Ak Enerji OUTPERFORM (M) 26 February Upside Potential 36% Equity / Mid Cap. / Utilities. Review of 4Q09 Financials. Price / Relative Price

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1 Equity / Mid Cap. / Utilities Review of 4Q09 Financials 26 February 2010 Ak Enerji Bloomberg: AKENR TI In line operating profit, but AkCEZ took its toll... Worse than expected bottomline Reuters: AKENR IS Akenerji announced TL6.5mn net loss in its 4Q09 financials, compared with TL21mn of net profit in 4Q08, leading to TL24.2mn of FY09 net profit, resulting a 73% YoY decrease. Y-o-Y in line revenues The company generated TL87mn revenues in 4Q09, 45% lower YoY. Thus, FY09 revenues dropped to TL464mn, down by 24% YoY on the back of lower sales volume. The company s electricity generation was 2.2bn kwh, yet lower than the 2.8bn kwh generated in FY08. We assume that the company sold 72% of its generated electricity to the DUY market in 4Q09 and calculate that the company sells at a 22% premium to the announced DUY prices in 4Q09 compared to the premium of 21% in 3Q09 Lower electricity and steam generation dragged down the EBITDA Akenerji generated TL62mn of EBITDA in 2009, 36% YoY lower compared to the same period last year, mainly due to the decline in electricity generation and steam sales in One off fixed asset sale loss The company recorded a net other loss of TL10mn in 2009 compared to a net other income of TL3mn in The net other loss in 2009 mainly came from the TL17mn losses recorded for the fixed asset sale (Ak Enerji sold 70MW inefficient natural gas fired capacity to its group companies at US$7.89mn) completed in 2Q09, which had a pernicious impact on the bottomline. SEDAS one off losses lowered the equity income in 4Q09 Akenerji consolidates AkCEZ (the 45% subsidiary, which fully owns the electricity distribution company SEDAS) via equity method and booked TL15mn equity loss in 4Q09. The company s management stated that Ak- CEZ negative contribution is due to SEDAS one off losses. Maintain our OUTPERFORM recommendation To sum up, the operating results were in line with estimates but the actual equity income from AkCEZ was much worse than our estimate. After we adjusted our model with the actual 2009 figures, our target price for Akenerji slightly increased to TL23/share from TL22/share. We maintain our OUT- PERFORM recommendation OUTPERFORM (M) TL Upside Potential 36% Stock Data TRY US$ Price at Month Target Price Mcap (mn) 1, Float Mcap (mn) No. of Shares Outstanding Price / Relative Price AKENR Relative Relative to ISE mn Free Float (%) Avg.Daily Volume (3M, mn) Market Data * Excluding dividend yield TRY ISE ,739 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) AKENR E 2011E Sales EBITDA Net Income P/E (x) a.d 7,1 26,8 18,8 9,2 EV/EBITDA (x) a.d 6,2 25,3 19,0 8,9 EPS -0,61 1,36 0,37 0,89 1,81 Dividend Yield (%) 0,0 0,0 3,23 0,6 0,5 Asli Ozata Kumbaraci akumbaraci@isyatirim.com.tr Basak Dinckoc bdinckoc@isyatirim.com.tr Please refer to important disclaimer at the end of this report. 1

2 Summary of Key Financials (TL mn) AKENR ######## Income Statement (TRY mn) 2007A 2008A 2009A 2010E 2011E Revenues EBITDA (5) Depreciation & Amortisation EBIT (56) Other income (expense), net 4 3 (10) 3 3 Financial expenses, net 1 32 (6) 11 6 Minority Interests Income before tax (55) Taxation on Income 15 (10) 6 (15) (30) Net income (40) Cash Flow Statement (TRY mn) Net Income (40) Depreciation & Amortisation Indemnity Provisions Change in Working Capital (14) (23) 5 (1) (14) Cash Flow from Operations (3) Capital Expenditure Free Cash Flow (14) (71) (285) (171) 54 Rights Issue Dividends Paid Other Cash Inflow (Outflow ) (53) (55) (21) (45) 23 Change in net cash (67) (126) (323) (222) 71 Net Cash (68) (194) (517) (740) (668) Balance Sheet (TRY 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 Other short-term liabilities Total liabilities Minority Interest Total equity Paid-in capital Total liabilities & equity Ratios ROE (%) -9,9 20,5 4,0 7,4 11,9 ROIC (%) -11,7 11,1 3,8 4,1 8,6 Invested Capital Net debt/equity (%) 17,5 40,5 72,0 87,0 58,4 Capex/Sales (%) 2,6 27,7 73,8 52,1 17,0 Capex/Depreciation (x) 0,2 5,3 12,2 7,5 1,8 EBITDA Margin -1,0 15,8 13,3 16,8 27,7 EBIT Margin -12,4 10,6 7,2 9,8 18,5 Net Margin -8,9 14,7 5,2 11,5 18,2 Valuation Metrics EV/Sales (x) 1,7x 1,0x 3,4x 3,2x 2,5x EV/EBITDA (x) -188,0x 6,2x 25,3x 19,0x 8,9x EV/IC (x) 2,0x 1,1x 1,8x 1,5x 1,4x P/E (x) -11,6x 7,1x 26,8x 18,8x 9,2x FCF yield (%) (3,1) (11,2) (43,9) (15,7) 4,9 Dividend yield (%) 0% 0% 3% 0,6% 0,5% 2

3 ..lower than anticipated equity income. The company expect DUY prices to stay at low levels for 4-5 months Worse than expected bottomline Akenerji announced TL6.5mn net loss in its 4Q09 financials, compared with TL21mn of net profit in 4Q08, leading to TL24.2mn of FY09 net profit, resulting a 73% YoY decrease. The result is much lower than both our estimate of TL47mn and the consensus estimate of TL41mn of net income. The deviation between our estimate and the actual net income figure mostly comes from the lower than anticipated equity income from Ak- CEZ and the better than expected net other expense. Y-o-Y in line revenues The company generated TL87mn revenues in 4Q09, in line with our estimate of TL82mn and 45% lower YoY. Thus, FY09 revenues dropped to TL464mn, down by 24% YoY on the back of lower sales volume. The company s electricity generation was 2.2bn kwh, parallel to our estimate of 2.2bn kwh, yet lower than the 2.8bn kwh generated in FY08. The average TEDAS tariffs were TLkr17.82/kWh in 2009, up by 18% YoY, compared to the TLkr15.12/kWh in On the other hand, average DUY prices announced were TLkr14.54/kWh in 2009 compared to TLkr15.79/kWh in Recall that, since December 2009, the DUY market is changed into a new system, in which the market participants notify NLDC about their prices on a hourly basis. This new system lowered DUY prices, for example: the average DUY price was TLkr13.26/kWh in November 09, while it was only TLkr11.98/kWh in December 09. The company s management stated that they expect DUY prices to stay at low levels for 4-5 months but normalize afterwards since it is a transition period into the new system. It is also important to note that Akenerji is a market player in the DUY market and can sell its generated electricity to the DUY market at a premium to the announced DUY prices. We assume that the company sold 72% of its generated electricity to the DUY market in 4Q09 and calculate that the company sells at a 22% premium to the announced DUY prices in 4Q09 compared to the premium of 21% in 3Q09. Figure 1: DUY Prices vs Akenerji s DUY Prices 30,00 25,00 20,00 15,00 10,00 5,00 0, /1Q 2009/2Q 2009/3Q 2009/4Q 100% 80% 60% 40% 20% 0% DUY Prices (TLkr/kWh) Akenerji's DUY Prices (TLkr/kWh) Akenerji's Electricity Sales to DUY market (%) Source: I Investment & TEIAS Lower electricity and steam generation took its toll on EBITDA in 2009 Akenerji generated TL62mn of EBITDA in 2009, 36% YoY lower compared to the same period last year, mainly due to the decline in electricity generation and steam sales in

4 One off fixed asset sale loss The company recorded a net other loss of TL10mn in 2009 compared to a net other income of TL3mn in The net other loss in 2009 consisted of TL17mn losses from the fixed asset sale (Ak Enerji sold 70MW inefficient natural gas fired plant to its group companies at US$7.89mn) completed in 2Q09, which had a pernicious impact on the bottomline. SEDAS one off losses lowered the equity income in 4Q09 One off losses of SEDAS took its toll on the bottomline... Akenerji consolidates AkCEZ (the 45% subsidiary, which fully owns the electricity distribution company SEDAS) via equity method and booked TL15mn equity loss in 4Q09. The company s management stated that AkCEZ negative contribution is due to SEDAS one off losses. Net debt increased mainly due to CAPEX spending for hydroelectric power plants The company recorded a net financial loss of TL6mn in 2009 compared to a net financial income of TL32mn in 2008, due to the continuing capacity expansion investments. Net debt increased from TL194mn as of year-end 2008 to TL571mn in 2009 as a result of increasing financial loans related to AkCEZ acquisition and ongoing capacity expansion investments. In 2009, the company continued to capitalize interest expenses and FX losses related to the investment loans, which were calculated as TL16.2mn. Maintain our OUTPERFORM recommendation To sum up, operating results were in line but the actual equity income from AkCEZ was much worse than our estimate. After we adjusted our model with the actual 2009 figures, our target price is increased to TL23/share from TL22/share. We maintain our OUT- PERFORM recommendation. Figure 2: Financial Highlights AKENR (TLmn) 4Q09 4Q08 YoY 3Q09 QoQ FY09 FY08 YoY Revenues 87,2 158,5-45,0% 91,4-4,6% ,1-23,6% Gross Margin 7,1% 5,6% 13,3% 14,5% 16,4% Operating Profit -0,3-2,7-89,1% 3,9-107,6% 33,5 64,2-47,7% Operating Margin -0,3% -1,7% 4,3% 7,2% 10,6% EBITDA 7,0 5,0 40,2% 10,7-34,2% 61,5 95,7-35,8% EBITDA Margin 8,1% 3,2% 11,7% 13,3% 15,8% Financial Expenses (net) -6,6 22,0 69,9% -1,5 n.m -6,0 31,9 n.m. Net Profit -6,5 21,1 n.m. 15,1-142,8% 24,2 89,0-72,7% Net Margin -7,4% 13,3% 16,6% 5,2% 14,7% Source: Is Investment 4

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