Turk Traktor OUTPERFORM. 23 February Generous dividends, solid balance sheet. Upside Potential* 20% Equity / Mid Cap. / Automotive & Parts

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1 Equity / Mid Cap. / Automotive & Parts Initiating Coverage 23 February 211 Bloomberg: TTRAK TI Generous dividends, solid balance sheet Leader in Turkish agricultural industry Thanks to its presence in the Turkish market since 1954, wide product range and extensive dealership network, is the leader in the domestic tractor market holding over 5% market share. The Company has preserved its dominance in the domestic market despite increasing number of competitors to 36 in 21 from 4 in 21. Besides, has the advantage of having access to CNH s global sales network. Agriculture sector still maintains its importance in Turkish economy Agriculture sector employing 3% of the population in Turkey is a significant contributor to the country s GDP despite of its sluggish growth momentum in recent years. The share of agriculture in GDP has dropped to 8.3% in 29 from 1.1% in 2 and the agricultural workforce s share in total employment, is also in a declining trend, decreasing to 3% in 27 around 7mn workers - from 35% in 21. Replacement market offers potential growth With its tractor park of 1.3mn, Turkey is among the top ten countries in the world. However, 44% of Turkey s tractor park is above 25 years and is ready to be replaced owing to their obsolete features. Considering an approximate economic life of 2 24 years for tractors, Turkey has a theoretical replacement potential of c.55. tractors pa. A scrap incentive to stimulate domestic tractor sales is on government s agenda; however, we don t expect it to materialize in 211. Attractive as a high dividend payer For the last five year, except for 29 and 21 due to global economic crisis, distributed 13% of its earnings in 28, 94% in 27 and 1% in 27, pointing out to dividend yields of 12.5%, 14.7% and 12%, respectively. The company will propose gross dividends of TL15mn from its 21 net income in its Annual General Meeting that will convene on March 25 th. The dividend yield corresponds to 11% at the current share price. Strong dependency of the sector on the macroeconomic downturns Economic growth and stability, government s support to agriculture, purchasing power of farmers and interest rates are the primary drivers affecting tractor sales in Turkey. The drought causing poor harvest in 27, hike in input prices (oil and fertilizer) in 28 and global crisis during resulted in significant contraction in the domestic tractor sales in Turkey. We are initiating coverage for with OUTPERFORM recommendation with our 12 month target price of TL3.8, implying 2% upside potential. Key Estimates (TL mn) TTRAK E 212E 213E Sales 668 1,193 1,233 1,272 1,353 EBITDA Net Income P/E (x) EV/EBITDA (x) EPS Dividend Yield (%) 7% 2% 11% 12% 1% Please refer to important disclaimer at the end of this report. Reuters: TTRAK IS OUTPERFORM Upside Potential* 2% * Excluding dividend yield Stock Data TRY US$ Price at Month Target Price Mcap (mn) 1, Float Mcap (mn) No. of Shares Outstanding Price / Relative Price TL TTRAK Relative Relative to ISE mn Free Float (%) 24. Avg.Daily Volume (3M, mn) Market Data TRY ISE 1 63,132 US$ Spot Rate US$ 12-Month Forw ard Price Performance (%) 1 Mn 3 Mn 12 Mn TRY US$ Relative to ISE Week Range (Close TRY) Esra Suner esuner@isyatirim.com.tr

2 Summary of Key Financials (TL mn) Income Statement (TL mn) 29A* 21A* 211E 212E 213E Revenues 668 1,193 1,233 1,272 1,353 EBITDA Depreciation & Amortisation EBIT Other income (expense), net (1) (22) (23) (25) (27) Financial expenses, net (16) 4 22 (4) (21) Minority Interests Income before tax Taxation on Income (6) (43) (47) (4) (37) Net income Cash Flow Statement (TL mn) Net Income Depreciation & Amortisation Indemnity Provisions 4 2 Change in Working Capital (6) (6) (13) Cash Flow from Operations Capital Expenditure Free Cash Flow Rights Issue Dividends Paid Other Cash Inflow (Outflow ) (3) (17) Change in net cash (51) (38) Net Cash (242) 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 Long-term debt Other long-term liabilities Short-term debt Trade payables Total Debt Other short-term liabilities Total liabilities Minority Interest Total equity Paid-in capital Total liabilities & equity Ratios ROE (%) ROIC (%) Invested Capital Net debt/ebitda (x) Net debt/equity (%) Capex/Sales (%) Capex/Depreciation (x) EBITDA Margin EBIT Margin Net Margin Valuation Metrics EV/Sales (x) 1.1x 1.x 1.x 1.x 1.x EV/EBITDA (x) 11.9x 4.7x 5.2x 5.4x 5.3x EV/IC (x) 1.5x 3.3x 3.4x 3.2x 2.9x P/E (x) 1.5x 4.1x 7.2x 8.4x 9.3x FCF yield (%).5x.4x.1x.1x.1x Dividend yield (%) 7% 2% 11% 12% 1% *based on average Mcap during the year Company Overview Production, import and distribution of Case IH and New Holland brands tractors, spare parts, engines, transmissions and agricultural equipment. Shareholder Structure 24.9% 37.5% CNH Group Float.1% 37.5% Koc Holding Other 2

3 Investment Thesis Market leadership with over 5% market share Investment Positives Leader in Turkish agricultural industry in terms of domestic sales and exports Thanks to its presence in the Turkish market since 1954, wide product range and extensive dealership network, is the leader in the domestic tractor market holding over 5% market share. Being a Koc Holding and CNH joint venture enhanced customer s trust and loyalty to the company. Indeed, the Company has preserved its dominance in the domestic market despite increasing number of competitors to 36 in 21 from 4 in 21. The fact that s archrival, Uzel, has been losing ground in the domestic tractor market as a manufacturer since 28, due to ownership disputes enabled the company to grab further market share. Besides, has advantage in export markets, having access to CNH s global sales network. Agriculture sector maintains its importance in Turkish economy Agriculture sector accounts for 8.3% of Turkey s GDP Agriculture sector employing 3% of the population in Turkey is a significant contributor to the country s GDP despite of its sluggish growth momentum in recent years. The share of agriculture in GDP has dropped to 8.3% in 29 from 1.1% in 2 and the agricultural workforce s share in total employment, is also in a declining trend, decreasing to 3% in 27 around 7mn workers - from 35% in 21. However, with high agricultural population and low technology usage Turkish agriculture industry is labour intensive rather than capital intensive. For instance, there are approximately 3mn agricultural holdings in Turkey, only 32% of which have tractors. Increase in mechanization of farming activities might also improve margins in the future, as higher HP tractors have superior margins. 11% dividend yield in 211 Replacement market offers potential growth With its tractor park of 1.3mn, Turkey ranked 6 th in the world. However, 44% of Turkey s tractor park is above 25 years and is ready to be replaced owing to their obsolete features. Considering an approximate economic life of 2 24 years for tractors, Turkey has a theoretical replacement potential of c. 55. tractors pa. A scrap incentive to stimulate domestic tractor sales is on government s agenda; however, we don t expect it to materialize in 211. In addition, we did not incorporate this possibility in our model for the forthcoming years to be on the conservative side. We project domestic tractor sales to grow at CAGR of 1% for the next ten years, considering the nature of volatility of the market. Attractive as a high dividend payer has highly flexible production line for any CNH model without the need for an intensive capital expenditure, enabling fast adaptability and responsiveness to the varying regional demand. Indeed, the company utilized 81% of its annual 35, tractors production capacity in 21. For the last five year, except for 29 and 21 due to global economic crisis, distributed 13% of its net earnings in 28, 94% in 27 and 1% in 27, pointing out to dividend yields of 12.5%, 14.7% and 12%, respectively. The company will propose gross dividends of TL15mn from its 21 net income in its Annual General Meeting that will convene on March 25th. The dividend yield for 211 corresponds to 11% at the current share price. We are initiating coverage for with a OUTPERFORM recommendation with our 12 month target price of TL3.8, implying 2% upside potential. We reached a target equity value of TL1,645mn for TTRAK based on DCF analysis. However, we deem that the high dividend yield for 211 may be a short term trigger for the stock ahead of the dividend season. 3

4 Investment Negatives Strong dependency of the sector on the macroeconomic downturns 9% of tractor purchases in Turkey are financed through bank loans... Economic growth and stability, government s support for agricultural sector, purchasing power of farmers and interest rates are the primary drivers affecting tractor sales in Turkey. The drought causing poor harvest in 27, hike in input prices (oil and fertilizer) in 28 and global crisis during resulted in significant contraction in domestic tractor sales in Turkey. Additionally, considering that 9% of tractor purchases are financed through bank loans, lack of accessibility to credit lines in 28 further hit tractor sales in Turkey. In 29, uncertainty regarding to economic recovery caused farmers to postpone their tractor purchases. Consequently, tractor sales in Turkish domestic market contracted at a CAGR of 3% between 26 and 29. Heightened competition due to increasing share of importers Imports share was up to 26% in 29 from 1% in 22. Based on Tarmakbir data, the share of imports in domestic sales was 26% in 29, up from 1% in 22. The number of brands rose to 36 in 21 from 4 in 21, increasing the competition in the domestic market. Until 28, domestic tractor market was a duopoly (Turk Tractor and Uzel) representing a total market share of 7%. Between 1961 and 28, Uzel manufactured tractors under the license of Massey Ferguson. However, ownership dispute in 28 caused the company to halt production leading to a substantial market share loss in the domestic market. In 29, the company restarted to manufacture but under its own brand name, Uzel. Currently, Uzel is estimated to have a market share of less than 5%, down from 35% before 27. In the meanwhile, Massey Ferguson continued to be in the domestic market with its imported tractors. However, Massey Ferguson started production in Turkey in 21 with an estimated production capacity of 7K-8K tractors p.a. Among 36 brands, only, Hattat, Tumosan, Basak, Erkunt and Massey Ferguson have manufacturing plants in Turkey. Foton and Branson are the two newest brands entered the Turkish market in 21. Increased competition might negatively affect profit margins in the future which we factored in our valuation model. Growth momentum to slowdown in 211 after a strong 21 After a pretty strong 21, we don t expect a remarkable growth in the top-line and bottom-line in 211. A domestic tractor market around 4K units is expected in 211 similar to 21 on the back of good rainfalls and high yields combined with favourable borrowing rates despite rising input prices (fuel and fertilizer). As a local manufacturer, has a competitive advantage over pure importers in case of weak TL against. Therefore, we believe that will be more advantageous compared to its importer rivals during 211 in terms of pricing. Besides, high portion of domestic sales appears to mitigate margin erosion in 211 due to raw material cost (i.e. iron and rubber) hikes. Therefore, we expect a minor top-line growth of 3% with an EBITDA margin erosion of.8 pp to 2% in 211 for. Bottom-line, on the other hand, is forecasted to rise by a mere 5% in 211 over 21 mainly due to increase financial in income on the back of lower interest expense and higher f-x gains. 4

5 Valuation We are initiating coverage for with a OUTPERFORM recommendation with our 12 month target price of TL3.8, implying 2% upside potential. With our conservative assumptions, we reached an equity value of TL1,645mn driven by DCF method. trades at discount based on 211E P/E and EV/EBITDA multiples of 7.2x and 5.2x compared to emerging market peer group s median of 12.8x and 9.8x, respectively for the same period. A peer comparison analysis was not factored in our valuation due to large difference in size between and its global peers. However, considering s emerging market peers, peer comparison analysis points out to TL1,987mn target MCAP for the stock. Figure 1 : DCF Analysis (TL mn) 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E 221E TV Revenues 1,233 1,272 1,353 1,451 1,542 1,629 1,724 1,816 1,93 1,995 2,91 EBITDA EBITDA Margin 2.% 18.9% 17.8% 17.2% 17.2% 17.2% 17.1% 17.1% 17.% 17.% 17.% EBIT (-) tax on EBIT (+) Depreciation (+/-) Change in WC (-) Cap-ex Free cash ,112 Disc Factor DCF Terminal grow th 3% Firm Value 1,541 Net Cash (211E) 13 Target Equity Value 1,645 # of shares (mn) month share price 3.8 Current Share Price 25.6 Upside Potential 2% Source : IS Investment Estimates Figure 2 : WACC Assumptions 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E 221E WACC 13.8% 13.5% 13.% 13.1% 13.6% 13.6% 13.6% 13.6% 13.6% 13.6% 13.6% Risk Free rate 9.% 9.% 9.% 9.% 9.% 9.% 9.% 9.% 9.% 9.% 9.% Equity Risk premium 6.% 6.% 6.% 6.% 6.% 6.% 6.% 6.% 6.% 6.% 6.% Beta Cost of Equity 15.% 15.% 15.% 15.% 15.% 15.% 15.% 15.% 15.% 15.% 15.% After tax cost of Debt 8.% 8.% 8.% 8.% 8.% 8.% 8.% 8.% 8.% 8.% 8.% D/(D+E) 17% 22% 28% 28% 2% 2% 2% 2% 2% 2% 2% Source : IS Investment Estimates 5

6 Figure 3 : Model Assumptions 21* 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E 221E Domestic Tractor Market 39,354 4,141 4,944 41,354 41,767 42,185 42,67 43,33 43,463 43,898 44,337 44,78 Market Share 51% 51% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Domestic Sales - Units Export Sales - Units Production Capacity Tractor 2,2 2,42 2,472 2,677 2,884 21,92 21,33 21,516 21,732 21,949 22,168 22,39 Tractor 8,938 9,117 9,299 9,485 9,675 9,868 1,66 1,267 1,472 1,682 1,895 11,113 Transmisson 5,28 5,386 5,493 5,63 5,715 5,83 5,946 6,65 6,186 6,31 6,436 6,565 Tractor 35, 35, 35, 35, 35, 35, 35, 35, 35, 35, 35, 35, CUR 81% 84% 85% 86% 87% 88% 9% 91% 92% 93% 94% 96% Cap-ex % of revenues 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% WC / Revenues 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% Source : IS Investment Estimates ( * 21 domestic tarctor market sales are estimated data) Key assumptions for our DCF model : Our forecast horizon is ten years. We project domestic tractor market sales to grow at a CAGR of 1% till 221, considering market s past track record of CAGR at 1% between 1993 and 21. We assume domestic market share to stabilise at 5% during our projection period. We forecast domestic tractor sales volume to grow by 1% CAGR in-line with the Turkish market and export sales to increase by 2% CAGR between 211 and 221. We project export prices to remain unchanged in terms. On domestic front, prices are linked to both inflation and change in /TL, assigning 7% weight for the former and 3% for the latter. has a natural hedge policy, adjusting the currency breakdown of its purchases in order to match its export turnover (mostly denominated), which accounts for 3% of total revenues. We do not pencil in any production capacity increase in our model, since we think that the company has enough capacity to meet the demand from both domestic and international markets. Indeed, capacity utilization rate for tractors is assumed to reach to 96% in 221. Increased competition might negatively affect profit margins in the forthcoming periods. Hence, we assume EBITDA margin to contract to 17% in 221 from 2% in 211. The fact that the company has completed its investments and has sufficient production capacity, we just incorporate maintenance cap-ex, which is equal to 2% of revenues, in our projection period. We believe that the company does not have any room for further improvement in working capital requirement. Hence, we foresee working capital requirement / sales ratio stable at 18% in 211 and onwards. Finally, we use a WACC of 13.5% on average which we determine by assuming a 8: 2 debt: equity ratio on average, a risk free rate of 9%, equity risk premium of 6% and a beta of 1. 6

7 Figure 4 : International Peer Comparison Mcap Source : Reuters and IS Investment Estimates EV/SALES EV/EBITDA P/E 21E 211E 212E 21E 211E 212E 21E 211E 212E Country Deere & Co. $38, USA CNH Global N.V. $11, na USA AGCO Corp. $4, USA Mahindra & Mahindra $8, India First Tractor CO-H $ Hong Kong Median developed markets Median emerging markets $ Disc/Premium - developed -4% -31% -29% -62% -62% -57% -82% -6% -4% Disc/Premium - emerging -32% -17% -7% -59% -47% -38% -71% -44% -23% International Peer Comparison trades at discount based on 211E P/E and EV/EBITDA multiples of 7.2x and 5.2x compared to emerging market peer group s median of 12.8x and 9.8x, respectively for the same period. The discount is larger in developed markets peers, trading at Trades discount to peers E P/E and EV/EBITDA multiples of 18.x and 13.8x, respectively. Domestic Peer Comparison shares trade at 16% and 24% discount based on 211E P/E and EV/ EBITDA multiples of 7.2x and 5.2x compared to domestic automotive stocks median of 8.6x and 6.8x, respectively for the same period. Figure 5 : Domestic Peer Comparison MCAP EV/SALES EV/EBITDA P/E TL m n 21E 211E 212E 21E 211E 212E 21E 211E 212E TOASO 4, FROTO 4, OTKAR DOAS 1, Median TTRAK Discount / Premium 5% 69% 85% -33% -24% -12% -53% -16% 6% Source : IS Investment Estimates 7

8 Sector Overview Turkish Agricultural Sector Being one of the few self-sufficient countries in the world in terms of food, Turkey has an important position in the globe in the field of agriculture thanks to its favourable geographical conditions and climate. Agriculture sector remains a major employer in Turkey and a significant contributor to the country s GDP despite of its sluggish growth momentum in recent years. The share of agriculture in GDP has dropped to 8.3% in 29 from 1.1% in 2 and the agricultural workforce s share in total employment, is also in a declining trend, decreasing to 3% in 27 around 7mn workers - from 35% in 21. Additionally, the number of agricultural holdings declined by 25% to 3mn in the 21 census from 4mn in 1992, where average farm size stood c. 6 hectares. Indeed, c.65% of holdings is less than 5 hectares land whereas only 6% of farmers have larger than 2 hectares of land. In Turkey, 39% of the population lives in rural areas, while the country has an agricultural area of over 27mn hectares, which is equivalent to c.15% of the current amount of EU27 agricultural land. Based on Turkstat data, Turkish agricultural production amounted to TL73bn in 28 and TL79bn in 29. Figure 6 : Agricultural Sector - Main Indicators USA EU TURKEY Total Population - mn Agricultural Population - mn Agricultural Population Ratio % 2% 5% 33% Agricultural Share in GNP % 2% 2% 8% Agricultural Share in Employment % 3% 5% 3% Source: Company Presentation Even as Turkey is one of the few self sufficient in food, Turkish agriculture is poorly structured and inefficient. This is basically due to highly fragmented structure with a large number of small farms which are highly dependent on government subsidies for their survival and low rate of mechanization due to high cost of machinery for small-scale farms. High agricultural population and low technology usage lead a labour intensive rather than capital intensive farming. For instance, there are approximately 3mn agricultural holdings in Turkey, only 32% of which have tractors. Figure 7 : Growth Rates 15% 1% 8% 1% 6% 5% 4% 2% % % % -2% -4% -1% -6% GDP Agricultural Sector in Tractor Sales Source: Turkstat Figure 8 : State Support in Agriculture TL bn 9 8.8%.8% 7.7% %.8%.8%.6%.7%.7% State Support in Agriculture Source: TUGEM - (public bank loans are not included) Share in GNP 1.%.8%.5%.3%.% State support in agriculture is very crucial in Turkey directly affecting farmers purchasing power, harbouring them for fluctuations in grains prices and input costs. Since 22 state support in agriculture expanded substantially to TL8.4bn in 21, while its share in Turkey s GNP remained stable at.8%. State supports are categorized into 6 groups as area based subsidies, deficit payment subsidies, rural development supports, loan interest payment subsidies, export subsidies and loan subsidies. Besides, subsidized loans extended to farmers through government banks which is reached to TL13bn in 21, has a significant contribution to support agriculture sector. 8

9 Figure 9 : Input Prices TL/lt Source: AERI Oil Price - TL / lt Turkish Tractor Market Economic growth and stability, government s agricultural supports, purchasing power of farmers and interest rates are the primary drivers affecting tractor sales in Turkey. Additionally, input prices such as fuel, fertilizer and chemicals, weather conditions affecting harvest, and government subsidies are the fundamental features having impact on purchasing power of farmers. 1, Fertilizer Price (avrg) Figure 1 : Auto Loan Rates 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Source: CBRT 3Q1 1Q1 3Q9 1Q9 3Q8 1Q8 3Q7 1Q7 3Q6 1Q6 3Q5 1Q5 3Q4 1Q4 3Q3 1Q3 3Q2 1Q2 3Q1 1Q1 3Q 1Q Auto Loan Interest Rates The drought causing poor harvest in 27, peak input prices (oil and fertilizer) in 28 and global crisis during resulted in significant contraction in domestic tractor sales in Turkey. Additionally, considering that 9% of tractor purchases are financed through bank loans, lack of accessibility to credit lines in 28 further hit tractor sales in Turkey. In 29, uncertainty regarding to economic recovery caused farmers to postpone their tractor purchases. Consequently, tractor sales in Turkish domestic market contracted at a CAGR of 3% since 26. Since 1993 the average tractor sales in domestic market is c. 3K units, in 29 only 14K tractors were sold. The government tax incentives implemented to stimulate domestic automotive sales in 29 were not applied to the tractor market during the global financial crisis. As a result of pent up demand combined with low borrowing costs and good harvest in 21, domestic tractor sales more than doubled, reaching to 4K units. Figure 11: Tractor Production, Imports & Exports ' units Production Imports Exports Source: TARMAK-BIR Figure 12 : Domestic Tractor Sales ' units 5 26% 3% 4 18% 2% 25% 2% % 17% 15% 9% 1% 1 3% 5% 1% % Domestic Tractor Sales Share of Imports Source: TARMAK-BIR Based on OSD data, 3K tractors were produced with a CUR of 67% in 21. On average, c.3% of total production allocated to exports markets. The share of imports in domestic sales was 26% in 29, up from 1% in 22. The number of brands rose to 36 in 21 from 4 in 21, increasing the competition in the domestic market. Until 27, domestic tractor market was a duopoly (Turk Tractor and Uzel) representing a total market share of 7%. Among 36 brands, only, Hattat, Tumosan, Basak, Erkunt and Massey Ferguson have manufacturing plants in Turkey. Foton and Branson are the two newest brands which entered the Turkish market in 21. 9

10 Figure 13 : Domestic Market Players 17% Turk Traktor (CNH+NH) 7% Other Local Producers 51% Massey Ferguson 25% Other Importers Source: Company has an overwhelming market share of 51% in Turkish tractor market. The major player after in the domestic market is Massey Ferguson with 7% market share. While importers have a total market share of 17%, other local producers account for 25% of domestic tractor market. Uzel, which used to be a dominant player in the market producing for Massey Ferguson branded tractors besides its own brand, prior to 28 was wiped out from the market due to dispute between controlling family members. Both and importers grabbed some market share from Uzel after 28. Between 1961 and 28, Uzel manufactured tractors under the license of Massey Ferguson. However, ownership dispute in 28 caused company to halt production and leading to a substantial market share loss in the domestic market. In 29, the company restarted to manufacture but under its own brand name, Uzel. Currently, Uzel is estimated to have market share of less than 5%, down from 35% before 27. In the meanwhile, Massey Ferguson continued to be in the domestic market with its imported tractors. However, Massey Ferguson started production in Turkey in 21 with an estimated production capacity of 7K-8K tractors p.a. Figure 14: Turkish Tractor Park 8% 8% 1-24 years old years old 19% 9% 56% 3-34 years old years old > 4 years old Source: Company Presentation Turkish Tractor Park is approximately 1.3mn, 44% of which is above 25 years, causing productivity loss of c. 25% due to high fuel consumption and maintenance costs. Despite the fact that more than half million tractors in Turkey are ready to be replaced owing to their obsolete features, only 1% and 3% of this total park was renewed in 29 and 21, respectively. Considering an approximate economic life of 2 24 years for tractors, Turkey has a theoretical replacement potential of c. 55. tractors pa. In Turkey, average tractor age is 22 years with an average HP of 58HP compared to 1 years average age and average HP of 1HP in EU. 1

11 Company Profile was founded in In 1998, Koc Holding and CNH Global, became partners and established a JV, each owning 37.5% of the equity. The Company is listed in Istanbul Stock Exchange with a free float of 24.9%. Its head office, production facility and sales & marketing offices are located in Ankara. The Company has extensive training and after sales network throughout the country. s installed capacity is 35, tractors/year and 25, engines/year. locally manufactures 3 tractor series, TT (small, launched in 24), 56 (medium, launched in 1989) and TD/JX (bigger, launched in 22 domestically and in 23 abroad). Under the Case IH brand, JX series are exported to USA, Canada and Austria and also sold to domestic market starting from September, 27. Under New Holland brand, TD series are sold both to international and domestic markets. The Company is the only plant within CNH world to manufacture both the engine and transmission in house. Apart from tractors and engines, sells imported agricultural machinery such as combine harvesters, cotton pickers, balers and other agricultural equipment. On March, 28, and its selling and marketing arm New Holland Trakmak merged under. The 21 year-end headcount was 1,817. Figure 15 : Shareholder Structure.1% CNH 24.9% 37.5% Koc Holding Free Float 37.5% Other Financial Highlights Source: Company The Company achieved to grow its revenues at a CAGR of 2% between 25 and 21 thanks to both volume growth (CAGR 1%) and price increases. As the company is the market leader in domestic tractor market, it has a price maker position rather than follower. Besides changes in consumer preferences favouring higher HP tractors caused average prices to rise in the past. In general, exports have a share of c.3% in total revenues. exports its tractors through CNH s well established global sales network based on cost plus mark-up. Majority of exports are sold to USA with a share of 45%. West Europe and Africa follow USA with 19% share each, while Asia accounts for 13% of the total exports of the company. Exports to all regions are denominated. Figure 16 : Revenues Figure 17 : Breakdown of Exports TL mn 1,5 1, % 68% 71% 6% 51% 72% 73% 8% 6% 4% 2% 13% 19% 4% 45% USA West Europe Africa Asia Other E % 19% Source: Company & IS Investment Source: Company & IS Investment 11

12 Figure 18 : EBITDA & EBITDA Margin % % 2.8% 2.% % 11.1% % E EBITDA EBITDA Margin Source: Company & IS Investment 3% 25% 2% 15% 1% 5% % The Company s EBITDA margin fell to 9.2% in 29 from 26.4% in 25 mainly due to the decline in domestic sales share, change in product mix and reduction in CUR. Domestic sales have higher EBITDA margin compared to exports, for which we assume the difference to more than double in favour of domestic sales. In 21, company s EBITDA margin rose to 2.8% from 9.2% in 29 mainly due to the increasing share of domestic sales to 72% from 51% and change in product mix. As the harvest was good during 21 owing to favourable weather conditions, farmers demanded higher HP tractors with greater margins. In 211, we factored in some deterioration due to hike in raw material costs. Figure 19 : Working Capital Requirement TL mn 5 56% % 48% 2 17% 18% 18% 1 1% E 6% 5% 4% 3% 2% 1% % Source: Company & IS Investment The working capital requirement reached its peak level in 28 after the merger with Trakmak, marketing arm of the company. However, afterwards it was in a declining trend. Working capital as a percentage of sales dropped to 18% in 21 far away from its level of 56% in 28. As a result of the boost in working capital requirement, net debt position climbed to TL41mn in 28. Yet, net debt position reduced after 28 parallel to improvement in working capital requirement. Indeed, the company has a net cash position of TL8mn as of end of 21. Figure 2 : Net Debt / Cash Position TL mn E Source: Company & IS Investment 12

13 Figure 21 : Capital Expenditure TL mn % 3 2% 25 2% 2 2% 2% % 1% E 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% Source: Company & IS Investment Investing over US$1mn over the last decade, has completed its investments. Therefore, capital expenditure of the company hovered around 2% of revenues over the past five years. The capacity utilization rate was at 81% for tractor assembly line in 21. is one of the high dividend payer companies in ISE. The company has a dividend policy to distribute at least 6% of its distributable income. For the last five year, except for 29 and 21 due to global economic crisis, distributed 13% of its profits in 28, 94% in 27 and 1% in 27, pointing out to dividend yields of 12.5%, 14.7% and 12%, respectively. The company will propose gross dividends of TL15mn from its 21 net income in its Annual General Meeting that will convene on March 25th. The dividend yield for 211 corresponds to 11% at the current share price. Figure 22 : Dividend Payment & Dividend Pay-out Ratio 2 12% 15 1% 15 8% % 47 4% 5 2% % E Cash Dividends Dividend Pay-out Ratio Source: Company & IS Investment 13

14 21 year- end results Higher share of domestic sales boosted the bottom-line disclosed TL65mn net earnings in 4Q1 much higher than recorded TL15mn in 4Q9. Accordingly, 21FY bottom-line reached to TL18mn, implying massive growth over TL31mn in 29. Boosted bottom-line was primarily attributable to substantial upsurge in domestic sales and improved operating performance. Besides, decline in net financial expenses stemming from trimmed interest expense helped the increase in net profit in 21. Top-line growth thanks to recovery in domestic market Company s revenues reached to TL35mn in 4Q1, up by 82% Y-o-Y. In addition, top-line figure was at TL1,193mn in 21FY, up by 79% Y-o-Y thanks to robust domestic tractor market in 21. Consequently, the share of domestic revenues rose to 72% in 21 from 51% in 29, improving the company s profitability. In 21, s market share remained flat at 51% in a domestic tractor market where approximately 4, tractors were sold compared to 13,78 tractors in 29. Economic recovery, low borrowing rates, good harvest on the back of favorable weather conditions and low input prices (fuel and fertilizer) were the main drivers boosting tractor sales in 21. In unit base, company sold 28,94 tractors both in domestic and export markets, up by 84% Y-o-Y, and 5,28 transmissions to international markets, up by 11% Y-o-Y, in 21. Remarkable margin enhancement The company achieved significant improvement in gross margin by 11.7pp to 29.6% in 4Q1 thanks to higher portion of domestic sales. Lower op-ex / sales ratio due to increasing economies of scale combined with improved gross margin resulted in extensive EBITDA growth to TL84mn in 4Q1 from TL22mn in 4Q9. As a result, 21FY EBITDA was attained at TL249mn, up from TL61mn in 29. EBITDA margin climbed to 23.9% in 4Q1, up from 11.4% in 4Q9 and 19.9% in 3Q1. Q-o-Q margin improvement was basically due to seasonality, upsurging purchasing power of farmers after good harvest. Improved profitability and decline working capital requirement strengthened balance sheet Net debt position of TL242mn as of 29 year end turned into net cash position of TL8mn as of 21 year end thanks to superb profitability and efficient working capital management. Indeed, company s working capital requirement fell to TL211mn as of end of 21, down from TL321mn in 29 year-end. Company s capital expenditure rose to TL35mn in 21, up from TL11mn in 29 mainly due to the 5mn investment for the production of new models for export markets through CNH and R&D activities regarding to Tier3 engine. Please recall that, in July signed an agreement with its shareholder CNH regarding the production of new tractor models of CNH in its facilities next ten years, generating revenues of 5mn p.a. Attractive dividend yield will propose gross dividends of TL15mn in its Annual General Meeting that will convene on March 25th. The dividend yield for 211 corresponds to 11% at the current share price. Figure 23 : Financial Highlights TTRAK (TLmn) 4Q1 4Q9 Change 3Q1 Change Change 211E Change Revenues % % 1, % 1,233 3% Gross Margin 29.6% 17.9% 11.7pp 26.8% 2.8pp 26.7% 15.6% 11.1pp 26.1% -.6pp Operating Profit % 57 41% % 238-1% Operating Margin 23.2% 1.3% 12.9pp 19.2% 4.pp 2.1% 8.% 12.1pp 19.3% -.8pp EBITDA % 6 4% % 246-1% EBITDA Margin 23.9% 11.4% 12.5pp 19.9% 3.9pp 2.8% 9.2% 11.7pp 2.% -.8pp Financial Expense, net 1 (2) -181% 2 n.m. 4 (16) -126% % Net Income % 45 43% % 189 5% Net Margin 18.6% 7.5% 11.pp 15.2% 3.4pp 15.1% 4.6% 1.4pp 15.4%.3pp Source: Company & Is Investment 14

15 211 Outlook After a pretty strong 21, we don t expect a remarkable growth in the top-line and bottom-line in 211. A domestic tractor market around 4K units is expected in 211 similar to 21 on the back of good rainfalls and high yields combined with favourable borrowing rates despite rising input prices (fuel and fertilizer). As a local manufacturer, has a competitive advantage over pure importers in case of weak TL against. Therefore, we believe that will be more advantageous compared to its importer rivals during 211 in terms of pricing. Besides, high portion of domestic sales appears to mitigate margin erosion in 211 due to raw material cost (i.e. iron and rubber) hikes. Therefore, we expect a minor top-line growth of 3% with an EBITDA margin erosion of.8 pp to 2% in 211 for. Bottom-line, on the other hand, is forecasted to rise by a mere 5% in 211 over 21 mainly due to increase financial in income on the back of lower interest expense and higher f-x gains. 15

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