abc Turkey Q2 2014 Earnings Preview Boost in industrials income; banks income contraction continues Global Research Equities Turkey 22 July 2014



Similar documents
abc Emlak Konut REIT (EKGYO TI) Global Research Flashnote Upgrade to OW: completion of SPO will unlock value Overweight

Thailand GDP (Q1 2016)

abc Global Research 361 Degrees (1361) Company visit

Argentina s national accounts revision Lower growth forecast, no clarity on GDP warrants yet

Inner Mongolia Yili ( CH)

Mobistar (MOBB BB) Flashnote. Reduce: Missing out on the first consolidation opportunity. Reduce

abc Baader Bank (BWB GR) Global Research Flashnote OW: A series of timely acquisitions? Overweight

abc Dogan Holding (DOHOL TI) Global Research Company report Upgrade to OW(V): All engines firing Overweight (V)

abc Global Research Dislocation barometer for Turkish stocks Flashnote

Turkish Airlines (THYAO TI) Downgrade to Hold: Likely to miss FY2016 targets

Australian Economics Comment

Thailand Economics and FX

Greece debt relief. Gap too large to be filled? Where we are. Economics 17 May Fabio Balboni

The CBRC announced today that it will exclude the following three items from the numerator in the Loan to Deposit Ratio (LDR):

Yuhan Corp ( KS)

abc Global Research Salzgitter (SZG GR) Flashnote Downgrade to N on missing valuation upside and catalysts Neutral

Colombia. Fresh inflows in sight with new local bond index weight. Facts. Rates 19 March 2014

Minsheng Bank (1988 HK/ CH)

abc Global Research Saudi Telecom Company (STC AB) Flashnote Upgrade to OW: Fixed broadband powering revenue growth Overweight

The agreement is set up as a living agreement, meaning that it establishes a framework to address new issues that may emerge in future.

abc Dogus Otomotiv Multiple pressures on profitability Global Research Flashnote Recovery still a distant prospect, maintain Neutral (V) Neutral (V)

TURKEY MARKET OUTLOOK 1Q13 NON-FINANCIALS EARNINGS PREVIEW

What s inside. Total Traded Value, Breakdown by Markets, BIST Main Indices. Equity Market

What s inside. Total Traded Value, Breakdown by Markets, BIST Main Indices. Equity Market

abc Wind Acquisitions Refinancing and trade ideas Recommendation Global Research Flashnote Refinancing options and trade ideas

Equity Outlook. May 14, 2013 Erkan Savran Times of Lasting Bubbles. ss STRATEGY

Summary fact sheet. Must be able to settle internationally, such as via Euroclear. Minimum of one year remaining to maturity

% of listed Price Mcap 12M NAV subs. in Target price Ticker Company (TL) (TLmn) (TLmn) 12M NAV (12M, TL) Upside (%) Rating

Par$cipa$on 30 Index Presenta(on

In line performance. Results update 4Q2015. Banks UAE 28 January 2016 DUBAI ISLAMIC BANK

Corporate bond issuance news

Corporate bond issuance news

TURKEY CORPORATE AND SOVEREIGN EUROBONDS RUN (*) S&P MOODYS' FITCH

A T - A G L A N C E April 6, 2011

Renminbi Depreciation and the Hong Kong Economy

BDI BioEnergy Intern Neutral. Activity level in Q3 might not support FY estimates

20 August Can the dividend

ISBANK EARNINGS PRESENTATION 2016 Q1

abc Global Research Sberbank (SBER RU) Flashnote OW(V): Share price correction creates buying opportunity Overweight (V)

How To Understand The Turkish Economy

Private drilling fluid technology service leader

Fixed Income Training Seminar Asset Management Experience

ESG Fixed Income Indices

FITCH REVISES OUTLOOK ON TURKISH BANKS TO STABLE FOLLOWING SIMILAR ACTION ON SOVEREIGN

Halk REIT. Bloomberg: HLGYO TI OUTPERFORM. Reuters: HLGYO IS. An overlooked REIC with a premium portfolio

US Labour Market Monitor July report set to attract much attention as both employment and growth have slowed in 2016

EASTSPRING INVESTMENTS ASIA INVESTOR BEHAVIOUR STUDY 2015 INDONESIA. October eastspring.co.id

Corporate bond issuance news

Petkim. MARKETPERFORM (Previous: U.R) Upside Potential 6% Most of the future prospects are priced in. Equity / Mid Cap. / Petroleum and Energy

Sberbank Group s IFRS Results for 6 Months August 2013

Standard Chartered today releases its Interim Management Statement for the third quarter of 2015.

Global Real Estate Outlook

Commodities not finding much traction despite USD weakness

HSBC Holdings plc and HSBC Bank Canada Presentation to Fixed Income Investors. September 2013

E 2013E 2014E

Goldman Sachs Electronic Trading India: Algorithmic Trading. FIXGlobal Face2Face Electronic Trading Forum - India

SUB: STANDARD CHARTERED PLC (THE "COMPANY") STOCK EXCHANGE ANNOUNCEMENT

Schroder International Opportunities Portfolio - Schroder Asian Income (the Fund )

Charlene Hamrah (Investment Community) (212) Joe Norton (News Media) (212)

INDEX SERIES FTSE PUBLICATIONS. FTSE ETF Issuer Services.

AKBANK TURKISH SICAV

Bond markets vote for global recovery

INDUSTRIAL AND COMMERCIAL BANK OF CHINA ICBC: Your Global Portal to RMB Market. July 2012

Why ECB QE is Negative for Commodities. Investment Research & Advisory. Deltec International Group

Ontex Q3 2015: Trading in line with Company expectations and full year outlook reiterated

Leading enterprise in domestic TFT liquid crystal material market

Research Commodities El Niño returns grains and soft commodities at risk

Structured Products. Designing a modern portfolio

Satisfactory Top-Line; Disappointing Bottom-Line

Economic Outlook: Poland

SBERBANK GROUP S IFRS RESULTS. March 2015

AmoreG (002790) BUY ( initiate ) Growth beyond Amorepacific? 2Q13 results met market consensus

ABF PAN ASIA BOND INDEX FUND An ETF listed on the Stock Exchange of Hong Kong

MyHome Property Report, Q3 2015: Slowdown continues

We endeavor to maximize returns.

abc Global Research LatAm Equity Insights Consumer price reality check

HAS THE INSURANCE BROKERAGE MARKET PEAKED?

Trade Confidence Survey Australia:1H 2015

* FDI Portfolio Investment Other investment

GrandVision reports Revenue growth of 13.8% and EPS growth of 31.7%

Financial Information

Market Bulletin. November 7, U.S. High Yield: A bubble set to burst?

Aksa Enerji Outperform (Maintained)

Capital preservation strategy update

When the going get tough...

January 2015 business.westernunion.com.au

CITIGROUP REPORTS SECOND QUARTER 2011 NET INCOME OF $3.3 BILLION, COMPARED TO $2.7 BILLION IN SECOND QUARTER 2010

Daily FX Focus. 31-Dec-2014

Daily Market Watch 01/11/2013. Market Commentary. Corporate News & Trading Ideas. Calendar

RMB solutions for importers and exporters

Samsung Life Insurance KS. Company report. Buy. Buy: Solid insurance profit plus strong protection sales

Hong Kong. abc. *Employed by a non-us affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

FTSE All-World ex Fossil Fuels Index Series

2 September 2015 YOC AG. FIRST BERLIN Equity Research

The Credit Crisis: A Monetary Explanation

FTSE Global Small Cap Index

TD is currently among an exclusive group of 77 stocks awarded our highest average score of 10. SAMPLE. Peers BMO 9 RY 9 BNS 9 CM 8

Rating Action: Moody's changes outlook to negative from stable on Argentine Banks' deposit ratings; affirms deposit ratings

Transcription:

Global Research Q2 2014 Earnings Preview Boost in industrials income; banks income contraction continues We expect non-financial companies under our coverage to post growth of 12% in revenues, 10% in EBITDA and 45% in profits y-o-y in Q2 We estimate 16% fall in bank earnings y-o-y and expect Q2 to be the last weak quarter before a much stronger H2 We expect strong Q2 profits from Akcansa, CCI, Kardemir, Sisecam, TAV, Torunlar and Tupras. From banks; on a y-o-y basis, we expect a net income improvement from Isbank and Albaraka Cenk Orcan* +90 212 376 4614 cenkorcan@hsbc.com.tr Bulent Yurdagul* +90 212 376 4612 bulentyurdagul@hsbc.com.tr Tamer Sengun* +90 212 376 4615 tamersengun@hsbc.com.tr Levent Bayar* +90 212 376 4617 leventbayar@hsbc.com.tr View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-us affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it Key trends in Q2 for non-financials: We estimate the nonbank segment to post y-o-y adjusted growth of 12% in revenues and 10% in EBITDA while we expect them to post a very strong 45% boost in net profits in Q2 2014 due to lower financial expenses with TRY s strength. Top-line growth continues to benefit from TRY s y-o-y weakness and companies with revenues linked to FX should post strong growth and this factor also contributes to the EBITDA growth we project. In addition, we expect various consumer names, such as BIM and CCI, to post decent operational results owing to relatively more stable businesses. With the recovery in TRY against USD and EUR, we think Q2 has been a quarter with slight FX gains for most of the corporates with debt in FX. This has a materially positive impact on some companies such as Anadolu Efes, Migros, CCI, Aygaz, Turk Telekom and utilities. In the medium to large-cap universe, we expect Akcansa, CCI, Kardemir, Pegaus, Sisecam, TAV, Torunlar and Tupras to post strong profits y-o-y; however, we look for a weaker net profit performance from Bizim, Koza, Sabanci Holding, Sinpas and Teknosa. Key trends in Q2 on banks: We expect a 16% y-o-y contraction/2% q-o-q rise in earnings in aggregate terms. On operational items, we expect Q2 to be the last quarter before the much stronger H2. Among the large-cap banks, our earnings estimate for Vakif is 5% higher than consensus, whereas our estimates are lower for Albaraka (9% lower than consensus) and Bank Asya (we foresee a TRY25m loss versus consensus estimate of zero 0 net income). On a year-on-year comparison, we expect a net income improvement from Isbank (+2% y-o-y) and Albaraka Turk (+8% y-o-y).

2 Q2 preview (TRYm) Revenues EBITDA Net profit Company name Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Comments Akcansa 390 312 25% 325 20% 100 74 35% 85 17% 62 41 51% 68-9% Profitability improvement in Q2 based on strong demand and prices Akenerji 200 169 18% 219-9% 10 63-84% 8 20% 15-7 n.m. -90 n.m. Weak EBITDA generation to continue in Q2 due to low hydro output and lack of EGEMER gas fired capacity Aksa Enerji 400 400 0% 472-15% 60 54 11% 73-18% 50-75 n.m. -9 n.m. Slower y-o-y growth in profitability due to repairs in May and cooler than expected June, but EPS will be stronger TL Arcelik 3,017 2,665 13% 2,802 8% 315 260 21% 295 7% 152 151 0% 131 16% We are looking for similar Q2 profit as in 2013, while slightly better operating margins with EBITDA margin of 10.5% Aygaz 1,700 1,391 22% 1,777-4% 56 58-4% 62-9% 80 36 122% 84-5% Stronger profitability in Tupras and TRY strength to drive higher profits despite pressure on EBITDA Bagfas 97 73 33% 136-29% 13 6 107% 19-34% 7-2 n.m. 15-52% Improving pricing outlook, stable currency and demand environment to support growth from the weak base of 2013 Bizim Toptan 555 559-1% 497 12% 16 17-4% 16-2% 5 6-22% 5 5% Credit card instalment restriction continued to weigh on performance in Q2 BIM 3,450 2,834 22% 3,395 2% 155 133 16% 160-3% 108 93 16% 108 0% Strong growth continues in Q2 despite some seasonal pressure on margins Coca-Cola Icecek 1,850 1,574 18% 1,148 61% 351 301 16% 143 146% 200 117 71% 22 828% Despite slowdown in international markets, strong growth continues. TRY strength also supports bottom line Cimsa 305 279 9% 225 35% 85 72 19% 59 43% 55 193-72% 36 55% Profitability improvement in Q2 based on strong demand and prices. Q2 EPS drop is because of one off gain in 2013 Dogus Otomotiv 1,771 1,614 10% 1,354 31% 85 81 5% 44 94% 63 65-3% 26 139% Strong relative sales performance in the market and TRY stabilisation to bring Q2 results closer to last year's solid numbers Dogan Holding 1,035 942 10% 826 25% 101 143-29% 21 378% 1-12 n.m. -61 n.m. New wind projects to support revenue growth, offsetting the weak media business Dogan Yayin 758 755 0% 588 29% 97 139-30% 5 1751% 0-2 n.m. -64 n.m. Operations to recover q-o-q owing to seasonal effects (Q2 being the best quarter). Financial expenses to weigh on the bottom-line Emlak Konut REIT 300 691-57% 422-29% 100 251-60% 249-60% 175 269-35% 384-54% Q2 numbers will be driven with Varyap Meridian, My Towerland, Evostar and Studyo 24 projects Enka Insaat 3,473 3,142 11% 3,265 6% 568 581-2% 503 13% 401 317 26% 359 12% Expecting slightly lower Q2 EBITDA due to high base from construction in 2013 but profit support from net financial income Erdemir 2,950 2,618 13% 2,935 1% 650 540 20% 630 3% 315 316 0% 432-27% Lower raw material costs and relatively better products prices support margins but TRY strength is putting pressure on profits Ford Otosan 3,424 2,912 18% 2,046 67% 282 208 36% 151 87% 280 259 8% 203 38% We expect Q2 results to show sequential improvement in margins vs Q1 as new models' contribution builds up Gubretas 546 443 23% 861-37% 114 59 94% 106 8% 37 13 182% 19 91% Improving pricing outlook, stable currency and demand environment to support growth from the weak base of 2013 Hurriyet 223 234-5% 174 28% 24 44-45% 10 150% 0 1-61% -25 n.m. We expect weaker EBITDA in Q2 compensated by FX gains Is REIT 35 30 19% 31 12% 26 22 16% 24 8% 23 10 121% 18 26% Q2 EPS will be supported with TL appreciation and deliveries in Cinarli Bahce Kardemir 505 317 59% 550-8% 97 32 206% 97 0% 63-24 n.m. 101-37% Lower raw material costs, relatively better products prices and TRY strength are positive for Kardemir Kiler 268 250 7% 240 12% 22 21 4% 5 375% 2-6 n.m. -19 n.m. We expect positive bottom line with TRY strength Source: Company data, HSBC estimates Equities

3 Q2 preview (TRYm) Revenues EBITDA Net profit Company name Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Comments Koc Holding 17,210 15,939 8% 15,621 10% 760 594 28% 784-3% 551 586-6% 562-2% Lower banking profits we expect y-o-y to drag down Koc's consolidated profits, which tax reversals should support Koza Gold 207 226-8% 288-28% 143 166-14% 209-32% 103 138-25% 146-29% Lower gold price, lower volumes and higher costs to put pressure this quarter Migros 1,950 1,721 13% 1,773 10% 105 91 15% 102 3% 65-161 n.m. -61 n.m. Strong demand and high margins also supported by fx gains this quarter Petkim 1,140 930 23% 1,190-4% 50 47 5% 73-31% 18 2 667% 37-52% We expect Petkim's earnings to decline sequentially on account of weaker product spreads and stronger TRY Pegasus 791 605 31% 512 54% 126 126 0% -71 n.m. 95 53 78% -103 n.m. We expect strong Q2 profit despite continued yield pressure, on the back of strong traffic and good cost control Sabanci Holding 6,390 6,036 6% 6,366 0% 1,331 1,614-18% 1,030 29% 518 534-3% 403 28% Overall numbers to be dragged down by banking despite good operating performance by non-finance segments in general Sisecam Holding 1,738 1,502 16% 1,638 6% 376 236 60% 347 9% 146 73 101% 133 10% Capacity additions in flat glass and positive FX impact on chemicals and glass packaging to drive Sise profits Sinpas REIC 109 195-44% 92 19% 4 50-92% 2 109% 12 32-62% 5 139% High operational expenses and lower number of deliveries will likely result in weaker numbers in Q2 Tat Gida 212 210 1% 219-3% 14 11 28% 11 26% 4 5-21% 3 37% Our estimate excludes possible one-off gains from sale of Maret TAV Airports 710 671 6% 586 21% 341 180 89% 119 188% 155 89 74% 62 151% Solid Q2 results on the back of margin expansion as operational leverage kicks in more visibly Turkcell 3,057 2,855 7% 2,855 7% 941 867 9% 881 7% 631 558 13% 361 75% We look for EBITDA margin improvement in both and Ukraine operations Turkish Airlines 5,859 4,646 26% 5,128 14% 601 737-18% 157 283% 115 144-20% -226 n.m. We expect return to positive profits in Q2 but continued pressure on revenue yield to keep the recover vs Q1 muted Tekfen Holding 905 906 0% 1,149-21% 49-106 n.m. 169-71% 38-141 n.m. 142-73% We expect flat Q2 revenues y-o-y but return to profit in both construction and fertilisers driven by better margins Teknosa 730 690 6% 682 7% 14 19-25% 12 13% 2 15-86% -4 n.m. Restrictions on credit card instalments hurt sales performance and puts a major pressure on profits due to rising costs Tofas 1,898 1,778 7% 1,676 13% 246 206 20% 235 5% 157 111 41% 134 17% FX driven export revenues, take or pay protected margins and tax incentives to continue to drive profits in Q2 Turcas na na nm na nm na na nm na n.m. -30 15 n.m. 21 n m. One off expenses related to sale of refinery stake will lead to losses this quarter Torunlar REIT 208 50 317% 247-16% 52 23 126% 52 0% 94-8 n.m. 20 359% Q2 numbers will be boosted with deliveries in MoI project and FX gains from TL appreciation Turk Telekom(*) 3,300 3,343-1% 3,195 3% 1,253 1,252 0% 1,097 14% 801 280 186% 384 109% Turk Telekom posted Q2 numbers on July 21 Turk Traktor 701 597 17% 595 18% 105 101 4% 90 17% 81 77 6% 69 17% Solid unit sales and revenue performance but slightly softer operating margins as FX related cost push becomes visible Tupras 10,902 10,086 8% 9,276 18% 286 135 112% 313-9% 408 138 197% 511-20% Lower FX losses, higher USD/TRY rate, better capacity utilisation and inventory gains to support profits Ulker Biskuvi 655 610 7% 792-17% 75 79-5% 88-15% 55 46 19% 51 7% Falling chocolate demand and rising costs puts pressure on EBITDA but strong TRY supports net income Zorlu Enerji 253 153 65% 228 11% 53 27 98% 48 10% 21-53 n.m. -87 n.m. Q2 sales will be supported with new capacity additions, EBITDA will improve with higher margin geopower and Pakistan windfarm s full output impact Total 89,347 80,818 11% 80,410 11% 10,896 10,194 7% 8,744 25% 6,383 4,413 45% 4,320 48% Total (adj.) 65,747 58,843 12% 58,422 13% 8,806 7,985 10% 6,930 27% 5,935 4,177 42% 4,398 35% Source: Company data, HSBC estimates (*) Turk Telekom posted actual results on July 21 Equities

4 Q2 preview Banks (TRYm) Net profit Company name Q2 2014e Q2 2013 chg (%) Q1 2014 chg (%) Comments Akbank 770 914-16% 651 18% We expect a NIM contraction of 11bp q-o-q, owing to higher deposit costs in April and May and (unlike peers) no positive impact on CPI-linkers on a q-o-q basis due to usage of expected inflation in CPI-linker yield calculation. Yet, on a y-o-y basis, the fall in Akbank s NIM will be lowest among peers at 21bp, on our estimates resulting in a 10% rise in NII y-o-y. On the trading front, we expect the swap costs to be high but partially offset by some securities trading gains. Our trading expense estimate is TRY50m in Q2 versus TRY234m in Q1. However, Q2 2014 trading income was very strong at TRY363m, creating an unfavourable base for Akbank s revenues. Owing to the expected developments on the trading item, we foresee revenues going up by 8% q-o-q, but falling 10% y-o-y. We also expect Akbank s operating expenses performance (on y-o-y terms) to be much better than peers with just a 9% rise y-o-y. All in all, we expect to see sequential earnings growth (18% q-o-q) thanks to lower trading loss in Akbank, but a fall of 16% y- o-y due to the high base of last year. Albaraka Turk 50 46 8% 62-19% Albaraka Turk was slow in terms of lending growth in Q1 2014, but we expect the bank s lending volume to gain pace in Q2, owing to a higher liquidity in the quarter (with sukuk issuance of USD350m). We expect the NIM to be flattish and the NII at TRY152m, up by 4% y-o-y. We foresee a slight improvement in the fee income (up by 2% q-o-q and 3% q-o-q). Operating expenses growth will be strong in Q2 at 15% y-o-y and the provisioning expenses will be also higher y-o-y by 31%, mainly owing to a high NPL coverage ratio in the north of 90%. All in all, the bank will be posting net income growth of 8% y-o-y, yet due to a high base of trading income and lower provisioning expenses booked in Q1, we foresee the net income being down by 19% y-o-y. Bank Asya -25 55 n.m. 41 n.m. Bank Asya s difficulties are likely to have persisted in Q2. Despite the A101 stake sale income of TRY250m, we expect Bank Asya to post a net loss of TRY25m in Q2 2014. It is not only the balance sheet has been shrinking over the last two quarters putting sizeable pressure on core revenues (expecting NII at TRY171m Q2 2014vs TRY219m in Q1 2014), but also the bulky NPL inflows resulting in higher specific provisions (TRY350m for Q2 2014e vs. TRY141m booked in Q1 2014 and TRY103m in Q2 2013) that will result in weak financial performance in Q2 2014. All in all, we expect the bank to be posting a loss in Q2 vs. TRY41m net income booked in Q1 and TRY55m booked in Q2 2014. Garanti Bankasi 763 869-12% 760 0% We expect a NIM expansion of 28bps q-o-q from Garanti Bank owing to higher yields on CPI-linkers and well-protected core spreads. We therefore foresee a 11% q-o-q rise in net interest income. However, that rise will be offset by trading losses expected in Q2 (TRY80m) owing to rising swap costs and almost no securities income gains. Revenues will be down by 3% both y-o-y and q-o-q due to trading losses mainly. We expect operating expenses growth to be faster than at Akbank (at 14% y-o-y). However, an improving trend in the cost of risk (14bp lower y-o-y) would support the bottom line. We expect earnings to be down 12% y-o-y. On q-o-q basis, we forecast reported earnings to be flat, yet we note that in Q1 2014 there was a free-provision set aside amounting TRY100m, which creates a low base on a q-o-q basis. Halkbank 575 715-20% 530 8% As guided by management after Q1 results, we expect to see improvement in the fundamentals and the earnings performance of Halkbank on a sequential basis. On NIM, -owing to the positive impact of CPI linker yields, we foresee 11bps rise q-o-q, and on cost of risk we foresee a 12bps fall. In addition, we expect a positive trading income result (TRY25m in Q2 2014) versus a loss booked at TRY80m in Q1. Taking all of those into account, we forecast a 14% rise in the revenues q-o-q. The high base of dividend income booked in Q1 (TRY99m) vs. a smaller amount expected in Q2 (TRY16m), is the main reason of a relatively small expansion in the net income (+8% q-o-q). The y-o-y fall in the earnings is mainly due to a higher base of trading and dividend income booked in Q2 2013. Is Bankasi 897 877 2% 815 10% Isbank s dividends will be decided on the announced results of the bank in Q2. We expect dividend income of TRY363m (c40% of our expected net income) to be booked by Isbank in Q2, which will help the bank to announce a stronger earnings performance both on q-o-q and y-o-y terms.. On core revenue and expense items: 1) we foresee a 14bps fall in NIM (owing to a flattish CPI-linker yields accounting methodology) and lower core spreads in Q2 versus Q1; 2) a trading loss of TRY20m versus gains of TRY142m in Q2 2013 and TRY86m in Q1 2014; 3) flattish CoR at around 78bps; and 4) the strong rise of 26% in operating expenses q-o-q (owing to the collective-bargainingrelated wage increases and seasonality). All in all, supported by the dividend income performance and virtually lower Q1 net income, we expect both a y-o-y and q-o-q increase in Isbank s net income. Vakifbank 334 382-13% 374-11% Vakifbank s Q2 results will be shaped by: 1-a q-o-q rise in the NIM (+10bps), yet the sharpest fall in NIM on a y-o-y comparison (+141bps), 2- significantly (-20%) lower fee and commissions y-o-y, despite some improvement on q-o-q terms, 3- increase in the NPL recoveries on y-o-y terms, 4- a very high rise in operating expenses (+19% y-o-y), owing to a change in the accounting of personnel dividends, and 5- a significant improvement in the CoR (down by 88bps y-o-y). The sequential improvement in the operational revenues will be more than offset with a high base of dividend income booked in Q1 (TRY65m). Adjusted with the dividend income impact the bank will show a q-o-q improvement in the net income. Y-o-y fall in net income is mainly attributable to the sharp fall in NIM and fee and commissions income. Yapi Kredi 417 621-33% 487-14% Despite operational improvements, ie, stronger volume growth, margin expansion of 25bp q-o-q (and a relatively slower fall of 40bp y-o-y) and lower CoR (down c15bp y-o-y and q-o-q), compared to its peers, we expect stronger fall in earnings of Yapi Kredi Q2 both y-o-y and q-o-q. The main reasons of fall in y-o-y earnings are 1- trading loss expected at TRY180m in Q2 2014 vs. gain of TRY138 in Q2 2013, 2-15% higher operating expenses y-o-y and 3- a higher general provisioning expenses y-o-y. On the other hand, the fall in q-o-q earnings is mainly attributable to 1- the seasonally higher operating expenses (+11% q-o-q) and 2- the dividend income booked in Q1 at TRY174m vs. no dividend income booked in Q2. Total 3,781 4,479-16% 3,720 2% Source: Company data, HSBC estimates Equities

HSBC coverage universe Ticker Company Closing price* TP Rating AEFES Anadolu Efes 27.60 28.30 Neutral AKBNK Akbank 8.28 7.60 Neutral (V) AKCNS Akcansa 13.20 13.20 Neutral AKENR Akenerji 1.18 1.20 Underweight AKSEN Aksa Enerji 2.64 3.60 Overweight (V) AKGRT Aksigorta 3.14 3.20 Neutral ALBRK Albaraka Turk 1.71 1.90 Neutral (V) ANHYT Anadolu Hayat 5.14 5.90 Overweight ANSGR Anadolu Sigorta 1.45 1.58 Neutral ARCLK Arcelik 13.45 14.30 Neutral (V) ASYAB Bank Asya 1.37 1.76 Neutral (V) AYGAZ Aygaz 9.18 10.40 Overweight BAGFS Bagfas 54.65 57.00 Overweight BIZIM Bizim Toptan 19.20 22.30 Overweight BIMAS BIM 52.80 58.00 Overweight CCOLA Coca-Cola Icecek 54.90 61.80 Overweight CIMSA Cimsa 14.50 15.00 Overweight DOAS Dogus Otomotiv 8.39 10.50 Overweight (V) DOHOL Dogan Holding 0.80 1.00 Overweight DYHOL Dogan Yayin Holding 0.48 0.55 Neutral EKGYO Emlak Konut REIT 2.78 3.20 Neutral (V) ENKAI Enka Insaat 5.90 6.76 Neutral EREGL Erdemir 4.41 4.20 Overweight FROTO Ford Otosan 29.50 30.00 Neutral (V) GARAN Garanti Bankasi 8.90 7.90 Neutral (V) GUBRF Gubretas 4.81 4.90 Neutral (V) HALKB Halkbank 16.30 17.80 Overweight (V) HURGZ Hurriyet 0.67 0.70 Neutral ISCTR IS Bankasi 5.95 5.60 Neutral (V) ISGYO Is Reit 1.41 1.85 Overweight (V) KRDMD Kardemir 2.29 2.25 Overweight (V) KILER Kiler 1.49 1.80 Neutral KCHOL Koc Holding 10.90 10.60 Neutral KOZAL Koza Gold 24.65 29.00 Overweight (V) MGROS Migros 19.40 22.50 Overweight PETKM Petkim 3.69 3.00 Neutral PGSUS Pegasus 26.25 31.50 Neutral (V) SAHOL Sabanci Holding 10.25 12.00 Overweight SISE Sisecam Holding 3.06 3.14 Overweight SNGYO Sinpas REIC 0.87 1.05 Neutral (V) TATGD Tat Konserve 2.64 2.40 Neutral TAVHL TAV 18.05 18.80 Neutral (V) TCELL Turkcell 13.10 14.60 Overweight THYAO Turkish Airlines 6.63 8.60 Overweight (V) TKFEN Tekfen Holding 5.18 6.00 Neutral TKNSA Teknosa 11.90 15.20 Overweight (V) TOASO Tofas 12.75 15.00 Neutral (V) TRCAS Turcas 2.52 3.40 Overweight TRGYO Torunlar REIT 3.49 5.10 Overweight (V) TTKOM Turk Telekom 6.28 6.70 Neutral TTRAK Turk Traktor 75.00 78.00 Neutral (V) TUPRS Tupras 51.40 54.00 Neutral ULKER Ulker Biskuvi 18.15 19.80 Neutral VAKBN Vakifbank 5.09 5.00 Neutral (V) YKBNK Yapi Kredi Bankasi 4.89 4.20 Underweight (V) ZOREN Zorlu Enerji 1.18 1.20 Neutral (V) Source: HSBC estimates, Thomson Reuters Datastream * Prices as at 18 July 2014 5

Disclosure appendix Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Cenk Orcan, Bulent Yurdagul, Levent Bayar and Tamer Sengun Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past 6

month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. Rating distribution for long-term investment opportunities As of 25 October 2013, the distribution of all ratings published is as follows: Overweight (Buy) 45% (33% of these provided with Investment Banking Services) Neutral (Hold) 38% (34% of these provided with Investment Banking Services) Underweight (Sell) 17% (27% of these provided with Investment Banking Services) HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. s, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. Additional disclosures 1 This report is dated as at. 2 All market data included in this report are dated as at close 24 October 2013, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 7

Disclaimer * Legal entities as at 8 August 2012 UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR Issuer of report Buyukdere Caddesi No: 122 / D Kat:9 Esentepe/Sisli 34394 Istanbul, Telephone: +90 212 376 46 00 Fax: +90 212 376 49 13 www.research.hsbc.com www.hsbcyatirim.com.tr This document has been issued by HSBC Yatırım Menkul Degerler A.S. (HSBC) for the information of its customers only. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Department of HSBC only and are subject to change without notice. The information, comments and recommendations involved here are not within the scope of investment consultancy. Investment consultancy services are only provided within the framework of the investment consultancy agreement as agreed between brokerage companies, portfolio management companies, banks not accepting deposits, and the customer. The conclusions arrived at here are based upon the preferred calculation method and/or the personal opinions of the individuals responsible for the comments and recommendations, so they may not be appropriate for your financial situation and risk and return preferences. Therefore, any investment decision made only on the basis of the information involved here may not lead to the optimum results. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented in the supervisory board or any other committee of those companies. The information and opinions contained within the research reports are based upon rates of taxation applicable at the time of publication but which are subject to change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-us foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-us foreign affiliate, the issuer of this report. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) ( SFA ) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Canada, this publication may be distributed by HSBC Securities (Canada) Inc for the information of its customers only. All inquiries by such recipients must be directed to HSBC Securities (Canada) Inc. In Australia, this publication may be distributed by HSBC Stockbroking (Australia) Pty Limited. In Malaysia, this publication may be distributed by HSBC Research (Malaysia) Sdn Bhd. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act ( FSCMA ). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication may be distributed by HSBC Securities (Japan) Limited. It may not be reproduced or further distributed in whole or in part for any purpose. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its wholesale customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed Commentary in Canada although other affiliate jurisdictions may term Commentary as either macro-research or research ), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). This communication is only intended for investment professionals within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. Persons who do not have professional experience in matters relating to investments should not rely on it. HSBC Yatırım Menkul Degerler A.S. is regulated and authorised by the Central Bank of, Capital Markets Board, Ministry of Finance, Takasbank and is a member of Istanbul Stock Exchange, Takasbank (Turkish Custodian Bank) and the Association of Capital Market Intermediary Institutions of. Copyright 2013,, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC. MICA (P) 118/04/2013, MICA (P) 068/04/2013 and MICA (P) 110/01/2013 8

Turkish Research Team Cenk Orcan Co-Head of Equity Research +90 212 376 46 14 cenkorcan@hsbc.com.tr Bulent Yurdagul Co-Head of Equity Research +90 212 376 46 12 bulentyurdagul@hsbc.com.tr Levent Bayar +90 212 376 46 17 leventbayar@hsbc.com.tr Tamer Sengun +90 212 376 46 15 tamersengun@hsbc.com.tr Melis Metiner Economist +90 212 376 46 18 melismetiner@hsbc.com.tr