BIMEKS. Outperform. Oversold... Price Performance (TL) BMEKS. Turkey - Equity - Electronic Retail. Current Price / Mcap: TL2.

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1 BIMEKS Turkey - Equity - Electronic Retail Outperform Current Price / Mcap: TL2.27/ US$74mn 17 October end TP / Mcap: TL4.00/ US$138mn Initiation of coverage Oversold... Price Performance (TL) Bimeks started trading on the ISE on April 14 and the 5.0 shares have been severely punished since then, 4.4 languishing 43% behind the market since the IPO. The 3.8 Company offers a promising growth story; however, 3.2 despite its sound 2Q11 results, Bimeks shares have 2.6 continued to underperform the ISE100 with a 13% 2.0 underperformance in the last month. We believe most of the negatives are already priced-in and we do not foresee major downside potential going forward. Our BMEKS ISE end target price of TL4.0 implies 76% upside potential, streets above the upside we foresee for the ISE-100. Therefore, we initiate our coverage with an Stock Market Data 14/10/2011 Outperform rating Bloomberg/Reuters: Relative Performance: 52 Week Range (TL): Market Cap (TLmn) / (US$mn): BMEKS.TI / BMEKS.IS 1 mth 3 mth 14.Apr -13% -32% -43% 2.15 / 4.64 Share Price (TL) 2.27 Average Daily Vol (TLmn) 3 mth: 1.4 TL Return since IPO: -50% Shares Outstanding (mn): 60 Free Float (%): 31.7 Shareholders: Murat Akgiray (25.38%); RP Capital (19.2%);SPV Bilisim (10%) The Company in Brief: Founded in 1990 by Akgiray family as an importer and retailer products, Bimeks is one of the leading consumer electronics retailers in Turkey. The Company is the 3rd largest IT retailer in terms of store numbers, 4th in revenue and 7th in terms of total sales area. As of today, Bimeks is operating on 33,862m 2 sales area with 54 stores in 33 cities. Financials and Ratios E 2012E Net Sales (TLmn) EBITDA (TLmn) Net Profit (TLmn) EBITDA Margin (%) 3.8% 8.7% 7.0% 6.7% P/E (x) n.m EV/EBITDA (x) EV/Sales (x) EPS (TL) DPS (TL) Source: Bloomberg Estimates, Company data 136/74 Deserves some premium to its peers After the recent sharp fall in the share price, Bimeks now trades at a 2012E EV/EBITDA of 4.3x and a P/E of 11.6x, generally trading on a par with its global peers (which trade at an average EV/EBITDA of 4.4x and P/E of 9.0x). However, a one to one comparison with the globally recognized brands would be unfair considering Bimeks size and the growth cycle of the Company. Due to the expected slowdown in macro environment, we have a more conservative stance on management guidance which was given during the IPO We estimate that Bimeks will reach to a total store number of 140 by 2015 (management guidance was 154) and a total store area of 62,500sqm. Under such circumstances, we believe consumers will restrain their appetite for spending and therefore expect the Company to record total revenue of TL1bn in 2015 (Company guidance was TL1.2bn). Meanwhile, in the same period, the Company s EBITDA is on course to climb at a CAGR of 20%, reaching TL71mn by We believe in Bimeks long term growth story... The Company s Store Based Partnership (SBP) has proved successful so far, and emerge as a key growth factor in Bimeks business model. Accordingly, Bimeks increased its total SBP stores from 3 to 19 and we expect another 6 stores to be opened by the end of the year. We expect a total of 89 SBP type stores by the end of 2015, implying 17 SBP store openings each year. Risks gathering on the macro front... We have recently revised our macroeconomic estimates and revised down our GDP growth forecasts from 4% to 1.5% for 2012, after an estimated 6.5% GDP growth in With our revisited macro framework including an expected improvement in external balances, we now expect the US$/ TL exchange rate to end this year at 1.80 and next year at Under such circumstances we expect deterioration in consumer confidence hence purchasing appetite as well as some increase on the cost front. Research Contact: +90 (212) [email protected] Sales Contact: +90 (212) [email protected] Please see the last page of this report for important disclosures.

2 INVESTMENT HIGHLIGHTS We are initiating our coverage of Bimeks with an Outperform recommendation. Bimeks growth story is highly appealing and we believe that the Company is an interesting small cap for our investors especially with the upcoming IPO of Teknosa, the number one retailer in the business. Despite our positive stance on the Company, the shares have come under severe pressure since they became public on April 14. Based on our DCF and multiple analysis valuation, our 2012-end target price of TL4.0 now implies 76% upside potential, which is above the upside we foresee for the ISE. An overpunished share price since the IPO Bimeks has underperformed the ISE-100 by 42% since the IPO, while the shares have suffered a 11% underperformance in the last month. We believe most of the negatives have largely been priced-in and we see very limited downside risk in the days ahead. A sound set of financial results. The Company s 2Q11 financials were eye-catching, with net sales up 30% at TL88.1mn. Meanwhile the Company recorded a total EBITDA of TL16mn in the first half, implying an EBITDA margin of 9.1%. The Company targets total revenue of TL450mn for the year, just ahead of our TL411mn forecast, and an EBITDA margin of %. Our forecasts point to an EBITDA margin of 8.8%. We expect the Company to continue recording positive results with an EBITDA margin hovering at around %. Ahead of schedule in SBP store openings The Company has pressed ahead of schedule with its franchise openings, while Bimeks owned store openings have been on course. The Company previously targeted a total of 55 store openings for 2011, and now aims to open stores by the year end. Since the beginning of the year, Bimeks has opened 18 stores with 2 Teknoports opened in Bursa and in Istanbul (Marmara Forum). The average size of the stores has been sqm, with the Teknoport outlets having a store size of around 2,500sqm. Bimeks now operates in 33 cities with a total of 54 stores. The store based partnership model has proved advantageous with its ease in opening new stores, zero risk on inventory and better quality control. New store opening throughout years Sept 11 until yearend 2011E Source: The Company 2

3 Growth mainly derived from new store openings... Sales growth is mainly derived from new store openings (organic growth). The current stores are merely maintaining their volumes; therefore, new store openings are highly crucial. The store based partnership model has proven advantageous due to the ease of opening new stores, the zero risk on inventory and improved quality control. TL to remain weak in 2012 Despite TL weakness against the and USD, consumer demand has still grown as the fall in the Lira has been gradual. Although the Company does not anticipate a sharp fall in consumer spending, given the very strong performance in 2011, we expect some decrease in consumer confidence and we assume that the trend will turn downward going forward. Although the pressure on electronics market will be softer due to the under-penetration levels, we still expect to see some impact. TL depreciation against the USD and Euro USD/TL EUR/TL Source: Bloomberg Consumer Confidence Index Source: Cnbc-e FX position remains an issue... As of 2Q11, the Company had an FX position of US$10.4mn and 9mn totalling TL38mn. The Company recorded an FX loss of TL3.8mn at the end of the second quarter. With the proceeds from IPO, the Company s net debt position decreased from TL51mn to TL31mn. The Company will continue to record FX losses as long as the TL continues to slide against the US$. However, by October, the Company started to hedge some of its net FX position in the Turkish derivative market (TURKDEX). 3

4 Share of online sales set to grow from 6% to 16% within 5 years Bimeks online sales were recorded as TL17mn in In 2011, internet sales have fallen short of the Company s targets due to the 2 month delay in the software update (new internet platform). The Company plans to close the gap once the new platform is up and running, thus meeting its internet sales target by the year-end. By the end of 2015, the e-business is expected to generate around TL100mn in revenues. We believe the electronics industry is ripe for e-business because of its high degree of standardization of products and globalization of production. SPV Bilisim registered 6.04mn shares to ISE with no intention to sell in the short run SPV Bilisim (totally owned by Murat Akgiray, the major shareholder of Bimeks) registered 6.040mn Bimeks (BMEKS, U/R) shares to the ISE on October 13th. The registered shares correspond to 10.07% of the company s paid-in capital. The company stated that the registration is a normal procedure following the end of lock-up period and SPV Bilisim has no intention to sell the shares in the short run. Significant growth potential in consumer electronics retail industry According to the Information and Communication Technologies Authority (ICTA), Turkey s consumer electronics retail industry is expected to grow from US$11bn at the end of 2010 to US$26bn by the end of 2015, indicating a CAGR of 18.4% thanks to the low penetration levels and growing interest in consumer electronics. Use of electronic goods in Turkey remains in the developing stage; only 3.6mn PCs and notebooks were sold in Turkey in About 40% of the population has a computer, with 43% having access to the internet and 85% having a mobile phone; in the EU, the respective figures are 75% for computer ownership, 58% for internet access and 126% for mobile phone penetration. Turkey s low penetration levels and high potential increase the appetite for major brands to operate in Turkey. Turkish customers tend to buy in instalments on credit cards boosting sales... Such a marketing strategy proved to be very successful and increase the commercial activity. Paying in instalments ease decision making for buying and it has become very popular in Turkey. Most importantly, they make expensive goods and services available to buyers who would not otherwise be able to afford them. Credit card sales accounted for 80-82% of total sales, and the Company completes collection the next day, bearing some interest expenses (c.2%) on its sales. Strong competition leads to some cannibalization, but also serves as a catalyst to raise awareness The competition in major city centres creates some cannibalization, yet in an unsaturated market, this also serves as a catalyst to increase awareness and demand. Bimeks aims to have stores in 81 cities (it currently operates in 33 cities); geographical diversification will offset the negative effect of fierce competition. We expect the Company to exercise its first mover advantage in most of the untapped cities in Anatolia. Bimeks closest competitors are Teknosa and Vatan Computer. 4

5 We expect a consolidation in the market We believe the strong growth in the market will eliminate the small players and oversized players in the Turkish market as profitability depends on new store openings on the right scale. Meanwhile, internet sales serve as an important catalyst to sales, which will also prove important in maintaining competitiveness. We therefore, believe Bimeks to be a tailor made player for the Turkish market, offering a competitive advantage with strong profitability. Sabanci Group Company, Teknosa, is preparing for an IPO in 2Q12 Teknosa is the market leader in the electronics retail industry in terms of revenues. The Company has already declared its intention to go public in Teknosa has a highly aggressive marketing strategy when it comes to pricing and places priority on large scale stores. It was also stated that Teknosa would seek opportunities for new acquisitions. Other Competitors (Vatan, Mediamarkt, Electroworld, Darty) Vatan Computer is another direct competitor, operating as a discount retailer with a clear focus. As in the case of discounters, the Company develops highly aggressive campaigns and does not disclose its figures. Mediamarkt is seeking to change its operating model. The Company is preparing to initiate internet sales and is seeking to change its procurement process. Electroworld has a number of franchise stores and has introduced some aggressive campaigns aimed at capturing market share. Darty, has efficient store sizes and successful store locations. 5

6 VALUATION We obtained an equity value of US$138mn for Bimeks derived from an equal weighted valuation based on DCF and comparison of global peers. Our end target share price of TL4.0 implies 76% upside over the current market capitalization above the upside we foresee for the ISE. Summary Valuation Range Valuation Summary US$mn Calculated Value Weight in Valuation Total Value DCF Analysis % 94 Global Peers 88 50% 44 Target Value 138 Target Share Price (TL) 4.0 Current Share Price (TL) 2.27 Upside Potential 76% Source: Garanti Securities Bimeks completed its IPO on April 14th and raised TL14mn of paid-in capital. The proceeds from the IPO are being channelled into new store openings and will also be used for the re-payment of one third of its financial liabilities present at the time of IPO. 6

7 DCF Valuation In our base case scenario, we employed a WACC of 9.0% and a terminal growth rate of 3.0%. For sensitivity analysis, we have run our model with +/- 50bps for WACC of and +/- 50bps for terminal growth rate. DCF Sensitivity (US$mn) Terminal Value Growth WACC 8.0% 8.5% 9.0% 9.5% 10.0% 2.0% % % % % In calculating the WACC, we assumed a risk free rate of 5.8% using the yield on 10-year Eurobonds as a proxy, a Beta of 0.9x and a market risk premium of 6%, which yielded a cost of equity of 11.3%. We assumed a constant tax rate of 20% and 6% cost of debt. In our base case scenario, we employed a WACC of 9.0% and a terminal growth rate of 3%. Bimeks - Electronics Retail Business Free Cash Flow Projections (US$mn) 2010* 2011E* 2012E 2013E 2014E 2015E 20120E Net Sales Operating Profit Taxes NOPLAT Depreciation Change in WCR Capex Free Cash Flow EBITDA EBITDA Margin 6.2% 7.0% 6.7% 6.5% 6.9% 6.9% 6.1% Assumptions and Results (US$mn) E Weight of equity 60% PV of FCF 57 Cost of Equity 11% PV of Terminal Value 150 Beta 0.90 Implied Firm Value 207 Risk free rate 6.0% Net Cash -19 Market Risk Premium 5.9% Target Mcap 188 Cost of Debt after tax 5.6% Tax rate 20.0% WACC 9.0% Terminal Growth Rate 3.0% * 2010 and 2011 figures are for information purpose. Source: Bimeks, Garanti Securities 7

8 Global Peer Valuation We also carried out a peer comparison to arrive at a fair value for Bimeks. We compared the Company with the other global and local players in the electronics retail industry. We took the 2012E P/E, EV/EBITDA and EV/Sales ratios into account with equal weighting in our comparative analysis. Accordingly, we calculate a valuation range of US$63mn to US$103mn from the peer group comparison for Bimeks. Company Country Mcap (US$) P/E EV/EBITDA EV/Sales 2011* * * 2012 Best Buy Co Inc US 8, Wal-Mart Stores Inc US 177, RadioShack Corp US 1, HMV Group PLC UK Kesa Electricals PLC UK M Video OJSC Russia 1, Conn's Inc US Home Retail Group PLC UK 1, GOME Electrical Appliances Holding Ltd China 6, Systemax Inc US n.m. n.m Big 5 Sporting Goods Corp US Average Implied Mcap Peer Average Mcap (US$mn) 88 * 2011 figures are for information purpose. Source: Bloomberg While the globally recognized brands are trading at lower valuation multiples, smaller size companies at their infant stage in the growth cycle deserves to trade at higher multiples. 8

9 FINANCIAL TABLES Balance Sheet (TLmn) 2010/ /06 Change E 2012E 2013E ASSETS CURRENT ASSETS % Cash and Cash Equivalents 3 15 n.m Short-Term Trade Receivables % Short-Term Other Receivables 0 4 n.m Inventories % Other Current Assets % LONG TERM ASSETS % TOTAL ASSETS % LIABILITIES SHORT TERM LIABILITIES % Short-Term Financial Loans % Short-Term Trade Payables % Other Short-Term Loans % Other Short-Term Liabilities % LONG TERM LIABILITIES % Long-Term Financial Loans % Other Long-Term Loans % Provisions for Retirment Pay % Deferred Tax Liabilities % SHAREHOLDERS EQUITY % T.LIABILITIES & S. EQUITY % Income Statement (TL mn) 2010/ /06 Change E 2012E 2013E Net Sales % Cost Of Sales % Gross Profit (Loss) % Operating Expenses % EBIT 3 11 n.m EBITDA % Other Income/Exp. (net) n.m Net Financial Exp./Inc % Profit Before Tax -5 1 n.m Taxation on Continuing Operations 1 1 0% Net Income (Loss) -4 2 n.m Gross Margin 17.9% 21.1% 3.2 pp 19.8% 18.8% 18.8% 18.5% EBIT Margin 2.5% 6.3% 3.7 pp 5.4% 4.5% 4.7% 4.5% EBITDA Margin 4.5% 9.1% 4.6 pp 8.7% 7.0% 6.7% 6.5% Net Margin n.m 1.0% n.m 0.3% 2.0% 2.0% 2.3% Source: The Company, Garanti Securities estimates 9

10 THE COMPANY Founded in 1990 by Akgiray family as an importer and retailer of electronic products, Bimeks is one of Turkey s leading consumer electronics retailers. The Company is the 3rd largest IT retailer in terms of store numbers, ranking 4th by revenue and 7th in terms of total sales area. In 2007, the RP Capital Group, a London based investment fund from the Netherlands, acquired a small number of shares in Bimeks. RP Capital increased its stake in Bimeks to 25% in Jan On April 14, the Company started trading on the ISE, with a free float of around 32%. Murat Akgiray remains the main shareholder holding 25% of the shares, followed by RP Explorer (19% stake) and SPV Bilisim (10% stake). Shareholding Structure SPV Bilisim 10% M. Murat Akgiray 25% Other 14% RP Explorer 19% Free Float 32% Source: The Company Bimeks was primarily involved in software and hardware imports and marketing during its early years. In 1996, the Company switched its focus to electronics retail by opening a second store in Istanbul. Bimeks sustained its growth after 2000 with equity financing. Bimeks maintained its market position throughout the 2001 economic crisis in Turkey and managed to expand store numbers while recording continuous and healthy growth in sales volume. In 2005, the Company unveiled a business plan which placed emphasis on rapid growth and expansion. Bimeks store numbers reached 21 in 2006, further increasing to 30 stores and 18,600m 2 of sales area by the end of Currently, Bimeks operates on 33,862m 2 of sales area with 54 stores (35 owned and 19 SBP) in 33 different cities. 10

11 Market Segmentation In terms of products, consumer electronics (CE) and computers and components (IT) and telecom represents a total market size of ~US$3.7bn (61% of the total market). We expect the Telecom and CE segments to continue their growth pattern. The change in technology in audio and visual apparels will create room for growth going forward. 1H10 1H11 Telecom US$1,237mn 24% Telecom US$1,660mn 27% Consumer Durables US$1,580mn 31% Consumer Electronics US$859mn 17% Consumer Durables US$1,725mn 29% Consumer Electronics US$1,089mn 18% Small Appliances US$545mn 11% Computers and Components US$852mn 17% Small Appliances US$616mn 10% Computers and Components US$994mn 16% Source: The Company, GfK Bimeks Segmentation Bimeks sells 96% of its sales in these three segments. Components and computers comprise 53% while consumer electronics hold 28% and telecom 15% of the total sales. The Company tries to be a first mover especially in Anatolia cities and therefore we support their growth projections yet more conservative in our valuation. Bimeks Segmentation - 1H10 1H11 Cons. Elec. US$20mn 24% Comp & Comp. US$50mn 61% Cons. Elec US$28mn 28% Comp.& Comp.US$ 54mn 53% Telecom US$9.4mn 12% Cons. Dur. US$0.5mn 1% Small App. US$1.4mn 2% Telecom US$14.6m n 15% Cons.Dur. US$1.1mn 1% Small App. US$2.6mn 3% Source: The Company, GfK 11

12 Bimeks Market share We expect Bimeks to main its market share especially in the IT segment, while expect them to earn market share in the Telecom and CE segment. Competition will be tougher in the upcoming period, therefore new store opening will be a key issue. Bimeks Market Share 1H10 1H11 5.9% 5.4% Net Sales/m2 14,792 50% 9, % 0.4% 0.0% 0.1% 0.8% 0.9% 2.3% 2.6% Small App Cons. Dur Telco CE IT Bimeks Peer Avg. Source: The Company, GfK In terms of efficiency Bimeks is one of the best operating electronic retailer. The company s average net sales per sqm is 50% higher compared to its peer average. 12

13 STORE TYPES Regular Stores: These stores have a sales area of 150-1,000m 2 and are mainly located in shopping malls, benefiting from high customer traffic. The products sold in the stores are portable, valuable and predominantly IT based. Around 3,000-7,000 SKUs are offered in regular stores. Mega Stores: These stores, called Teknoport, are on between 1,000-4,000m 2 of sales area. Stores with a sales area exceeding 1,500m 2 offer cafes, playgrounds for children, print centres and DHL communication points as well as information technologies, consumer electronics, personal care products, small domestic appliances and game and music products. Customers enjoy access to over 10,000 different products of well-known domestic and international brands in these mega stores. Store based partnership stores: SBP stores are the leading drivers in Bimeks new business strategy; 25 new SBP stores will be opened in 2011, 16 of which have already been opened. Inventory risk, an important risk generally faced by retailers, is limited in the SBP model. In SBP stores, the store s fixed costs become a variable cost for Bimeks. To become an SBP, the entrepreneur pays a one-off royalty to Bimeks and undertakes the construction costs. A fixed percentage of the sales revenues are allocated to the partner to meet the store s operating expenses, but the SBP partner also provides a share of the store s profit. SBP partners operate and invoice in the name of Bimeks. The stock in these stores belongs to Bimeks, which is also responsible for nationwide advertising expenses. Bimeks store distribution Current Stores Source: Bimeks Stores to open in 1month 13

14 FINANCIAL ANALYSIS & ESTIMATES With the proceeds from the IPO, Bimeks added momentum to its store opening process and has opened 18 stores since the beginning of the year. The aggressive store opening process will continue with 8-10 more stores set to open by the end of the year. For 2012 and beyond, we expect the Company to open around 20 new stores each year, most of which being franchise stores. Our store opening forecasts are shown below. Stores to be opened until 2015 Franchise Stores Bimeks Ow ned Source: The Company, Garanti Securities Estimates Revenues E 2012E 2013E 2014E 2015E The brisk pace of store openings is set to vigorously drive Bimeks revenues. We expect total revenues to reach TL1bn by 2015, with most of the growth coming from franchise stores. Bimeks target is to be operating in each and every city of Turkey by We deem this an achievable target and assume a more than doubling in its total sales area, marking a CAGR of 21% per annum. Revenue (TL mn) versus sales area (sqm) 65,000 52,000 39,000 26,000 13, nd growth phase st growth phase ,115 20,500 29,028 39,662 47,742 55,247 62, E 2012 E 2013 E 2014 E 2015 E 0 Weighted Avg Sales Area (m2) Revenue (rhs) (TLmn) Source: The Company, Garanti Securities Estimates 14

15 Sales Model E 2012 E 2013E 2014E 2015E 2020 E Total Store number Franchise Bimeks Franchise store additions Bimeks store additions W. Avg Sales Area (m 2 ) 19,115 20,500 29,028 39,662 47,742 55,247 62,497 83,622 Growth in m 2 (%) 3% 7% 42% 37% 20% 16% 13% 4% Additions in m ,385 8,528 10,634 8,080 7,505 7,250 3,000 TL/m 2 12,189 13,957 13,344 14,139 14,367 14,622 14,719 16,187 TL Price Growth -12% 14% -4% 6% 2% 2% 1% 2% US$/m 2 7,880 9,301 8,250 8,250 8,150 8,100 8,000 8,000 US$ Price Growth -26% 18% -11% 0% -1% -1% -1% 0% Revenue (TLmn) Bimeks E-Store Source: The Company, Garanti Securities Estimates Store based partnership Sales (SBP Sales) Bimeks targets to have presence in 81 cities in Turkey. Most of the new stores will be opened through store based partnership agreements under the 250-1,000m 2 store format, mainly in the Anatolia region. While the store based partnership agreements will ensure faster growth, they will also serve as new source of income. Bimeks receives royalty fee and collects construction costs for the new stores. With the addition of an c.20 stores annually, we expect this other income item to be as high as TL5.3mn in E 2012E 2013E 2014 E 2015E Additions Franchise Contracts signed Franchise income/contract (US$000) Franchise income (US$mn) Franchise income/contract (TLmn) Profitability Until the global crisis in period, the Company increased its total sales area from 2,393m 2 (15 stores) in 2005 to 18,584m 2 (31 stores) in Meanwhile, revenues more than tripled from TL83mn to TL257mn in the same period. Although Bimeks closed 2008 with a respectable EBITDA of TL12mn and an EBITDA margin of 4.6%, the sudden fall in the Turkish Lira against the dollar at the end of the year led to a net loss of TL15mn, amid TL23mn financial expenses. In 2009, Bimeks still managed to return a TL2mn operating profit yet bottomline again closed in red. 15

16 Bimeks aims to step up its cash purchases, paving the way for extensive discounts. In 2010, such cash purchases gave rise to a 2pp improvement in the Company s COGS/sales ratio. Lower costs are reflected in the sales prices of the goods, rendering the products more appealing for consumers. The Company aims to maintain this strategy as it strives to preserve its margins in the face of increased competition. Profit Margins 30.0% 24.0% 18.0% 12.0% 17.5% 13.9% 12.4% 23.7% 16.5% 16.7% 19.0% 20.2% 22.1% 12.4% 17.3% 25.0% 11.8% 6.0% 0.0% 8.2% 7.6% 6.8% 2.1% 4.4% n.m. n.m 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Gross Margin EBITDA Margin Source: The Company On April 14th, Bimeks has become public. The proceeds from the IPO mainly used to decrease the debt, to open new stores and to increase cash purchase for goods. The margins in the second quarter therefore have been very high with gross margin and EBITDA margin standing at 25% and 11.8% respectively. Going forward our assumptions are more conservative with gross margin and EBITDA margin hovering around 19% and 6.5-7% respectively. TL mn E 2012 E 2013 E 2014 E 2015 E 2018 E Sales ,012 1,299 Gross Profit EBITDA Net Profit Gross Margin 17.3% 19.8% 18.8% 18.8% 18.5% 19.0% 19.0% 19.0% EBITDA Margin 3.8% 8.7% 7.0% 6.7% 6.5% 6.9% 7.0% 6.5% Net Margin n.m 0.3% 2.0% 2.0% 2.3% 2.5% 2.3% 4.5% Source: The Company, Garanti Securities Estimates 16

17 A strong set of 2Q11 results... Bimeks disclosed a net profit of TL2.7mn in its 2Q11 financial statements, a marked improvement from the net loss figures of TL1.1mn in 2Q10 and TL0.9mn in 1Q11. The YoY improvement at the bottom line from a net loss to a net profit was mainly a result of the strong operating performance. On a QoQ basis, the lower cost of goods sold was the main source of support for the profitability. The 2Q11 bottom line brought the net profit for 1H11 up to TL1.8mn, from the net loss of 4.1mn in 1H10. Sales The Company s revenues increased by 30% YoY but slipped by 4% QoQ to TL88.1mn in 2Q11. The 2Q11 revenues took the Company s 1H11 revenues up to TL179.6mn, indicating a 36% YoY growth over the TL132.1mn booked in 1H10. Meanwhile, the total number of Bimeks stores reached 46 while the number of cities where Bimeks operates in reached 27 as of June 30, EBITDA The company booked TL10.4mn of EBITDA in 2Q11, up 87% YoY from the TL5.5mn in 2Q10, and up 66% QoQ from the TL6.2mn in 1Q11. As such, the company s EBITDA margin came in at 11.8% in 2Q11, widening by 3.6pp YoY and 4.9pp QoQ. Meanwhile, its 1H11 EBITDA stood at TL16.6mn, double the 1H10 EBITDA figure of TL8.4mn. This translated into a 9.3% EBITDA margin, up by 2.9pp YoY for 1H11. The 1H11 margin is higher than company s year end EBITDA margin target of 7.2%. Financial Expenses & Net Debt Below the operating line, the company recorded a net financial expense of TL5.1mn, little different from the net financial expense of TL4.8mn in 2Q10 and TL5.1mn in 1Q11. The company s net debt position decreased from TL50.5mn in 1Q11 to TL31.1mn in 2Q11. Summary Financials % Change (mn TL) 2Q10 3Q10 4Q10 1Q11 2Q11 1H10 1H11 2Q11/2Q10 2Q11/1Q11 1H11/1H10 Net Sales % -4% 36% Gross Profit % 39% 60% Operating Profit % 108% 236% EBITDA % 66% 98% Financial Inc./ Exp. (net) n.m. n.m. n.m. Net Income n.m. n.m. n.m. Cash and Near Cash Total Financial Debt Net Cash Working Capital Shareholders Equity Ratios Gross Margin 19.0% 20.2% 22.1% 17.3% 25.0% 17.9% 21.1% 6 pp 7.7 pp 3.2 pp Operating Margin 4.5% 3.9% 10.2% 4.0% 8.6% 2.5% 6.3% 4.1 pp 4.6 pp 3.7 pp EBITDA Margin 8.2% 7.6% 12.4% 6.8% 11.8% 6.3% 9.3% 3.6 pp 4.9 pp 2.9 pp Net Profit Margin n.m. 0.1% 4.9% n.m. 3.1% n.m. 1.0% n.m. n.m. n.m. 17

18 THE SECTOR The Turkish consumer electronics retail market is still a long way from maturity and offers tremendous growth potential given the low penetration ratios when compared to Turkey s EU peers. Strong GDP growth, fuelling a rise in per capita income, combined with Turkey s attractive demographics will support growth in the sector. Consumer electronics spending per capita is projected to grow by nearly 50% to US$145 within the next 5 years, on the back of rising incomes. The market offers growth potential in key digital products groups such as computers, notebooks, digital cameras and LCD TV sets. The total consumer electronics retail market size is estimated to have reached US$11bn by the end of 2010 and is expected to record a CAGR of 18% until 2015, reaching US$26bn. Consumer Electronics Retail Sales Breakdown by Product Group 1H11 Telecom US$1,660mn 27% Consumer Durables US$1,725mn 29% Consumer Electronics US$1,089mn 18% Small Appliances US$616mn 10% Computers and Components US$994mn 16% Source: Gfk Group According to the 4Q data announced by the Telecommunications Authority, there are a total of 16.2mn fixed line subscribers with 22.3% penetration. Mobile penetration stood at 85.1% at the end of December 2010 with 61.8mn subscribers, marking a slight decline from the 86.5% penetration at the end of December 2009 (62.8mn subscribers). The number of 3G subscribers increased from 7.1mn to 19.4mn during 2010, while the number of broadband internet subscribers jumped by 25% to 8.6 million in Growth Expectations E CAGR GDP per capita US$ 9,900 13,250 6% PC salesı ( 000) 1,600 3,000 13% LCD TV sales ( 000) 1,380 2,800 15% Mobile phonesales (mn units) 11,000 22,000 15% Internet subscriber (mn) 8,100 16,300 15% Share of organized electronic retail market 24% 40% Source: GFK, IDC, Data Monitor, BTK 18

19 The consumer electronics retail market is highly sensitive to price and maturity. Promotional campaigns are held by sponsoring companies and banks, and include attractive payment options with 6-24 month instalments for credit card purchases. The rapid developments in technology has effectively shortened the lifecycle of IT products, leading to lower margins. Therefore, offering the right product at the right price, along with well directed promotions, are of paramount importance depending on the purchasing power of the region. While high end consumers seek state-of-the-art technology at premium prices, the lower end market looks for products which fulfil their needs at value prices. Rising awareness and education will fuel growth in the renewal market. We expect the renewal market to exhibit as much growth as new product sales, as consumers tend to change their older version products for high-tech ones. In a bid to attract women customers as well as men, consumer electronics and IT products encompass a considerably wide product range, including some white goods and small household appliances, transforming the store into a one-stop-shopping for the electric and electronic related needs of the household. The product range includes television sets, videos, audio equipment, cameras, DVD products, calculators, heating and cooling systems, printers, fax machines, IT products, PCs, laptops, Ipads, MP3 players, modems, softwares, phones, mobile phones and accessories Market Players The share of organized electronic retail market is continuously increasing, with the industry attracting newcomers as the share of electronics retail rises continuously. Around 19% of the consumer electronics market was made through technology super stores. Electronics Superstore Revenue Share in Product Groups (1H11) Consumer Electronics 36.0% Computers and Components 33.6% Telecom 18.1% Consumer Durables 6.8% Small Appliances. 5.4% Source:GfK Group In Turkey s highly fragmented electronics retail market, organized electronic retail has a 20% share with Teknosa taking the lion s share. Despite the fierce competition maintained its position in terms of store numbers with a 7.6% share. The Company is one of the fastest growing in the market with a 5 year CAGR ( ) of 19%. According to 2010 Gfk market data, Bimeks commands a 8.2% market share in the superstore segment. With its long term growth targets Bimeks is expected to grab more market share going forward. 19

20 Major Organized Electronics Retailers Store Numbers /6M YoY Growth Teknosa % Gold % BIMEKS % Vatan % Darty % Mediamarkt % Electroworld % Other % Total % Source: GfK Source:Gfk Teknosa Sabancı Holding s subsidiary, Teknosa is Turkey s leading electronics retail chain with a full range of consumer electronics categories. The Company, founded in 2000, owns and operates retail stores selling consumer electronics goods. Sabanci Holding and the Sabancı family hold 70% and 30% stakes in Teknosa, respectively. Teknosa operates with three different store formats: standard stores with around 200m 2 of retail space, big box extra stores with 1,000 m 2 of retail space and mega box extra stores with 2,350m 2 store areas. Sabanci Holding Teknosa operates with a total net sales area of 105,000m 2. The Company acquired EP in 2007 and Best buy in Teknosa is still looking at opportunities for acquisition. The Company intends to increase its selling space up to 121,000sqm by 2011-end. Electro World Europe's largest electronic goods retail group, Dixons Retail operates under the Electro World brand in Turkey in a partnership between Dixons Retail, Esas Holding and ODESA. Dixons Retail is present in 28 European countries with 1,300 stores and online sales operations. In Turkey, Electro World operates with its 24 stores and net sales area of approximately 55,000 m 2. Media Market Media Market, Europe s largest retail for electronics, was established in 1979 in Munich, Germany. Media Market is present in 15 countries: Italy, Switzerland, Austria, Poland, Spain, the Netherlands, Belgium, Portugal, Greece, Sweden, Portugal, Hungary, Russia, China and Turkey. Media Market is one of world s electronic retail giants, with 50,000 employees and operating with more than 600 stores. Media Market opened its first store in Istanbul/ Turkey in As of the end of June 2011, the Company was operating with 20 stores in 100,000m 2 sales area with its sister company Saturn in the major cities of Turkey. 20

21 Darty Darty, the third biggest European electronic goods retailer, is a subsidiary of the UK based Kesa Electricals Group, which operates with 7 different brands through more than 800 stores in 10 European countries. Darty operates in five European countries with 240 stores, employing a workforce of more than 10,000. Darty opened its first store in Turkey in 2006 and now reached 24 store with 35,000m 2 sales area. Gold Computer Gold Computer, established in 1991 in Istanbul, is one of Turkey s oldest local electronics retail chains. The Company s strategy is to focus on both pricing and superior technologies at the same time as retaining customers. The company s growth strategy is based on locating stores in regions where they can directly reach their clients with lower prices. Gold Computer operates in 80 stores with 25,000m 2 of sales area. Vatan Computer Vatan Computer was established in 1983 in Istanbul. The company operates in 43 stores with a total store area of 85,000m 2. 21

22 Definition of Stock Ratings Stock Ratings OUTPERFORM (OP) The stock's total return is expected to exceed the return of the ISE-100 by more than 10% by the end of MARKET PERFORM (MP) The stock's total return is expected to be within 10% of the ISE-100 by the end of UNDERPERFORM (UP) The stock's total return is expected to fall below the return of the ISE-100 by more than 10% by the end of Garanti Securities Etiler Mah. Tepecik Yolu Demirkent Sk. No: Beşiktaş Istanbul Turkey Research Contact Information: Telephone: Facsimile: The information in this report has been obtained by Garanti Securities Research Department from sources believed to be reliable. However, Garanti Securities cannot guarantee the accuracy, adequacy, or completeness of such information, and cannot be responsible for the results of investment decisions made on account of this report. This document is not a solicitation to buy or sell any of the securities mentioned. All opinions and estimates included in this report constitute our judgment as of this date and 22 are subject to change without notice. This report is to be distributed to professional emerging markets investors only.