Equity / Large Cap. / Petroleum and Energy 15 February 2010 Bloomberg: TUPRS TI Strong 2009 results on refining side... Reuters: TUPRS IS released its 2009 year end tax purpose financials. The main differences between IFRS and tax financials are the consolidation of its 40% stake at Opet in IFRS and depreciation charges being much lower in IFRS compared to tax financials. The company posted TL632 mn net income on its 2009 year end tax financials, compared with TL421 mn in 2008. Revenues in 2009 year end tax financials dropped by 35% YoY to TL 18 bn due to the decrease in oil price compared to 2008. Refining margin remained strong in 2009 announced a net refining margin of US$3.05/bbl in 4Q09 compared to US$3.45/bbl in 4Q08. As an additional information about the refining margins, the company s management announced gross refining margin as US$9.2/bbl in 2009, perfectly in-line with our house estimate of US$9.2/bbl. The realized benchmark gross Med-Complex margin was US$1.95/bbl in 2009. If we compare gross refining margin and Med -Complex margin, the main reasons for the better refining margin than Med -Complex could be listed as, (i) lower exports, and (ii) higher product yields. Produced less due to the weak demand The total production volume decreased by 30% in 2009 compared to 2008, as of result of the company s risk averse sales policy due to the weak demand. Overall sales volume was down by 17% YoY in 2009. Maintain our consolidated estimates Since our -only operating profit estimate stands at TL723 mn, the tax purpose results gives an indication that our refining business estimates seem to be in line with the actual performance (TL713 mn solo operating profit) of the company. Thus, we maintain our consolidated net profit estimate of TL750 mn for, for which the CNBC-e consensus is given as TL787 mn. What s next is expected to announce its consolidated IFRS results on March 12th. Based on a dividend pay-out ratio of 85%, we expect the company to distribute TL637 mn dividends from 2009 earnings, implying a dividend yield of 9%. 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Tax OUTPERFORM (M) TL Upside Potential 23% * Excluding dividend yield Stock Data TRY US$ Price at 12 02 2010 28.50 18.75 12-Month Target Price 35.18 22.69 Mcap (mn) 7,137 4,704 Float Mcap (mn) 3,497 2,305 No. of Shares Outstanding Price / Relative Price TUPRS Relative Relative to ISE 100 11-07 05-08 11-08 05-09 11-09 05-10 250 mn Free Float (%) 49.00 Avg.Daily Volume (3M, mn) 31.8 21.3 Market Data TRY ISE 100 51,064 US$ Spot Rate 1.5172 US$ 12-Month Forw ard 1.6254 Price Performance (%) 1 Mn 3 Mn 12 Mn TRY -9 12 122 US$ -12 9 141 Relative to ISE-100-4 2 9 200 150 100 50 52 Week Range (Close TRY) 17.40 32.75 0 We reiterate our OUTPERFORM recommendation for with a 12 month target share price of TL35.2. Key Estimates (TRY mn) 2007 2008 2009 2010 2011 TUPRS 2007 2008 2009E 2010E 2011E Sales 22,520 30,404 19,769 26,435 32,039 EBITDA 1,391 1,394 1,105 1,075 918 Net Income 1,298 432 749 772 707 P/E (x) 5.8 15.3 6.8 9.2 10.1 EV/EBITDA (x) 6.0 3.1 5.9 5.8 6.8 EPS 5.18 1.73 2.99 3.08 2.82 Dividend Yield (%) 7.9 12.1 13.9 9.1 9.2 Please refer to important disclaimer at the end of this report. Asli Ozata Kumbaraci akumbaraci@isyatirim.com.tr +90 212 350 25 26 Basak Dinckoc bdinckoc@isyatirim.com.tr +90 212 350 25 92 1
Summary of Key Financials (TL mn) 12.02.2010 TUPRS 01.01.2008 01.01.2009 01.01.2010 01.01.2011 Income Statement (TRY mn) 2008A 2009E 2010E 2011E Revenues 30,404 19,769 26,435 32,039 EBITDA 1,394 1,105 1,075 918 Depreciation & Amortisation 164 (280) (272) (285) EBIT 1,230 825 803 633 Other income (expense), net 53 67 89 108 Financial expenses, net (734) 39 61 131 Minority Interests 7 5 10 10 Income before tax 542 931 952 871 Taxation on Income (110) (186) (190) (174) Net income 432 749 772 707 Cash Flow Statement (TRY mn) Net Income 432 749 772 707 Depreciation & Amortisation 164 (280) (272) (285) Indemnity Provisions 22 0 0 0 Change in Working Capital 772 784 (797) (155) Cash Flow from Operations 1,390 1,254 (297) 267 Capital Expenditure 547 (256) (354) 765 Free Cash Flow 843 1,510 57 (498) Rights Issue 0 0 0 0 Dividends Paid 1,048 579 637 637 Other Cash Inflow (Outflow ) (368) 280 1,440 504 Change in net cash (574) 1,210 859 (631) Net Cash (306) 904 1,763 1,132 Balance Sheet (TRY mn) Tangible Fixed Assets 3,370 3,404 3,322 4,371 Other Long Term Assets 454 668 893 1,082 Intangibles 135 124 124 124 Goodw ill 189 189 190 191 Long-term financial assets 70 75 75 75 Inventories 1,264 2,021 2,747 3,372 Trade receivables 1,074 1,148 1,535 1,860 Cash & equivalents 1,467 2,768 3,172 3,204 Other current assets 590 695 102 124 Total assets 8,637 11,093 12,162 14,404 Long-term debt 495 534 209 872 Other long-term liabilities 377 409 837 1,029 Short-term debt 1,279 1,330 1,200 1,200 Trade payables 1,565 3,181 3,497 4,292 Other short-term liabilities 1,249 1,910 2,554 3,096 Total liabilities 5,081 7,364 8,298 10,489 Minority Interest 38 45 50 51 Total equity 3,556 3,684 3,814 3,864 Paid-in capital 250 250 250 250 Total liabilities & equity 8,637 11,093 12,162 14,404 Ratios ROE (%) 11.3 20.7 20.6 18.4 ROIC (%) 22.0 16.9 16.6 10.5 Invested Capital 4,277 3,517 4,232 5,437 Net debt/ebitda (x) 22% -82% -164% -123% Net debt/equity (%) 8.6-24.5-46.2-29.3 Capex/Sales (%) 1.8-1.3-1.3 2.4 Capex/Depreciation (x) 3.3 0.9 1.3-2.7 EBITDA Margin 4.6 5.6 4.1 2.9 EBIT Margin 4.0 4.2 3.0 2.0 Net Margin 1.4 3.8 2.9 2.2 Valuation Metrics EV/Sales (x) 0.1x 0.3x 0.2x 0.2x EV/EBITDA (x) 3.1x 5.9x 5.8x 6.8x EV/IC (x) 1.0x 1.9x 1.5x 1.1x P/E (x) 15.3x 6.8x 9.2x 10.1x FCF yield (%) 12.7 29.7 0.8 (7.0) Dividend yield (%) 12% 14% 9.1% 9.2% 2
gross refining margin is US$9.2/bbl in 2009 Refining margin remained strong in 2009 announced a net refining margin of US$3.05/bbl in 4Q09 compared to US$3.45/ bbl in 4Q08. Recall that had begun to announce net refining margins instead of gross refining margins since 3Q09, stating that they are more indicative for overall company performance. Please note that these numbers are calculated according to the statutory accounts and they include the operating costs of the refining process. As an additional information about the refining margins, the company s management announced that gross refining margin is US$9.2/bbl in 2009, perfectly in-line with our house estimate of US$9.2/bbl. The realized gross Med-Complex margin was US$1.95/bbl in 2009. If we compare gross refining margin and Med-Complex margin, the main reasons for the better refining margin than Med- Complex could be listed as, (i) lower exports, and (ii) higher product yields. (i) has chosen not to produce for export markets as global product surpluses have turned export premiums into losses. Whenever the profitability of exports improves, the Company targets to respond with higher capacity utilization rates and greater volumes of export. (ii) The Company used more semi products and better utilized the conversion units. Despite lower crude processed, white product yield increased from 68.7% in 2008 to 73.6% in 2009 thanks to the usage of the opportunity crudes i.e. slightly heavier crude was processed. Figure 1: net refining margin vs Med-Complex gross refining margin 8 7 6 5 4 3 2 5.70 4.38 7.22 1.56 3.75 2.00 4.63 1.57 3.70 6.13 6.28 6.37 6.72 3.45 5.46 1.72 3.44 2.62 1.40 1.87 1.59 3.05 1.34 1 0.37 0 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 net refining margin Med-Complex gross refining margin Source: Company 3
Figure 2: product yields (%) 2008 2009 6.0% 21.0% 10.0% 19.0% Asphalt Gasoline Naphtha Jet Fuel 6.6% 13.8% 12.6% 25.1% 29.0% 12.0% 3.0% Diesel Other Fuel Oil 29.5% 12.5% -0.3% Source: Company Produced less due to the weak demand... The total production volume decreased by 30% in 2009 compared to 2008, as of result of the company s risk averse sales policy due to the weak demand. Domestic sales volume contracted by 8% in 2009 due to the weak demand whereas export sales volume shrank by hefty 46% due to the low margin environment. Thus, the company chose to operate at a relatively lower CUR of 60.4% in 2009, slightly lower than our estimate of 63%. Overall sales volume was down by 17% YoY in 2009. Figure 3: Financial Highlights (TL mn) 2009 Tax 2008 Tax % 2009 IFRS IS Investment Estimate 2008 IFRS Sales 18,215 28,225-35% 19,768 30,404-35% Operating Profit 713 1,212-41% 825 1,230-33% EBITDA 971 1,433-32% 1,105 1,394-21% Net Income 632 421 50% 750 432 74% % 4
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