ROT type office re-development of historic Vakifhan No.VI building which has an area of 16m2 located in Karakoy, north of the Golden Horn on the European side of the Bosporus. The rehabilitation and restoration of the Vakifhan building was completed in August 26. The building is used as office space and houses a restaurant as well with an occupancy rate of 1%. The Group receives US$.3mn in rental income per year. 35

36 4) Finance Division GIH s finance division consist of Global Securities and Global Asset Management. The Holding plans to exit from this segment in the future. 4.1) Global Securities Global Securities (GLBMD) founded in 199 and went thorough the restructuring in 24 becoming a wholly owned subsidiary of GIH. On June 211, Global Securities went to public, offering 25% of its share and raise TL 16.5mn. GIH currently holds 67.4% of the Company. Global Securities has established IEG-Global Financial Consultancy Company in May 211 with IEG Investment Banking Group, one of the leading international investment banking advisory companies in Europe as equal partners. According to agreement, the joint partnership provides professional advisory services for merger and acquisition, debt financing, structuring and privatization transactions to small and medium size enterprises. In 213, Global Securities ranked 2th among all brokerage firms in Turkey with market share of 1.7% and equity trading value of TL27.4bn. 4.2) AZ Global Asset Management AZ Global Asset management is an affiliate of GIH and AZ International Holding SA, a subsidiary of Azimut Holding, the Italian asset management company with a portfolio size of 25bn. Az International Holding has acquired 6% of Global Asset Management back in March 212. AZ paid a total of TL 3.8mn for the majority share of the Company. The Holding currently has the remaining 4% share in the Company. 36

37 Consumer Durables Leasing & Factoring Paper Beverages Tyre Production Auto part Pharmaceutical and Health Insurance Integrated Textile Cement & Concrete Other Livestock Communication Chemicals Mining Media Automotive & Parts Retail Trade Technologly Transportation Iron Steel Food Construction Agricultural Chemicals Glass Airlines&Ground Handling Petroleum and Energy Banking Utilities Conglomerate Real Estate Investment Trust 1/13 1/13 1/13 2/13 2/13 3/13 3/13 4/13 4/13 5/13 5/13 6/13 6/13 7/13 7/13 7/13 8/13 8/13 9/13 9/13 1/13 1/13 11/13 11/13 12/13 12/13 1/14 1/14 1/14 2/14 2/14 3/14 3/14 NR Global Investment Holdings Price / Recommendations 15 TL Relative to BIST1 Source : BIST/ Is Investment Estimates Sectoral Recommendations Number of Companies Rec. Breakdown for Coverage (%) OUTPERFORM UNDER REVIEW NOT RATED UNDER PERFORM MARKETPERFORM OP MP UP UR NR This report has been prepared by İş Yatırım Menkul Değerler A.Ş. (İş Investment) solely for the information of clients of İş Investment. Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies, investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and with the assistance of independent advisors, as they believe necessary. The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. All information in these pages remains the property of İş Investment and as such may not be disseminated, copied, altered or changed in any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written permission of İş Investment. (www.isinvestment.com) This research report can also be accessed by subscribers of Capital IQ, a division of Standard & Poor's. 37

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