01.14 03.14 05.14 07.14 09.14 11.14 01.15 03.15 05.15 May 26, 2015 Outperform (Maintained) Turkey - Equity - Company Update On the verge of a new era s commissioning of the Company s first lignite power plant, Bolu Goynuk, is approaching. The steep depreciation in the TL in 1Q and delay in the Goynuk project are already priced in, considering the underperformance in the past 3 months. Following the announcement of the 1Q financials, we have revised our forecasts downwards while taking into account our updated macro forecasts and the Company guidance. Accordingly, we have trimmed our 12 month target share price from TL4.00 to TL3.80, still offering a hefty 36% upside potential. We reiterate our Outperform recommendation for AKSEN. Commissioning of Goynuk plant is expected in June The Goynuk Lignite Power Plant will contribute 270MW to the Company s current installed capacity of 2,151MW. plans to commission the 1 st phase (135MW) of the power plant in June, followed by the 2 nd 135MW phase by September 2015. The plant is expected to generate 2.0TWh of electricity and TL180mn EBITDA in 2016, with 0.75TWh electricity generation with TL70mn of EBITDA contribution in 2015. Combined with the renewable portfolio growth, we foresee an 18% CAGR in EBITDA between 2014 and 2017. Current Price TL 2.80TL 12M Target Price TL 3.80TL Potential Return TL 36% Current Mcap (TLmn) 1,717 Current EV (TLmn) 3,824 Current Mcap (US$mn) 659 Price Performance (TL) 3.50 3.10 2.70 2.30 1.90 1.50 More lignite power plant investments on the horizon plans to add more lignite power plant investments, with the same business model as Goynuk. As the Company has shelved its natural gas power plant investments, we expect possible growth from lignite, most probably after 2016, with better cash generating ability, thanks to Goynuk. Possible developments regarding new lignite plants will serve as a catalyst for the stock. Going towards a more balanced portfolio The Company s current installed renewable capacity of 278MW is expected to rise by 100MW in 2015-2016 period, with the addition of 62MW in hydro-electric capacity and 49MW in installed capacity from wind farms. With the increased weight of renewable plants in the portfolio, profit margins will improve. Return with risks had a short position of US$500mn and 143mn at the end of 1Q15. The Company hedges its short term FX debt. Yet, the vast long term FX loans continue to put pressure on the bottom line. As such, a sharp depreciation in the TL poses a risk to the financials. AKSEN BIST 100 Stock Market Data Bloomberg/Reuters: AKSEN.TI / AKSEN.IS Relative Performance: 1 mth 3 mth 12mth 52 Week Range (TL): 4% -12% -7% 2.38 / 3.48 Average Daily Vol (US$mn) 3 mth: 3.7 YTD TL Return: Shares Outstanding (mn): -4% 613 Free Float (%): 21% Foreign Ow nership in Free Float (%): 48% Financials and Ratios 2013 2014 2015E 2016E Research Analyst: Kerim Gokoz Net Sales (TLmn) 1,786 1,957 2,509 2,758 +90 (212) 384 1129 EBITDA (TLmn) 312 344 423 516 kgokoz@garanti.com.tr Net Profit (TLmn) -132 40-24 160 EBITDA Margin 17.5% 17.6% 16.9% 18.7% Sales Contact: P/E (x) n.m. 43.3 n.m. 10.7 +90 (212) 384 1155-58 EV/EBITDA (x) 12.3 11.1 9.0 7.4 icm@garanti.com.tr EV/Sales (x) 2.14 1.95 1.52 1.39 EPS (TL) -0.21 0.06-0.04 0.26 DPS (TL) 0.00 0.00 0.00 0.00 1
The Company in Brief, established in 1997, is the second largest independent power producer in Turkey with 2,151MW of installed capacity generated through Natural Gas, Fuel Oil and Hydro Power Plants and Windparks. started trading on the BIST on May 21, 2010. Kazanci Holding, the parent company of, has over 50 years of experience in the energy sector. Shareholders Kazanci Holding 61.98% Goldman Sach International 16.62% Free Float 21.4% SUMMARY FINANCIALS Income Statement (TLmn) 2013 2014 2015E 2016E 15E/14 Net Sales 1,786 1,957 2,509 2,758 28% Cost of Sales -1,566-1,711-2,202-2,379 29% Gross Profit (Loss) 220 247 307 379 25% Operating Expenses -20-24 -36-40 50% Operating Profit 200 222 271 339 22% Consolidated EBITDA 312 344 423 516 23% Net Other Income/ Expense -4-15 -11-10 -24% Profit (Loss) from Subsidiaries 0 0 0 0 n.m. Net financial Income/ Expense -346-182 -290-142 59% Profit (Loss) before Tax -150 25-30 188 n.m. Tax 17 13 6-28 -54% Minority Interests -2 0 0 0 0% Net Profit -132 40-24 160 n.m. Ratios Gross Profit Margin 12.3% 12.6% 12.2% 13.7% -0.4 pp EBIT Margin 11.2% 11.4% 10.8% 12.3% -0.6 pp EBITDA Margin 17.5% 17.6% 16.9% 18.7% -0.7 pp Net Income Margin n.m. 2.0% n.m. 5.8% n.m. Balance Sheet 2013 2014 2015E 2016E 15E/14 Current Assets 520 533 739 827 2% Cash and Cash Equivalents 22 34 71 104 53% Short-Term Trade Receivables 142 89 79 105-38% Inventories 250 269 281 313 8% Other Current Assets 105 141 308 305 34% Long Term Assets 2,356 2,927 3,471 3,727 24% Total Assets 2,876 3,460 4,210 4,554 20% Short Term Liabilities 630 916 1,084 997 45% Short-Term Financial Loans 409 621 631 625 52% Short-Term Trade Payables 178 265 385 330 49% Other Short-Term Liabilities 43 30 68 42-31% Long Term Liabilities 1,262 1,522 2,125 2,393 21% Long-Term Financial Loans 1,154 1,434 2,037 2,306 24% Other Long-Term Liabilities 108 88 88 88-19% Shareholders Equity 984 1,022 1,001 1,164 4% T. Liab. & S.holders Equity 2,876 3,460 4,210 4,554 20% 2
VALUATION Our 12-month target share price TL3.80 for is derived from DCF analysis. We applied the yield on the 10-year Eurobond as the riskfree rate while assuming a market risk premium of 5.5% and a Beta of 1.0 in calculating the cost of equity. We have assumed that the corporate tax rate in our forecast period remains constant at 20%. Accordingly, we assume a 7.1% WACC for in 2015. Our DCF model assumes a conservative 0% terminal growth rate. Valuation Summary Valuation Method Target Value 12M Target from DCF (TLmn) 2,333 Target share price (TL) 3.80 Current share price (TL) 2.80 Upside (Downside) Potential 36% Source: Garanti Securities estimates Main Assumptions 2015E 2016E 2017E 2018E 2019E 2020E Capacity (MW) 2,446 2,521 2,521 2,521 2,521 2,521 Sales Volume (GWh) 12,269 12,508 12,556 12,571 12,579 12,540 DCF (US$mn) Revenues 961 1,027 1,071 1,093 1,111 1,125 Operating Profit 104 126 138 152 161 167 Taxes -21-25 -28-30 -32-33 Depreciation 58 66 67 61 56 50 Capex -267-161 -50-50 -50-50 Free Cash Flow -125 6 127 132 134 133 WACC 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% PV of cash flows 313 PV of terminal value 1,281 Net cash/(debt) -806 Equity Value 788 Revision in estimates revised its 2015 sector guidance in the 1Q15 financial results conference call held on May 8 th. The Company revised down its 2015 demand growth forecast from the 4.5% stated after the announcement of the year-end financials in March to 3%. With increasing hydro-electric generation and lower demand, the Company revised its average electricity market price from TL170/MWh to TL150/MWh. 3
The first phase of the Goynuk plant is expected to be commissioned in June, rather than April as had previously been expected. The plant is expected to contribute 0.75TWh (prev. 1.1TWh) to the total generation in 2015 and 2.0TWh (no change) in 2016. The EBITDA contribution is expected to total TL70mn (previously TL100mn) in 2015 and TL180mn (no change) in 2016. maintained its 2015 guidance of 12.7TWh in electricity sales, TL2.5bn of net sales and TL420-430mn of EBITDA in 2015. Despite downward revisions in Goynuk s 2015 contribution due to the delays, the Company maintained its 2015 guidance thanks to trading operations. The Company does not expect any change in electricity or natural gas tariffs in 2015. We revised our forecasts in line with the new guidance and our updated economic forecasts. Accordingly, our 2015 EBITDA forecast declined by 16% while our TL146mn of net profit estimate turned to TL24mn of net loss due to significant depreciation in TL. We forecast US$/TL parity to end the year at 2.67 levels. AKSEN OLD NEW % Change (TLmn) 2015 2016 2015 2016 2015 2016 Net Sales 2,562 2,958 2,509 2,758-2% -7% EBITDA 488 614 423 516-13% -16% Net Profit 146 215-24 160 n.m. -26% EBITDA Margin 19.0% 20.7% 16.9% 18.7% -2.2 pp -2 pp Net Income Margin 5.7% 7.3% n.m. 5.8% n.m. -1.5 pp 12M Target Price 4.00 3.80-5% Bloomberg vs. our estimates Our target share price is 6% higher than the Bloomberg consensus. Our EBITDA forecasts are slightly lower than the 2015 and 2016 consensus figures. We foresee a TL24mn net loss in 2015 as a result of high financial expenses. According to Bloomberg, there are 14 Buy ratings, one Hold and one Sell rating. AKSEN Bloomberg Garanti Securities % Change (TLmn) 2015 2016 2015 2016 2015 2016 Net Sales 2,410 2,702 2,509 2,758 4% 2% EBITDA 441 527 423 516-4% -2% Net Profit 67 166-24 160 n.m. -3% EBITDA Margin 18.3% 19.5% 16.9% 18.7% -1.4 pp -0.8 pp Net Income Margin 2.8% 6.1% n.m. 5.8% n.m. -0.3 pp 12M Target Price 3.58 3.80 6% Source. Bloomberg, Garanti Securities 4
1Q15 Financials announced a TL96mn net loss in its 1Q15 financial statements. In 1Q15, posted TL545mn of adjusted net sales, 34% above the consensus estimate, and TL86mn of EBITDA, 25% above the consensus. s total electricity sales increased by 23% YoY in 1Q15 to 3,013GWh. Meanwhile total generation volume declined by 39% YoY. NGPP generation volume tumbled by 41% YoY in 1Q15 while renewable generation increased by 58% thanks to higher water levels. Meanwhile, weighted average electricity sales prices increased by 3% to TL181/MWh. The Company announced adjusted net sales figures as the trading operations were held under the trading company in 1Q15. The Company posted EBITDA of TL86mn in 1Q15, up by 18%. Accordingly, s adjusted EBITDA margin improved by a mere 0.4pp YoY. posted TL167mn of net financial expenses in 1Q15 on the back of the TL130mn FX losses. The Company s net debt position increased, from TL2.02bn at the beginning of the quarter to TL2.11bn by the end. At the end of 1Q15, the Company carried a short FX position of US$500mn and 143mn. Summary Financials Change (mn TL) 1Q14 2Q14 3Q14 4Q14 1Q15 1Q15/1Q14 1Q15/4Q14 Net Sales* 472 438 599 448 545 15% 22% Gross Profit 49 30 122 45 58 19% 28% Operating Profit 44 25 118 36 54 23% 51% EBITDA 73 55 148 68 86 18% 28% Net Other Income/Expense 0 0-3 -11 0 n.m. n.m. Financial Inc./ Exp. (net) -58 26-96 -54-167 n.m. n.m. Tax 4-5 1 12 16 289% 33% Net Income -9 46 21-18 -96 n.m. n.m. Net Cash -1,653-1,752-1,888-2,020-2,107 Working Capital 138 169 70 92-70 Shareholders Equity 974 1,017 1,041 1,022 925 Ratios Gross Margin 10.3% 6.9% 20.4% 10.1% 10.6% 0.4 pp 0.5 pp Operating Margin 9.3% 5.7% 19.7% 8.0% 9.9% 0.6 pp 1.9 pp EBITDA Margin 15.5% 12.5% 24.7% 15.1% 15.9% 0.4 pp 0.7 pp Net Profit Margin n.m. 10.5% 3.5% n.m. n.m. n.m. n.m. *: Company adjusted figure 5
Disclaimer Recommendation History Source: Garanti Securities Definition of Stock Ratings OUTPERFORM (OP) MARKET PERFORM (MP) The stock's return is expected to exceed the return of the BIST100 over the next 12 months. The stock's return is expected to be in line with the BIST100 over the next 12 months. UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST100 over the next 12 months.
Disclaimer This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by Garanti Securities Research Department, to provide its customers with general information regarding the date of issue of the report and are subject to changes without prior notice. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. Investors who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. The information in this report has been obtained by Garanti Securities Research Department from sources believed to be reliable. However, Garanti Securities cannot guarantee the accuracy, adequacy, or completeness of such information, and cannot be responsible for the results of investment decisions made on account of this report. The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors. Investors should be aware that they could even face a loss of their investment. Transactions in futures, options and securities or high-yield securities can involve high risks and are not appropriate for every investor. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, investors may be required to pay more money to support those losses. Thus, before undertaking any transaction with these instruments, investors should be aware of their operation, as well as the rights, liabilities and risks implied by the same and the underlying stocks. Investors should also be aware that secondary markets for the said instruments may be limited or even not exist. This report is to be distributed to professional emerging markets investors only. This report is for private use only and intended solely for the individual(s). No information in this report may be copied, modified, republished or exploited in anyway without the prior consent of Garanti Securities. Additionally, with respect to our statements above, all our claims and plea rights are covered in the regulations which apply in the countries that this report has been sent to. Garanti Securities Etiler Mah. Tepecik Yolu Demirkent Sokak No:1 34337 Besiktas, Istanbul / Turkey Phone: +90 (212) 384-1155 Fax: +90 (212) 352-4240