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ATA INVEST- TR BANKS- UPDATE March 2015

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ATA INVEST- TR BANKS- UPDATE March 2015

  1. 1. Ata Finance Group Turkish Banks “Finding the Sweet Spot in Valuation” 27 March 2015 Derya Guzel dguzel@atainvest.com +90 (212) 310 62 89
  2. 2. Ata Finance Group 2 Turkish banks offer good value in terms valuation and continued healthy fundamentals. Turkish banking index is down 10% ytd in TL and is down 19% in US$ terms: current valuations are attractive and fundamentals are supportive for banks. Turkish banks are currently trading at 0.96x P/BV and 7.7x P/E on our 2015 estimates. According to Bloomberg, Turkish Banks at 1.0x P/BV are currently trading at 11% discount to MSCI EM Banks index. P/E multiples also indicate 8% discount. Both on a 5-yr and 2-yr historic P/BV, the valuation indicates 26% and 15% discount respectively. Banking Sector in 2015: Valuation signals a good entry point… Xbank Index 1-yr Fwd P/BV (x) MSCI EM Banks Index 1-yr Fwd P/BV (x) 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev Risks for banking sector fundamentals. In 2015 we expect 5.5% CPI, 4% GDP growth and our current RfR stands at 8.25%. Lower than expected GDP growth, higher unemployment rate and worse than expected depreciation in TL are downside risks to our asset quality estimates. Lower than expected lending growth due to macro sentiment and CBT rising interest rates earlier than expected due to global macro trends could also pressure banks’ valuations. Source: Bloomberg Source: Bloomberg
  3. 3. Ata Finance Group 3 Banking Sector in 2015: Changes to our recommendatations… We maintain our Outperform rating for Halkbank and Vakifbank however removing the stocks from our top pick list. We reshuffle our top pick list, while not changing our recommendations for Halkbank and Vakifbank (both rated Outperform) we remove the stocks from our top pick list. On Halkbank, while the bank is trading at deep discount both to its 5-yr historic valuation and peers, we believe the postponement of insurance sale process from 2Q15 to 4Q15 creates downside risk to completion of insurance sale even in 2015, which we previously indicated that would have been positive for mending the investor confidence which was lost. We expect 15% ROE for Halkbank in 2015 vs management expectation of 20-22% ROE, which includes the insurance sale. On Vakifbank, while we still believe on the way to SPO, with current valuation gap, the stock looks attractive, however further delay and continued uncertainty regarding share transfer between GDF and Turkish Treasury could create headwinds and loss of investor confidence there. In Halkbank, completion of insurance sale process in 2015 and in Vakifbank completion of share transfer would act as positive catalyst. We upgrade Akbank to Outperform, while adding both Akbank and Isbank to our to pick list. We believe Isbank’s outperformance both on share price, EPS growth and asset quality achievements to continue in 2015. We believe further progress within the subsidiary restructuring could also act as value enhancing. We also upgrade Akbank to Outperform on the back of valuation ground and recent relief which came following Citi’s stake sale. Yapi Kredi currently is the least preferred bank within the banks we cover. We highlight TSKB as a defensive and small cap name. As a development bank which doesn't have exposure to retail. Yapi Kredi currently is the least preferred bank within the banks we cover. Recommendation Revisions Cur. rating Prev. rating Price Current TP Prev TP Upside % AKBNK OP MP 7.94 9.70 10.13 22.2 GARAN MP MP 8.63 9.90 10.80 14.7 HALKB OP OP 13.15 18.00 20.48 36.9 ISCTR OP OP 6.02 7.90 8.16 31.3 TSKB OP OP 1.97 2.58 2.82 33.7 VAKBN OP OP 4.41 6.28 7.00 42.4 YKBNK MP MP 4.16 5.05 5.96 21.3 Source: Bloomberg and Ata estimates Ata ratings EPS Revisions 2015-2016E EPS Old New Change % Old New Change % AKBNK 0.88 0.90 2% 1.02 1.02 0% GARAN 0.91 0.88 -4% 1.05 0.99 -6% HALKB 2.20 2.08 -5% 2.51 2.43 -3% ISCTR 0.85 0.85 -1% 1.03 0.96 -6% TSKB 0.30 0.28 -5% 0.38 0.33 -13% VAKBN 0.76 0.75 -1% 0.91 0.89 -2% YKBNK 0.51 0.47 -8% 0.60 0.55 -8% Average 0.92 0.89 -3% 1.07 1.03 -4% 2016E2015E Source: Bloomberg and Ata estimates We pencil in 13% EPS growth for banks under our coverage. Following full year 2014 results and 2015 budget announcements we have reduced our NI estimates for 2015 by 3% and for 2016 by 4%, mainly on the back of slower fee income growth (regulatory effect). We have also cut our NIM expectation to y/y flat NIM from 20bps improvement previously. While we foresee inflation to ease in 2015 to some extent, we see volatility in FX rates and other non-HR related cost (i.e. fee reimbursement due to Consumer Arbitration Committee) to pressure opex this year. We pencil in average 13.4% opex growth in 2015 following 13.8% in 2014 for banks under our coverage.
  4. 4. Ata Finance Group 4 Ata Invest 2015 Macro scenario… Lower oil prices are supportive Pressure on TL and rebound in oil prices Following the latest ECB quantitative easing decision, earlier than expected recovery in Europe could be an upside risk Geopolitical risks in the Middle East and Russia- Ukraine Conflict Acceleration in the pace of capital inflow, in particular, FDI Deterioration in trade balance triggered by weak global demand Further delay in FED rate hikes Downside Risks Upside Risks Turkey is still vulnerable to sudden and sustained capital outflows Higher than expected growth while sustaining low inflation Year-end US$/TL: 2.59 General Elections (7 June 2015) Structural reforms and the Government's fiscal stance Developments regarding the Peace Process- Kurdish Issue Catalysts Year-end Euro/TL: 2.85 Risk free rate: 8.25% Inflation (CPI): 5.5% US FED tightening versus implication of ECB's quantitative easing GDP Growth: 4% CAD/GDP ratio: 4.8% Trends in inflation and CAD/GDP in 1H15 Significant decline in inflation is likely Lower interest rates will help domestic demand and equities Macro Estimates - 2015E Higher GDP growth compared to previous year Macro Perspective FED rate hike concerns will be partially offset by ECB QE Political landscape looks stable ahead of General Elections Source: Ata Invest Estimates
  5. 5. Ata Finance Group 5 The ROE gap among the banks looks more distinct when the comparison is made using the returns that banks generate in excess of the cost of equity (CoE). We have draw the P/BVs vs ROEs chart using the excess returns over and above cost of equity. Coverage Banks ROE Gap study: Yapi Kredi looks worse while Halkbank and TSKB look attractive… In Figure B we repeated the same exercise using what the implied price to book equity would be if the excess ROE was perpetuity-discounted at the current yield on 10yr Turkey treasury notes (risk free). This exhibits how wide the valuation gap would have been had the shares been valued based only on the ROE gap. Figure A: P/BV (2015E) vs ROE in excess of CoE Figure B: 1 + ((ROE – CoE)/RfR) v (ROE – CoE) In Figure A we plot the current P/BV values against the forecast period ROE in excess of the CoE across the banks we cover. Akbank Garanti Halkbank Isbank TSKB Vakifbank Yapi Kredi 0.0x 0.2x 0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Akbank Garanti Halkbank Isbank TSKB Vakifbank Yapi Kredi 0.0x 0.2x 0.4x 0.6x 0.8x 1.0x 1.2x 1.4x -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Source: Bloomberg and Ata Invest Estimates Source: Bloomberg and Ata Invest Estimates
  6. 6. Ata Finance Group 6 • The banking sector NPL ratio realized at 2.8% in 2014, indicating 10bps increase from 2013. Although we anticipate some deterioration in NPL ratio especially coming from unsecured lending segments (i.e. credit cards) we believe collections (as we expect 4% GDP growth) should offset some part of the negative. • On the FX side we saw +10% depreciation in TL/US$ since the start of the year. While this might put some pressure on assets, we don’t foresee FX depreciation directly to hit asset quality in short term, at least at those levels. We believe NPL ratio in Turkey very much linked to GDP growth and unemployment rate. Hence we don't foresee a weakness going forward in our assets quality. • For this year we only pencil in 20bps increase and foresee NPL ratio for the sector to be in a range between 3.0%-3.1%. Please remember that, in Turkey, consumers can not borrow in FX hence don’t carry currency risk. On the other hand, the majority of retail loans are fixed rate and TL dominated. When looking at the loan segments, only 38% of SME loans in the sector based on FX (those are mainly larger size SMEs) and 44% of the corporate book is in FX (mainly large size companies and blue chips) hence in the short term, we don’t foresee rapid increase in NPLs. Asset quality: We don’t expect NPLs to peak in 2015… -8% -4% 0% 4% 8% 12% 0% 2% 4% 6% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E NPL % GDP growth (rhs) Banking sector NPL ratio vs GDP growth % NPL ratios vs coverage ratios as of 4Q14 NPL ratios 2015E 100% 94% 94% 81% 73% 71% 65% 94% 0% 20% 40% 60% 80% 100% 120% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% TSKB AKBNK ISCTR GARAN Sector YKBNK HALKB VAKBN NPL ratio % 2013 NPL ratio % 2014 Coverage % 2014 2.0% 2.6% 3.4% 1.7% 3.0% 0.2% 3.5% 3.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% AKBNK GARAN HALKB ISCTR Sector TSKB VAKBN YKBNK Source: Company data and Ata Invest Estimates Source: Ata Invest Estimates
  7. 7. Ata Finance Group 7 • To be able to evaluate the banks in terms of their cost efficiency we created the efficiency matrix below. Below we see two sets of distinctive ratios one belong to state banks and other is private banks. However when looking at the banks as a whole, Akbank and Garanti distinguish themselves as the most efficient banks when compared with the rest of the Tier-1 banks. • With the recent investment cycle Yapi Kredi’s opex realized at 18% y/y hence its expense ratios now look the weakest among the private peers. Its fee coverage of cost ratio drop to 56% from 60% in 2013 while its cost to revenues increased to 53% from 49% respectively. We expect deterioration of expense ratios to continue in 2015E as we expect the investment cycle to continue. • On average we expect 13% opex growth for banks under our coverage. As we mentioned above, we foresee Yapi Kredi to post highest cost growth (2015E 17.5%) while we expect Akbank to post below peers (2015E 9.3% vs peers 13%). While we foresee inflation to ease in 2015, we see volatility in FX rates and other non-HR related cost (i.e. fee reimbursement due to Consumer Arbitration Committee) to pressure opex this year. Efficiency comparison: Turkish Banks efficiency ratios in context… Cost to assets (%) 2014 and 2015E Turkish Banks efficiency metrics as at Dec’14 Fee coverage of cost (%) 2014 and 2015E Expense ratios % AKBNK GARAN HALKB ISCTR VAKBN YKBNK Average Cost/Revenues 40.5 46.2 48.3 59.1 55.7 53.2 50.5 Cost/NII+ fees 40.0 45.4 48.7 60.2 58.0 50.3 50.4 Fees/Cost 63.5 62.6 34.2 35.2 22.8 56.0 45.7 Cost/Assets 1.9 2.2 2.0 2.5 2.1 2.4 2.2 Source: Company Data and Ata estimates 64 63 34 35 23 56 46 64 56 33 34 22 50 43 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 AKBNK GARAN HALKB ISCTR VAKBN YKBNK Average 2014 2015E 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 AKBNK GARAN HALKB ISCTR VAKBN YKBNK 2014 2015E Opex growth % 2015E Source: Ata Invest Estimates Source: Ata Invest Estimates
  8. 8. Ata Finance Group 8 • Figure below shows foreign institutional ownership in Turkish banks to reflect the interest in the shares. • Garanti Bank, the most liquid and largest weight stock among the Turkish banking sector shares as well as the broader Turkish market itself, is a good reference point to gauge the level of interest by institutions in the banks. • Foreign institutions currently own 70.9% of the free float in Garanti, down from 72.8% in Dec’14. • When looking at the other banks, ytd Vakifbank and Yapi Kredi were heavily sold where Akbank’s share increased. 7.8ppt increase in Akbank mainly came following the Citi exit in the bank. Foreign institutional ownership share in Turkish banks free float: Yapi Kredi and Vakifbank look heavily sold off while Akbank gained… Date ISE ALL AKBNK GARAN HALKB ISCTR VAKBN YKBNK TSKB 31/12/12 65.7 45.3 74.6 76.2 66.7 70.7 55.5 53.1 30/05/13 65.5 46.0 75.3 86.7 68.4 82.3 59.7 57.2 31/12/13 62.4 45.0 73.3 76.2 59.0 70.7 55.5 53.1 31/12/14 63.8 49.3 73.5 75.0 67.2 69.7 62.2 57.4 30/01/15 64.3 50.4 72.8 81.5 68.5 74.1 59.9 56.9 27/02/15 63.0 50.7 72.0 78.7 65.5 69.9 56.4 55.8 18/03/15 62.7 57.0 70.9 74.1 63.3 61.4 55.0 55.6 ytd change -1.2 7.8 -2.6 -0.9 -4.0 -8.4 -7.2 -1.8 • Big chunk of the exit from the banks came end of February. • Although it share price has been heavily sold off since 2013, Halkbank maintained to have one of the highest foreign ownership with 74.1%. Yapi Kredi with 55.0% is the lowest, equal to our small cap pick TSKB. • We also expect some pick up in Akbank’s foreign ownership with recent upgrades. Source: Central Securities Depository of Turkey 30 40 50 60 70 80 ISE ALL AKBNK GARAN HALKB ISCTR VAKBN YKBNK TSKB 31 December 2012 31 December 2013 31 December 2014 18 March 2015
  9. 9. Ata Finance Group 9 Where we stand vs consensus: We expect 13% EPS growth in 2015… TP Net Income TP Net Income TP Net Income AKBNK 9.48 3,499 9.70 3,591 2% 3% GARAN 10.21 3,719 9.90 3,678 -3% -1% HALKB 18.12 2,565 18.00 2,597 -1% 1% ISCTR 7.55 3,686 7.90 3,810 5% 3% TSKB 2.44 407 2.26 425 -7% 4% VAKBN 5.98 1,794 6.28 1,883 5% 5% YKBNK 5.35 2,208 5.05 2,061 -6% -7% Bloomberg 2015E Ata 2015E Ata vs Bloomberg Source: Bloomberg and Ata estimates AKBNK GARAN HALKB ISCTR TSKB VAKBN YKBNK Net income Bloomberg 2016E Ata 2016E Ata vs Bloomberg 4,081 4,142 3,042 4,330 2,229 -4% 3% 2% 7% 2,696 2,411 Source: Bloomberg and Ata estimates -11% Net income % 4,091 4,300 2,955 2,085 0% 4,226 458 498 9% EPS Old New Change % Old New Change % AKBNK 0.88 0.90 2% 1.02 1.02 0% GARAN 0.91 0.88 -4% 1.05 0.99 -6% HALKB 2.20 2.08 -5% 2.51 2.43 -3% ISCTR 0.85 0.85 -1% 1.03 0.96 -6% TSKB 0.30 0.28 -5% 0.38 0.33 -13% VAKBN 0.76 0.75 -1% 0.91 0.89 -2% YKBNK 0.51 0.47 -8% 0.60 0.55 -8% Average 0.92 0.89 -3% 1.07 1.03 -4% 2016E2015E Source: Bloomberg and Ata estimates Ytd 2015E Bloomberg consensus EPS revisions -0.54% -0.36% -2.18% 3.70% -1.78% 2.05% -2.66%-3% -2% -1% 0% 1% 2% 3% 4% 5% Akbank Garanti Halkbank Isbank TSKB Vakifbank Yapi Kredi Ata Invest vs Bloomberg 2016E Net Income estimate Ata Invest vs Bloomberg 2015 TP & NI estimate Revisions to Ata Invest estimates (2015E and 2016E) Source: Bloomberg
  10. 10. Ata Finance Group 10 TR Banks vs MSCI EM Banks: Trading at discount to both its 5-yr historical average and MSCI EM Banks… Price performance (US$ rebased 100) TR Banks 1Y fwd P/BV (x) 50 75 100 125 150 3/14 5/14 6/14 8/14 9/14 11/14 12/14 2/15 3/15 TR Banks ISE100 MSCI EM Banks TR Banks vs MSCI EM Banks 1Y fwd P/BV (x) TR Banks vs MSCI EM Banks 1Y fwd P/E (x) 5 7.5 10 12.5 MSCI EM Banks 1Y Fw P/BV TR Banks 1Y Fw P/BV 0.5 1 1.5 2 2.5 MSCI EM Banks 1Y Fw P/BV TR Banks 1Y Fw P/BV Source: Bloomberg 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev
  11. 11. Ata Finance Group 11 Coverage Banks: 1Y fwd P/BV vs both 5-yr and 2-yr historical average points to favourable valuation… Akbank Garanti Halkbank Isbank Vakifbank Yapi Kredi 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev 0.5 1 1.5 2 2.5 3 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev 0.5 1 1.5 2 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev 0.5 1 1.5 Series1 Series2 +1 ST. Dev -1 ST. Dev 0.5 1 1.5 2 2.5 1 Yr Fwd P/BV (x) Average +1 ST. Dev -1 ST. Dev Source: Bloomberg
  12. 12. Ata Finance Group 12 Ata Invest Turkish Banks Valuation metrics… Source: Ata Invest Estimates Ticker AKBNK GARAN HALKB ISCTR VAKBN YKBNK TSKB Current share price 7.94 8.63 13.15 6.02 4.41 4.16 1.97 12M Target price 9.70 9.90 18.00 7.90 6.28 5.05 2.58 Upside (%) 22.2 14.7 36.9 31.3 42.4 21.3 30.8 Rating OP MP OP OP OP MP OP Key Data (TLm) Market cap 31,760 36,246 16,438 27,090 11,025 18,084 2,955 Market cap US$m 12,231 13,959 6,330 10,433 4,246 6,964 1,138 Assets 195,190 203,622 143,767 219,599 138,539 158,276 13,903 Loans 118,050 123,111 92,187 139,321 91,800 105,672 9,666 Deposits 107,920 110,538 93,892 125,257 84,206 93,687 N/M EPS (TL) 2013 0.74 0.72 2.20 0.70 0.63 0.46 0.22 2014 0.79 0.76 1.76 0.75 0.70 0.42 0.25 2015E 0.90 0.88 2.08 0.85 0.75 0.47 0.28 2016E 1.02 0.99 2.43 0.96 0.89 0.55 0.33 BVPS (TL) 2013 5.33 5.38 11.32 5.24 5.05 3.98 1.26 2014 6.28 6.19 13.23 6.51 5.91 4.40 1.53 2015E 7.09 6.87 14.89 7.15 6.66 4.87 1.75 2016E 8.00 7.66 16.84 7.87 7.55 5.43 2.02 P/E (x) 2013 10.80 12.06 5.98 8.56 6.95 9.03 9.06 2014 10.05 11.33 7.45 8.01 6.29 9.80 8.00 2015E 8.84 9.86 6.33 7.11 5.85 8.77 6.96 2016E 7.78 8.75 5.40 6.26 4.95 7.50 5.93 P/BV (x) 2013 1.49 1.60 1.16 1.15 0.87 1.04 1.57 2014 1.26 1.39 0.99 0.92 0.75 0.95 1.29 2015E 1.12 1.26 0.88 0.84 0.66 0.85 1.12 2016E 0.99 1.13 0.78 0.76 0.58 0.77 0.98 Key ratios (4Q'14) % LDR 111.1 114.2 98.1 116.7 114.0 116.1 111.1 NPL 1.8 2.4 3.5 1.5 3.7 3.4 0.2 Loans as % assets 61.3 61.2 65.5 65.6 66.1 67.3 69.9 CAR 15.2 15.2 13.6 16.0 14.0 15.0 18.0 Quarterly ROE 14.6 12.2 11.0 11.7 19.2 11.2 14.7 Quarterly ROA 1.60 1.53 1.48 1.40 1.20 1.20 2.14
  13. 13. Ata Finance Group 13 Ata Invest Turkish Banks Estimates at a glance… Akbank Garanti Halkbank Isbank Vakifbank Yapi Kredi TSKB 2014 Loan grow th 13.8 13.0 19.9 15.2 20.6 27.0 19.7 Deposit grow th 7.7 13.0 2.9 10.4 12.5 21.8 N/M Asset grow th 11.8 11.2 11.1 13.0 16.8 21.7 21.6 NII grow th 12.1 17.1 5.9 12.0 -2.9 20.2 12.3 Fees & commissions grow th 9.0 12.8 10.0 4.4 3.3 9.7 4.3 Opex grow th 7.7 12.1 12.5 14.8 18.3 17.7 56.1 Net income grow th 7.4 6.5 -19.8 6.9 10.6 -7.9 13.3 ROE 13.6 12.2 14.4 12.8 12.8 10.1 17.7 CAR 14.2 15.2 13.6 16.0 13.8 15.0 18.0 LDR 111.1 114.2 98.1 116.7 114.0 116.1 N/M NPL ratio 1.8 2.4 3.5 1.5 3.7 3.4 0.2 2015E Loan grow th 15.3 13.6 17.0 17.3 20.4 20.0 17.0 Deposit grow th 14.0 13.0 13.0 14.0 14.0 17.0 N/M Asset grow th 11.3 9.7 12.0 13.0 14.9 15.0 16.4 NII grow th 15.2 14.2 19.8 15.1 19.1 23.3 18.5 Fees & commissions grow th 10.4 3.5 9.6 6.2 10.3 5.3 6.5 Opex grow th 9.3 14.7 13.0 11.2 14.8 17.5 -10.8 Net income grow th 13.7 14.9 17.7 12.6 7.4 11.7 15.0 ROE 13.4 13.4 14.8 12.4 12.0 10.2 17.3 CAR 14.4 15.6 13.1 15.8 14.1 15.1 18.9 LDR 112.4 112.0 101.6 120.0 120.4 119.0 N/M NPL ratio 2.0 2.6 3.4 1.7 3.5 3.7 0.2 2016E Loan grow th 16.6 15.8 16.2 17.4 18.0 19.8 18.0 Deposit grow th 14.0 13.0 13.0 13.0 14.0 17.0 N/M Asset grow th 12.4 11.5 11.9 13.5 13.3 15.4 17.4 NII grow th 12.6 12.9 15.1 14.3 18.8 14.6 14.9 Fees & commissions grow th 10.0 7.3 11.9 7.9 11.6 11.4 16.9 Opex grow th 7.7 10.4 10.3 8.5 16.8 19.1 16.9 Net income grow th 13.6 12.6 17.1 13.7 18.4 17.0 17.3 ROE 13.4 13.4 14.8 12.4 12.0 10.2 17.3 CAR 14.5 16.5 12.6 16.3 14.4 15.0 19.4 LDR 114.9 114.8 104.5 124.7 124.6 121.8 N/M NPL ratio 2.2 2.5 3.4 1.8 3.7 3.7 0.2 Source: Ata Invest estimates Banks under coverage assumptions %
  14. 14. Ata Finance Group 14 COMPANY PAGES
  15. 15. Ata Finance Group Valuation Current Price, TL 7.94 12-mth Target Price, TL 9.70 Expected Dividend Yield 1.9% Expected Price Appreciation 20.3% Total Upside 22.2% Stock Data MCap, TL mn 31,760 MCap, US$ mn 12,233 Free float, % 52% Average Daily Turnover, TL mn 232.4 Financials, TL mn 2013 2014 2015E 2016E Total Assets 183,737 205,451 228,592 256,833 Loans 110,676 125,978 145,253 169,306 Deposits 105,277 113,373 129,246 147,340 Net Income 2,942 3,160 3,591 4,081 ROE 13.6% 13.6% 13.4% 13.5% ROA 1.7% 1.6% 1.7% 1.9% P/E 10.8x 10.1x 8.8x 7.8x P/BV 1.49x 1.26x 1.12x 0.99x Share Perf. 1M 3M 1Y Absolute -6% -8% 21% Relative to ISE100 -1% -4% 1% 15 Akbank (AKBNK TI/AKBNK.IS) Outperform Earlier than planned Citi exit comes as a breather… • Citi sold its 9.9% share in the bank earlier than expected, which we believe the sale came as a relief to uncertainty surrendering the Citi’s stake. • The most efficient bank on cost ratios and well above the sector asset quality. • We expect 14% EPS growth in 2015 and also in 2016. Upgraded to Outperform on the back of good valuation and solid fundamentals…Trading 24% discount to its 5-yr historic P/BV points attractive spot to be invested. The bank also trades below its -1 standard deviation P/BV of 1.12x. While the bank trades +10% premium to the sector, this is in line with the historic premium the bank has given its weighting. We expect Akbank to deliver 13.4% ROE and 1.7% ROA in 2015, which is in line with the peers. Following Citi’s exit Akbank’s free float increased to 51.1% vs 41.2% previously. Following the increase in free float, its weighting in MSCI Turkey Index as of 10th March increased to 10.7% vs 9.4%. The bank stands out on cost efficiency ratios and we expect this to hold in mid term. Akbank posted c.9% opex growth during last 6 years vs Tier-1 average of 13.4% cost growth. On 1) fee coverage of cost Akbank stands at 63.5% vs peer average of 45.7%, 2) cost to total assets Akbank 1.9% vs 2.2% peer average and 3) cost to NII+fees stands at 40% vs 50% peer average and 4) cost to total revenues 40.5% vs peers 50.5%. Highest coverage ratio (94% vs sector 74%) and strong asset quality (1.8% vs sector 2.9%). The bank currently covers 94% of its NPL book vs sector average 74%. Akbank’s ROE would have been higher by 90bps, provided low risk coverage to the level of the industry. While we don’t expect immediate ease on the coverage ratio, this provides an upside risk to future earnings. The bank also has TL200mn free provision that put aside which can be used if/when needed. We estimate 14% EPS growth in 2015 driven by 15% NII growth and 9% fee growth…Following 14% loan growth in 2014 we see 15% loan growth in 2015 and 14% deposit growth. We also expect NII to increase by 15%, thanks to switch in asset mix (share of SME & micro enterprise lending to go up) and higher weight of TL assets in balance sheet coupled with increased demand deposits share.
  16. 16. Ata Finance Group AKBNK FINANCIALS AKBNK Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 4,277 3,993 5,200 6,174 6,921 7,974 8,978 Fees and comm 1,309 1,579 1,735 2,164 2,359 2,604 2,864 Net trading income & FX gains 33 -119 400 468 -111 -109 -121 Bank revenues 5,619 5,452 7,336 8,805 9,169 10,470 11,720 Staff cost -878 -960 -1,164 -1,379 -1,437 -1,570 -1,691 Other cost -1,539 -1,474 -1,734 -2,069 -2,276 -2,488 -2,678 Total OPEX -2,417 -2,434 -2,898 -3,448 -3,713 -4,058 -4,369 Operating Income 3,202 3,018 4,438 5,357 5,457 6,411 7,351 Associates 27 50 56 29 28 29 31 Other income 864 581 417 371 607 543 607 Income before provision 4,093 3,649 4,911 5,758 6,091 6,983 7,989 Provisions for loan losses -348 -302 -657 -1,067 -1,520 -1,904 -2,208 Other provisions -171 -346 -450 -838 -533 -415 -481 Pre Tax Income 3,574 3,001 3,803 3,854 4,038 4,664 5,300 Taxes -718 -607 -853 -912 -878 -1,073 -1,219 Net income 2,857 2,395 2,950 2,942 3,160 3,591 4,081 Balance sheet (TL mn) Cash and alike 6,096 13,876 16,663 18,223 21,140 23,254 25,580 Due from banks 1,784 2,819 2,698 4,945 4,756 5,232 5,755 Trading securities 1,032 960 551 1,772 1,407 1,548 1,702 Fixed income securities 48,848 42,695 45,558 44,595 48,871 52,738 56,926 Loans 52,896 70,306 87,656 110,676 125,978 145,253 169,306 Total IEA 110,655 130,657 153,126 180,211 202,153 228,024 259,269 Assets total 113,183 133,552 155,854 183,737 205,451 228,592 256,833 Deposits 67,167 76,814 86,105 105,277 113,373 129,246 147,340 Interbank funds 11,211 12,785 19,714 22,399 27,441 30,531 34,303 Funds borrow ed 10,375 16,770 14,038 18,117 20,989 21,853 23,053 Int bearing liabilities 88,753 106,369 119,857 145,793 161,803 181,630 204,696 Other liabilities 6,865 9,628 14,084 16,606 18,536 18,618 20,120 Shareholders Equity 17,565 17,554 21,913 21,339 25,112 28,344 32,017 Source: Company data and Ata Invest Estimates
  17. 17. Ata Finance Group AKBNK SELECTED RATIOS Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 46.7 52.6 56.2 60.2 61.3 63.5 65.9 Securities/Total assets 43.2 32.0 29.2 24.3 23.8 23.1 22.2 Loans/Deposits 78.8 91.5 101.8 105.1 111.1 112.4 114.9 NPL 3.2 1.8 1.3 1.5 1.8 2.0 2.2 LLP/NPL 27.2 23.9 58.9 63.6 65.2 65.5 60.7 CIR 43.0 44.6 39.5 39.2 40.5 38.8 37.3 Fees coverage of cost 54.2 64.8 59.9 62.8 63.5 64.2 65.6 Cost/Total assets 2.1 1.8 1.9 1.9 1.8 1.8 1.7 NIM 4.2 3.4 3.8 3.8 3.8 3.7 3.7 Net fees/Total assets 1.2 1.3 1.2 1.3 1.2 1.2 1.2 ROE 18.0 13.6 14.9 13.6 13.6 13.4 13.5 ROA 2.7 1.9 2.0 1.7 1.6 1.7 1.9 Total CAR (%) 20.6 17.0 18.0 15.0 14.2 14.4 14.5 Growth measures (%) Loans 33.2 32.9 24.7 26.3 13.8 15.3 16.6 Deposits 20.3 14.4 12.1 22.3 7.7 14.0 14.0 Assets 18.8 18.0 16.7 17.9 11.8 11.3 12.4 Net interest income -6.9 -6.6 30.2 18.7 12.1 15.2 12.6 Fees and comm 2.3 20.6 9.9 24.7 9.0 10.4 10.0 Cost 10.7 0.7 19.0 19.0 7.7 9.3 7.7 Net income 4.8 -16.2 23.2 -0.3 7.4 13.7 13.6 Per share data and valuation metrics BVPS (TL) 4.39 4.39 5.48 5.33 6.28 7.09 8.00 EPS (TL) 0.71 0.60 0.74 0.74 0.79 0.90 1.02 P/E 11.1x 13.3x 10.8x 10.8x 10.1x 8.8x 7.8x P/BV 1.81x 1.81x 1.45x 1.49x 1.26x 1.12x 0.99x 60 80 100 120 140 160 180 200 AKBNK XBANK Source: Company data and Ata Invest Estimates Share price performance (Rebased to 100)
  18. 18. Ata Finance Group Valuation Current Price, TL 8.63 12-mth Target Price, TL 9.90 Expected Dividend Yield 2.1% Expected Price Appreciation 12.6% Total Upside 14.7% Stock Data MCap, TL mn 36,246 MCap, US$ mn 13,961 Free float, % 48% Average Daily Turnover, TL mn 828.2 Financials, TL mn 2013 2014 2015E 2016E Total Assets 196,896 218,919 240,230 267,881 Loans 118,671 134,058 152,290 176,412 Deposits 106,474 120,308 135,948 153,617 Net Income 3,006 3,200 3,678 4,142 ROE 13.3% 12.2% 13.4% 13.6% ROA 1.6% 1.5% 1.6% 1.8% P/E 12.1x 11.3x 9.9x 8.8x P/BV 1.60x 1.39x 1.26x 1.13x Share Perf. 1M 3M 1Y Absolute -7% -8% 23% Relative to ISE100 -2% -4% 2% 18 Garanti (GARAN TI/GARAN.IS) Marketperform BBVA soon to take solo control of Garanti… • BBVA bought further 14.89% of Garanti in Nov’14. With this acquisition BBVA will hold the control of the bank, while change of CEO is expected sometime in 2015. • We believe Garanti to continue to be the key stock in any Turkish portfolio thanks to its solid fundamentals, however based on valuation grounds we maintain our Marketperform recommendation. • While we expect some asset quality worsening, it shouldn’t be troublesome on NPL front. While trading 22% discount to its 5-yr average P/BV the bank currently trades at 30% premium to the peer average. Trading at 1.26x P/BV and 9.9x P/E on our 2015 estimates, c.30% premium on both valuation parameters. While we believe Garanti is the key stock within banking universe we feel current multiples are not favorable. Although the bank is the most bearish on fee growth, we pencil in 4% fee growth in 2015. While the bank was quite downbeat on fee front (slight decline is budgeted), mainly due to the recent regulatory actions. However we believe, Garanti should be able to post 4% fee growth in 2015 driven by; 1) increase in project finance loan fees, 2) non-cash loan fees and 3) insurance related fees, 4) money transfer fees. We foresee 20bps NPL ratio deterioration in 2015 and expect NPL ratio of 2.6%. In line with the management guidance we foresee 20bps increase in NPL ratio. Garanti also guided that, couple of NPL files to be collected sometimes in 2015 and collections/NPL sales will offset some of the negative effect coming from fresh NPL inflow especially on retail segments. Coverage ratio of the bank stands at 81%, what is above the sector average of 73%. In short term we don’t expect reduction in the coverage ratio. Current CEO Mr. Ozen to retire sometimes this year and new CEO will be appointed by BBVA as the bank will hold the majority following further share acquisition. When current CEO Mr. Ozen step down new CEO will be selected by BBVA sometimes during this year. While this might come with some uncertainty, we believe new CEO appointment should not create any downside risk for Garanti’s operations as a whole.
  19. 19. Ata Finance Group GARAN FINANCIALS GARAN Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 4,755 4,689 5,719 6,356 7,443 8,499 9,592 Fees and comm 1,816 2,008 2,008 2,615 2,949 3,053 3,277 Net trading income & FX gains 364 332 614 297 -194 -115 -127 Bank revenues 6,934 7,029 8,341 9,268 10,198 11,438 12,742 Staff cost -1,161 -1,248 -1,501 -1,666 -1,928 -2,212 -2,443 Other cost -1,880 -1,958 -2,040 -2,540 -2,785 -3,194 -3,528 Total OPEX -3,041 -3,206 -3,541 -4,206 -4,713 -5,406 -5,970 Operating Income 3,893 3,822 4,800 5,062 5,485 6,031 6,772 Associates 5 6 2 56 2 2 2 Other income 638 903 299 457 483 574 635 Income before provision 4,537 4,731 5,101 5,575 5,969 6,607 7,409 Provisions for loan losses -387 -309 -764 -853 -1,164 -1,452 -1,667 Other provisions -198 -514 -414 -771 -642 -316 -363 Pre Tax Income 3,952 3,908 3,923 3,951 4,162 4,839 5,379 Taxes -807 -838 -853 -946 -962 -1,161 -1,237 Net income 3,145 3,071 3,070 3,006 3,200 3,678 4,142 Balancesheet (TL mn) Cash and alike 7,510 8,261 16,113 22,719 25,153 27,668 30,435 Due from banks 8,321 14,344 7,746 9,750 8,440 9,284 10,212 Trading securities 980 1,657 1,183 1,603 1,683 1,851 2,036 Fixed income securities 38,230 33,586 37,239 35,615 41,066 44,146 47,674 Loans 64,827 83,813 91,824 118,671 134,058 152,290 176,412 Total IEA 119,869 141,661 154,106 188,358 210,400 235,239 266,770 Assets total 123,963 146,642 160,192 196,896 218,919 240,230 267,881 Deposits 72,658 84,543 87,482 106,474 120,308 135,948 153,617 Interbank funds 11,254 10,955 13,500 14,584 11,386 12,494 13,932 Funds borrow ed 16,633 20,524 21,678 29,478 32,323 33,970 36,380 Int bearing liabilities 100,546 116,021 122,660 150,536 164,017 182,412 203,929 Other liabilities 6,943 13,044 16,224 23,775 28,900 28,948 31,769 Shareholders Equity 16,475 17,577 21,309 22,585 26,001 28,870 32,183
  20. 20. Ata Finance Group GARAN SELECTED RATIOS Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 52.3 57.2 57.3 60.3 61.2 63.4 65.9 Securities/Total assets 30.8 22.9 23.2 18.1 18.8 18.4 17.8 Loans/Deposits 91.9 100.9 107.4 113.8 114.2 112.0 114.8 NPL 2.9 1.8 2.3 2.1 2.4 2.6 2.5 LLP/NPL 1.0 1.1 1.3 1.5 1.5 1.3 1.3 CIR 43.9 45.6 42.5 45.4 46.2 47.3 46.9 Fees coverage of cost 59.7 62.6 56.7 62.2 62.6 56.5 54.9 Cost/Total assets 2.5 2.2 2.2 2.1 2.2 2.3 2.2 NIM 3.9 3.3 3.8 3.7 3.8 3.7 3.8 Net fees/Total assets 1.6 1.4 1.3 1.4 1.4 1.3 1.3 ROE 17.4 18.2 14.6 13.3 12.2 13.4 13.6 ROA 2.8 2.2 2.0 1.6 1.5 1.6 1.8 CAR (%) 19.6 16.9 18.2 14.4 15.2 15.6 16.5 Growth measures (%) Loans 30.4 29.3 9.6 29.2 13.0 13.6 15.8 Deposits 15.7 16.4 3.5 21.7 13.0 13.0 13.0 Assets 17.6 18.3 9.2 22.9 11.2 9.7 11.5 Net interest income -6.4 -1.4 22.0 11.1 17.1 14.2 12.9 Fees and comm 10.5 10.6 0.0 30.3 12.8 3.5 7.3 Cost 18.3 5.4 10.4 18.8 12.1 14.7 10.4 Net income 6.2 -2.4 0.0 -2.1 6.5 14.9 12.6 Per share data and valuation metrics BVPS (TL) 3.92 4.18 5.07 5.38 6.19 6.87 7.66 EPS (TL) 0.75 0.73 0.73 0.72 0.76 0.88 0.99 P/E 11.5x 11.8x 11.8x 12.1x 11.3x 9.9x 8.8x P/BV 2.20x 2.06x 1.70x 1.60x 1.39x 1.26x 1.13x 60 80 100 120 140 160 180 GARAN XBANK Share price performance (Rebased to 100)
  21. 21. Ata Finance Group Valuation Current Price, TL 13.15 12-mth Target Price, TL 18.00 Expected Dividend Yield 3.0% Expected Price Appreciation 33.9% Total Upside 36.9% Stock Data MCap, TL mn 16,438 MCap, US$ mn 6,331 Free float, % 49% Average Daily Turnover, TL mn 373.4 Financials, TL mn 2013 2014 2015E 2016E Total Assets 139,944 155,423 174,058 194,748 Loans 84,848 101,767 119,067 138,356 Deposits 100,756 103,708 117,190 132,425 Net Income 2,751 2,206 2,597 3,042 ROE 20.8% 14.4% 14.8% 15.3% ROA 2.2% 1.5% 1.6% 1.6% P/E 6.0x 7.5x 6.3x 5.4x P/BV 1.16x 0.99x 0.88x 0.78x Share Perf. 1M 3M 1Y Absolute -13% -5% 6% Relative to ISE100 -9% -1% -12% 21 Halkbank (HALKB TI/HALKB.IS) Outperform Capital increase to be executed soon, while insurance sale delayed… • We see downside risk in the insurance sale to be completed in 2015 since the bank delayed the process to 4Q15. • While NPL ratio is guided to improve in 2015. • Current valuation indicates deep discount compared to both historic average and peers. Offering healthy ROEs and trading on attractive valuation. We maintain our Outperform rating. We expect stock to catch up with peers in price performance and valuation wise. Trading at 0.88x P/BV and 6.3x P/E on our 2015 estimates, 9% and 18% discount to peers. The stock is also trading 38% below its 5-yr average of P/BV 1.57x while offering 15% ROE vs 13% peer average. Our current ROE estimate is slightly below Halkbank’s sustainable guidance of 16-18%. Management expects 20-22% ROE in 2015, which includes the insurance sale gain. Asset quality is set to improve. Due to the TL1bn one-off big ticket NPL, Halkbank’s NPL ratio surged by 100bps to 3.7% in 3Q14. In 2015 the bank guides NPL ratio of 3.2-3.4%, implying an improvement of 30-50bps. Our current estimate implies 20bps improvement in NPL ratio. Halkbank’s guidance indicates some upside to our estimate on the asset quality side. While there is possibility of collection of this particular NPL file in the future, we don’t incorporate this in our model currently. We see downside risk in the insurance sale to be completed in 2015 since the bank delayed the process. The timeline as follow: TL1bn capital increase to be executed in 2Q15, establishment of participation banking subsidiary in 4Q15, sale of insurance subsidiaries in 4Q15 vs previously 2Q15. However we see there is a downside risk that the sale to be fully completed in 2016 rather than 2015. While our numbers didn’t included the possible gain from the sale, we indicated that it would have been an upside risk and change in the overall shareholder sentiment. We roughly calculate a sale price of TL1.71bn and income before tax of c.TL1.4bn. We deem insurance sale as one of the positive catalysts for Halkbank when it happens.
  22. 22. Ata Finance Group HALKB FINANCIALS HALKB Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 3,191 3,473 4,476 4,829 5,112 6,125 7,048 Fees and comm 526 728 858 930 1,023 1,120 1,254 Net trading income & FX gains 115 208 555 244 56 49 37 Bank revenues 3,832 4,409 5,889 6,003 6,190 7,295 8,339 Staff cost -670 -732 -843 -1,084 -1,248 -1,411 -1,556 Other cost -825 -993 -1,255 -1,571 -1,740 -1,967 -2,169 Total OPEX -1,495 -1,725 -2,098 -2,655 -2,987 -3,377 -3,725 Operating Income 2,336 2,684 3,791 3,349 3,203 3,917 4,614 Associates 56 49 64 97 154 177 203 Other income 575 594 360 768 531 560 627 Income before provision 2,968 3,327 4,216 4,214 3,888 4,654 5,445 Provisions for loan losses -316 -211 -382 -436 -876 -596 -695 Other provisions -142 -479 -505 -413 -284 -729 -849 Pre Tax Income 2,509 2,637 3,329 3,365 2,727 3,329 3,900 Taxes -499 -592 -734 -614 -521 -732 -858 Net income 2,010 2,045 2,595 2,751 2,206 2,597 3,042 Balancesheet (TL mn) Cash and alike 4,770 7,272 12,500 19,976 20,276 22,304 24,534 Due from banks 989 1,475 2,619 1,849 1,284 1,412 1,553 Trading securities 89 128 105 164 156 171 188 Fixed income securities 20,117 23,218 22,849 28,395 26,689 28,023 29,424 Loans 44,296 56,216 65,894 84,848 101,767 119,067 138,356 Total IEA 70,262 88,310 103,967 135,232 150,171 170,977 194,056 Assets total 72,942 91,124 108,282 139,944 155,423 174,058 194,748 Deposits 54,782 66,247 79,974 100,756 103,708 117,190 132,425 Interbank funds 3,155 4,905 38 771 8,413 8,455 8,497 Funds borrow ed 3,824 6,291 7,303 13,615 12,630 12,645 12,648 Int bearing liabilities 61,761 77,443 87,315 115,143 124,751 138,290 153,570 Other liabilities 3,736 5,041 8,643 10,655 14,136 17,154 20,131 Shareholders Equity 7,445 8,640 12,323 14,146 16,536 18,614 21,047
  23. 23. Ata Finance Group HALKB SELECTED RATIOS Share price performance (Rebased to 100) Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 60.7 61.7 60.9 60.6 65.5 68.4 71.0 Securities/Total assets 27.6 25.5 21.1 20.3 17.2 16.1 15.1 Loans/Deposits 80.9 84.9 82.4 84.2 98.1 101.6 104.5 NPL 3.82 2.88 2.89 2.58 3.51 3.40 3.42 LLP/NPL 18.0 12.6 19.5 19.4 31.4 14.0 14.2 CIR 39.0 39.1 35.6 44.2 48.3 46.3 44.7 Fees coverage of cost 35.2 42.2 40.9 35.0 34.2 33.2 33.7 Cost/Total assets 2.0 1.9 1.9 1.9 1.9 1.9 1.9 NIM 4.8 4.2 4.5 4.2 3.7 3.7 3.8 Net fees/Total assets 0.8 0.8 0.8 0.7 0.7 0.7 0.7 ROE 30.5 25.4 24.8 20.8 14.4 14.8 15.3 ROA 3.0 2.5 2.6 2.2 1.5 1.6 1.6 CAR (%) 15.9 14.3 16.2 13.9 13.6 13.1 12.6 Growth measures (%) Loans 36.5 26.9 17.2 28.8 19.9 17.0 16.2 Deposits 24.6 20.9 20.7 26.0 2.9 13.0 13.0 Assets 20.3 24.9 18.8 29.2 11.1 12.0 11.9 Net interest income 2.6 8.8 28.9 7.9 5.9 19.8 15.1 Fees and comm 14.2 38.5 17.9 8.3 10.0 9.6 11.9 Cost 25.3 15.4 21.6 26.6 12.5 13.0 10.3 Net income 23.3 1.7 26.9 6.0 -19.8 17.7 17.1 Per share data and valuation metrics BVPS (TL) 5.96 6.91 9.86 11.32 13.23 14.89 16.84 EPS (TL) 1.61 1.64 2.08 2.20 1.76 2.08 2.43 P/E 8.2x 8.0x 6.3x 6.0x 7.5x 6.3x 5.4x P/BV 2.21x 1.90x 1.33x 1.16x 0.99x 0.88x 0.78x 60 80 100 120 140 160 180 HALKB XBANK
  24. 24. Ata Finance Group Valuation Current Price, TL 6.02 12-mth Target Price, TL 7.90 Expected Dividend Yield 2.0% Expected Price Appreciation 29.2% Total Upside 31.3% Stock Data MCap, TL mn 27,090 MCap, US$ mn 10,434 Free float, % 31% Average Daily Turnover, TL mn 240.1 Financials, TL mn 2013 2014 2015E 2016E Total Assets 210,500 237,772 268,719 304,985 Loans 135,281 155,874 182,763 214,563 Deposits 120,975 133,551 152,248 172,041 Net Income 3,163 3,382 3,810 4,330 ROE 13.7% 12.8% 12.4% 12.8% ROA 1.6% 1.4% 1.5% 1.5% P/E 8.6x 8.0x 7.1x 6.3x P/BV 1.15x 0.92x 0.84x 0.76x Share Perf. 1M 3M 1Y Absolute -7% -5% 36% Relative to ISE100 -2% -1% 13% 24 Isbank (ISCTR TI/ISCTR.IS) Outperform We expect value creation to continue as subsidiary restructuring is not over yet… • Attractive valuation, trading 13% discount to peers on P/BV and 7% discount on P/E on 2015E. • NPL ratio stands as the lowest among the private peers and also below sector average NPL ratio of 2.9%. • Further restructuring of non-core assets acts as value enhancing in midterm. Trading both discount to its 5-yr historic average and peer average (18% and 13% respectively). Isbank is expected to earn an average c.13% ROE in our forecast period, 2015- 2016E, while we expect the bank to deliver 13% EPS growth during the same period. The stock is currently trading at 13% discount to the peer group average on P/BV and 7% discount on P/E. We believe further restructuring efforts will erase the valuation gap between Isbank and the rest of the Turkish banking majors. NPL ratio at 1.5% stands as the lowest among the private peers and also below sector average NPL ratio of 2.9%. The bank improved its NPL ratio by 10bps in 2014 thanks to lower NPL formation and higher NPL collection. In 2015 in line with Isbank guidance we expect 20bps increase in NPL ratio to 1.7%. Currently the bank covers 77% of NPL book vs sector average of 73%. We don’t expect any decline in the coverage during 2015. Disposal of Avea shares in 2015 and further restructuring of non-core assets via IPOs and SPOs which we see as potentially value enhancing. Since 2000 Isbank increased the stake of financial sector assets to 44% from 29% while decreased the share of non-core assets to 14% from 28%. Currently the bank owns 7.44% and Isgroup owns total 10% of Avea stake. Isbank carries its part on the books at TL655mn, with an independent estimation. 2015 is the final year for TurkTelekom to purchase Avea stake. Isbank in recent years eliminated cross shareholdings in Sisecam, the glass division. With this, Isbank’s direct ownership in Sisecam has increased to 65.5%. This move improved transparency at the group and, more importantly, sets the background for future divestitures. We believe in the long term, (1) management continue to look for opportunities to divest within glass business, possibly reducing its direct share in Sisecam via an SPO, (2) An IPO Pasabahce where Sise have 84% share, (3) The bank also has 77% stake in Milli Re, the reinsurance company, we think there is a reasonable chance that it will carry out an IPO to list Milli Re in coming years.
  25. 25. Ata Finance Group ISCTR FINANCIALS ISCTR Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 4,582 4,562 5,928 6,655 7,454 8,579 9,808 Fees and comm 1,236 1,429 1,706 1,919 2,004 2,127 2,295 Net trading income & FX gains 135 306 590 223 185 137 89 Bank revenues 5,953 6,296 8,225 8,798 9,643 10,844 12,192 Staff cost -1,625 -1,819 -1,821 -2,276 -2,456 -2,730 -2,963 Other cost -1,578 -1,662 -2,663 -2,687 -3,239 -3,601 -3,907 Total OPEX -3,203 -3,481 -4,484 -4,963 -5,695 -6,331 -6,870 Operating Income 2,750 2,815 3,740 3,835 3,947 4,513 5,322 Associates 369 556 418 450 595 625 656 Other income 1,569 1,311 1,172 1,038 1,012 1,064 1,291 Income before provision 4,688 4,682 5,330 5,324 5,554 6,201 7,269 Provisions for loan losses -770 -597 -601 -834 -915 -648 -805 Other provisions -366 -786 -608 -633 -409 -792 -983 Pre Tax Income 3,553 3,298 4,121 3,857 4,231 4,762 5,481 Taxes -571 -631 -811 -693 -849 -952 -1,151 Net income 2,982 2,667 3,310 3,163 3,382 3,810 4,330 Balancesheet (TL mn) Cash and alike 8,523 13,780 15,956 23,028 24,607 27,067 29,774 Due from banks 3,185 2,254 1,435 1,528 1,393 1,533 1,686 Trading securities 733 1,576 1,373 2,204 1,238 1,362 1,498 Fixed income securities 44,964 42,119 37,300 35,975 40,591 44,650 49,115 Loans 64,232 91,621 107,142 135,281 155,874 182,763 214,563 Total IEA 121,637 151,350 163,206 198,015 223,704 257,375 296,637 Assets total 131,796 161,669 175,444 210,500 237,772 268,719 304,985 Deposits 88,260 98,313 105,383 120,975 133,551 152,248 172,041 Interbank funds 10,159 19,461 13,519 20,916 17,696 19,999 22,698 Funds borrow ed 8,042 11,148 10,748 15,922 20,669 21,859 23,309 Int bearing liabilities 106,461 128,922 129,650 157,813 171,916 194,107 218,049 Other liabilities 8,321 14,825 23,075 29,108 36,544 42,444 51,521 Shareholders Equity 17,014 17,921 22,719 23,579 29,311 32,168 35,416
  26. 26. Ata Finance Group ISCTR SELECTED RATIOS Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 48.7 56.7 61.1 64.3 65.6 68.0 70.4 Securities/Total assets 34.1 26.1 21.3 17.1 17.1 16.6 16.1 Loans/Deposits 72.8 93.2 101.7 111.8 116.7 120.0 124.7 NPL 3.61 2.12 1.86 1.63 1.53 1.70 1.80 LLP/NPL 47.2 30.1 29.7 37.2 37.8 20.8 20.8 CIR 53.8 55.3 54.5 56.4 59.1 58.4 56.3 Fees coverage of cost 38.6 41.0 38.0 38.7 35.2 33.6 33.4 Cost/Total assets 2.4 2.2 2.6 2.4 2.4 2.4 2.3 NIM 4.0 3.3 3.8 3.7 3.5 3.6 3.5 Net fees/Total assets 1.0 0.9 1.0 1.1 0.9 0.8 0.8 ROE 19.6 15.3 16.3 13.7 12.8 12.4 12.8 ROA 2.4 1.8 2.0 1.6 1.4 1.5 1.5 CAR 17.5 14.1 16.3 14.4 16.0 15.8 16.3 Growth measures (%) Loans 32.9 42.6 16.9 26.3 15.2 17.3 17.4 Deposits 22.3 11.4 7.2 14.8 10.4 14.0 13.0 Assets 16.4 22.7 8.5 20.0 13.0 13.0 13.5 Net interest income -5.9 -0.4 29.9 12.3 12.0 15.1 14.3 Fees and comm -1.3 15.5 19.4 12.5 4.4 6.2 7.9 Cost 18.9 8.7 28.8 10.7 14.8 11.2 8.5 Net income 25.7 -10.6 24.1 -4.4 6.9 12.6 13.7 Per share data and valuation metrics BVPS (TL) 3.78 3.98 5.05 5.24 6.51 7.15 7.87 EPS (TL) 0.66 0.59 0.74 0.70 0.75 0.85 0.96 P/E 9.1x 10.2x 8.2x 8.6x 8.0x 7.1x 6.3x P/BV 1.59x 1.51x 1.19x 1.15x 0.92x 0.84x 0.76x 60 80 100 120 140 160 180 ISCTR XBANK Share price performance (Rebased to 100)
  27. 27. Ata Finance Group Valuation Current Price, TL 1.97 12-mth Target Price, TL 2.58 Expected Dividend Yield 2.5% Expected Price Appreciation 28.3% Total Upside 30.8% Stock Data MCap, TL mn 2,955 MCap, US$ mn 1,138 Free float, % 39% Average Daily Turnover, TL mn 7.6 Financials, TL mn 2013 2014 2015E 2016E Total Assets 12,911 15,701 18,270 21,448 Loans 9,172 10,981 12,847 15,160 Deposits 0 0 0 0 Net Income 326 369 425 498 ROE 17.6% 17.7% 17.3% 17.6% ROA 2.6% 2.6% 2.5% 2.5% P/E 9.1x 8.0x 7.0x 5.9x P/BV 1.57x 1.29x 1.12x 0.98x Share Perf. 1M 3M 1Y Absolute -2% -3% 31% Relative to ISE100 4% 1% 9% 27 TSKB (TSKB TI/TSKB.IS) Outperform Standing out from the crowd… • A unique, sustainable and proven profitable business model deserves the premium. • On our ROE gap study amongst the banks under our coverage, TSKB offers the best value with ROE-CoE spread reaching 400bps (Page 5). • Asset quality is proved to be resistant to economic crises. Higher ROE (TSKB 17.7% vs sector 11.6%), higher CAR (18.1% vs sector 16.6%) , higher NIM (4.1% vs sector 3.9%) and superior asset quality (0.2% vs 2.9%) and finally lower cost to income (18.0% vs sector 45.3%) distinguishes the bank. The bank currently trades at 1.12x P/BV and 7.0x P/E on our 2015 estimates. While TSKB currently trades 17% premium to the sector on P/BV however its P/E indicates 9% discount. Having said that, preferably, we choose not to compare TSKB to other commercial banks because of its unique business model and funding structure as 91% of Supranational Funding guaranteed by Turkish Treasury hence cheaper funding even at difficult global liquidity conditions. As a results of this, no currency mismatch and positive duration gap between funding and lending (average loan duration 2.5 years and funding 6 years). Asset quality is proved to be resistant to economic crises. NPL ratio averaged at 0.83% for the last 10 years vs banking sector NPL ratio of 3.6% during the same period. Superior asset quality is mainly due to: 1) An extensive knowledge of the loan segments the bank operates 2) Its involvement throughout the project financing life cycle, 3) And finally absence of exposure to retail lending. We expect 0.2% NPL ratio in 2015, flat y/y. TSKB has had no NPL write-off or sale policy as well as 100% coverage (vs sector average of 73%) for the past twenty years, and short to mid term we don’t expect bank to change its policy. We expect 15% EPS growth in 2015, with ROE and ROA remaining stable at 17% and 2.5% during the same periods. TSKB delivered 13.3% EPS growth in 2014 with 18% loan growth in TL terms. We expect similar pace of growth on the loan book side. We foresee 4.0% NIM for the bank in 2015, following 4.1% NIM in 2014.
  28. 28. Ata Finance Group TSKB FINANCIALS TSKB Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 298 364 431 486 546 647 743 Fees and comm 14 10 12 11 11 12 14 Net trading income & FX gains -4 -11 0 -13 15 7 15 Bank revenues 307 363 443 484 572 666 772 Staff cost -36 -33 -44 -47 -47 -42 -49 Other cost -27 -32 -29 -27 -68 -60 -71 Total OPEX -63 -65 -72 -73 -114 -102 -119 Operating Income 245 298 371 411 458 564 653 Associates 23 26 28 30 25 26 27 Other income 26 28 19 8 39 15 30 Income before provision 293 352 417 449 522 605 709 Provisions for loan losses -9 -1 0 -26 -26 -56 -66 Other provisions -16 -33 -34 -22 -34 -12 -14 Pre Tax Income 268 318 383 401 462 538 630 Taxes -57 -62 -76 -75 -92 -113 -132 Net income 212 255 307 326 369 425 497 Balancesheet (TL mn) Cash and alike 64 121 133 345 613 674 741 Due from banks 162 60 38 7 122 135 148 Trading securities 67 104 24 41 72 79 87 Fixed income securities 2,441 2,447 2,881 2,966 3,515 4,218 5,083 Loans 4,773 6,367 6,886 9,172 10,981 12,847 15,160 Total IEA 7,508 9,099 9,960 12,532 15,302 17,953 21,220 Assets total 7,912 9,456 10,290 12,911 15,701 18,270 21,448 Deposits 0 0 0 0 0 0 0 Interbank funds 1,186 948 1,255 1,609 2,162 2,516 2,954 Funds borrow ed 4,998 6,779 6,885 9,002 9,880 11,497 13,496 Int bearing liabilities 6,184 7,727 8,139 10,611 12,042 14,013 16,450 Other liabilities 464 363 395 415 1,371 1,630 1,972 Shareholders Equity 1,264 1,366 1,755 1,885 2,288 2,628 3,026
  29. 29. Ata Finance Group TSKB SELECTED RATIOS Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 60.3 67.3 66.9 71.0 69.9 70.3 70.7 Securities/Total assets 30.9 25.9 28.0 23.0 22.4 23.1 23.7 Loans/Deposits 95.5 93.9 100.0 101.9 111.1 111.7 112.3 NPL 0.53 0.40 0.20 0.39 0.15 0.20 0.20 LLP/NPL 96.8 132.6 248.1 133.1 354.9 100.0 100.0 CIR 20.4 17.9 16.4 15.1 20.0 15.3 15.4 Fees coverage of cost 21.6 15.2 16.9 14.6 9.8 11.7 11.7 Cost/Total assets 0.8 0.7 0.7 0.6 0.7 0.6 0.6 NIM 4.3 4.4 4.5 4.5 4.1 4.0 4.0 Net fees/Total assets 0.2 0.1 0.1 0.1 0.1 0.1 0.1 ROE 18.4 19.4 19.7 17.9 17.7 17.3 17.6 ROA 2.9 2.9 3.1 2.8 2.6 2.5 2.5 CAR (%) 22.7 19.1 20.4 18.2 18.0 18.9 19.4 Growth measures (%) Loans 25.0 33.4 8.1 33.2 19.7 17.0 18.0 Deposits 15.5 35.6 1.6 30.8 9.7 16.4 17.4 Assets 14.6 19.5 8.8 25.5 21.6 16.4 17.4 Net interest income 16.6 22.4 18.2 13.0 12.3 18.5 14.9 Fees and comm 93.9 -26.8 23.5 -12.4 4.3 6.5 16.9 Cost 13.6 3.6 11.6 1.0 56.1 -10.8 16.9 Net income 21.0 20.7 20.3 6.1 13.3 15.0 17.3 Per share data and valuation metrics BVPS (TL) 0.84 0.91 1.17 1.26 1.53 1.75 2.02 EPS (TL) 0.14 0.17 0.20 0.22 0.25 0.28 0.33 P/E 14.0x 11.6x 9.6x 9.1x 8.0x 7.0x 5.9x P/BV 2.34x 2.16x 1.68x 1.57x 1.29x 1.12x 0.98x 50 75 100 125 150 175 200 TSKB XBANK Share price performance (Rebased to 100)
  30. 30. Ata Finance Group Valuation Current Price, TL 4.41 12-mth Target Price, TL 6.28 Expected Dividend Yield 2.3% Expected Price Appreciation 40.0% Total Upside 42.3% Stock Data MCap, TL mn 11,025 MCap, US$ mn 4,247 Free float, % 25% Average Daily Turnover, TL mn 317.8 Financials, TL mn 2013 2014 2015E 2016E Total Assets 135,496 158,218 181,871 206,066 Loans 86,752 104,584 125,919 148,584 Deposits 81,533 91,757 104,603 119,247 Net Income 1,586 1,753 1,883 2,229 ROE 12.9% 12.8% 12.0% 12.6% ROA 1.3% 1.2% 1.1% 1.1% P/E 7.0x 6.3x 5.9x 4.9x P/BV 0.87x 0.75x 0.66x 0.58x Share Perf. 1M 3M 1Y Absolute -19% -10% 19% Relative to ISE100 -15% -6% -1% 30 Vakıfbank (VAKBN TI/VAKBN.IS) Outperform We foresee transfer of shares delaying further… • Wide discount, trading 31% discount to peers on P/BV. • Release of accrued fee income and ease on the coverage ratio act as an upside risk to EPS. • While we see SPO as long terms story, in short to mid-term both asset quality and earnings improvements will keep the bank appealing. Trading at 31% discount to peers based on P/BV multiple. The stock is currently trading at 0.66x P/BV on our 2015E, which indicates a c.30% discount to coverage average. While the bank trades at 29% discount to its 5-yr historic average P/BV of 0.94x, we believe migration towards the peer average will continue. Vakifbank posted 12.8% ROE in 2014 vs sector average of 11.6%. We expect 12.0% ROE in 2015E vs the peer average of c.13%. We expect continuation in asset quality improvement 2015. Thanks to collection of some files during 2014 Vakifbank’s NPL ratio improved by 20bps while sector’s NPL ratio increased by 10bps. NPL ratio currently stands at 3.7% vs 3.9% in 2013. We expect NPL ratio to improve to 3.5% in 2015E. We pencil in 7% EPS growth in 2015E following 11% EPS growth in 2014. As it might be remembered Vakifbank’s 2014 EPS growth includes the one off after tax TL290mn gain from Visa- Mastercard share sale. While its not included our numbers this year, TL190mn accrued fees and potential ease of above sector coverage ratio upside risk to our 2015E NI. The bank has one of the highest coverage ratio (94% vs sector 73%) which might be eased since the asset quality is improving as aimed by the bank management. The bank also booked TL90mn general provisioning in 2014, which was due to book in 2015. Share transfer to the Treasury is delaying further and participation banking subsidiary to be established under GDF. Law changes to allow share transfer to the Treasury has been submitted to the Parliament in Oct’14. With the General elections taking place on 7 June 2015, we foresee share transfers to be completed in 2H15 or even further. Which in return lengthens the SPO process. Depending on the valuation and market conditions, we believe SPO doesn’t look feasible in the medium term.
  31. 31. Ata Finance Group VAKBN FINANCIALS VAKBN Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 2,730 2,894 4,085 4,790 4,651 5,975 7,034 Fees and comm 443 559 448 687 709 777 862 Net trading income & FX gains 316 39 337 232 223 253 287 Bank revenues 3,490 3,492 4,869 5,708 5,584 7,005 8,183 Staff cost -683 -834 -917 -1,112 -1,233 -1,406 -1,633 Other cost -1,007 -1,107 -1,344 -1,518 -1,877 -2,141 -2,486 Total OPEX -1,690 -1,941 -2,261 -2,630 -3,110 -3,547 -4,118 Operating Income 1,800 1,551 2,608 3,078 2,474 3,458 4,065 Associates 35 45 57 54 66 87 106 Other income 601 885 625 708 1,346 898 1,049 Income before provision 2,436 2,481 3,289 3,840 3,886 4,442 5,220 Provisions for loan losses -664 -411 -735 -1,260 -1,145 -1,281 -1,516 Other provisions -309 -495 -669 -597 -526 -732 -866 Pre Tax Income 1,463 1,575 1,885 1,983 2,214 2,430 2,838 Taxes -306 -348 -425 -397 -460 -511 -597 Net income 1,157 1,227 1,460 1,586 1,753 1,922 2,245 Balancesheet (TL mn) Cash and alike 6,748 7,327 12,328 18,968 21,885 24,073 26,481 Due from banks 1,272 2,130 1,955 2,639 2,571 2,828 3,110 Trading securities 24 174 86 436 380 418 460 Fixed income securities 18,072 19,111 18,381 21,692 23,178 25,032 26,534 Loans 44,861 57,309 68,133 86,752 104,584 124,141 146,486 Total IEA 70,977 86,051 100,883 130,487 152,597 176,492 203,071 Assets total 73,962 89,184 104,580 135,496 158,218 179,629 203,476 Deposits 47,701 60,939 67,242 81,533 91,757 104,603 119,247 Interbank funds 8,128 5,940 8,490 14,477 16,385 18,603 21,072 Funds borrow ed 6,327 8,237 7,475 11,405 14,927 15,447 15,998 Int bearing liabilities 62,157 75,116 83,207 107,415 123,069 138,653 156,318 Other liabilities 3,246 4,770 9,455 15,465 20,377 24,287 28,228 Shareholders Equity 8,559 9,298 11,918 12,616 14,772 16,690 18,931
  32. 32. Ata Finance Group VAKBN SELECTED RATIOS Selected ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 61.6 64.3 65.1 64.0 66.1 69.2 72.1 Securities/Total assets 22.6 21.4 17.6 16.0 14.6 14.0 13.1 Loans/Deposits 96.5 94.0 101.3 106.4 114.0 120.4 124.6 NPL 4.8 3.6 3.8 3.9 4.1 3.5 3.7 LLP/NPL 43.0 19.0 27.0 35.7 42.1 23.8 22.7 CIR 48.4 55.6 46.4 46.1 55.7 54.3 53.8 Fees coverage of cost 26.2 28.8 19.8 26.1 22.8 21.9 20.9 Cost/Total assets 2.3 2.2 2.2 1.9 2.0 2.0 2.0 NIM 4.1 3.7 4.4 4.1 3.3 3.3 3.4 Net fees/Total assets 0.6 0.7 0.5 0.6 0.5 0.5 0.5 ROE 14.5 13.7 13.8 12.9 12.8 12.0 12.6 ROA 1.7 1.5 1.5 1.3 1.2 1.1 1.1 CAR (%) 14.4 13.4 16.1 13.7 14.7 15.0 15.3 Growth measures (%) Loans 29.8 27.7 18.9 27.3 20.6 20.4 18.0 Deposits 6.8 27.8 10.3 21.3 12.5 14.0 14.0 Assets 14.1 20.6 17.3 29.6 16.8 14.9 13.3 Net interest income -11.3 6.0 41.2 17.3 -2.9 19.1 18.8 Fees and comm -4.8 26.2 -20.0 53.3 3.3 10.3 11.6 Cost 10.2 14.9 16.5 16.3 18.3 14.8 16.8 Net income -7.5 6.0 19.0 8.6 10.6 7.4 18.4 Per share data and valuation metrics BVPS (TL) 3.42 3.72 4.77 5.05 5.91 6.66 7.55 EPS (TL) 0.46 0.49 0.58 0.63 0.70 0.75 0.89 P/E 9.5x 9.0x 7.6x 7.0x 6.3x 5.9x 4.9x P/BV 1.29x 1.19x 0.93x 0.87x 0.75x 0.66x 0.58x 40 60 80 100 120 140 160 180 200 VAKBN XBANK Share price performance (Rebased to 100)
  33. 33. Ata Finance Group Valuation Current Price, TL 4.16 12-mth Target Price, TL 5.05 Expected Dividend Yield 1.6% Expected Price Appreciation 19.7% Total Upside 21.3% Stock Data MCap, TL mn 18,084 MCap, US$ mn 6,965 Free float, % 18% Average Daily Turnover, TL mn 122.4 Financials, TL mn 2013 2014 2015E 2016E Total Assets 148,881 181,201 208,402 240,554 Loans 96,039 121,993 146,362 175,341 Deposits 86,308 105,120 122,991 143,899 Net Income 3,203 1,845 2,061 2,411 ROE 18.7% 10.1% 10.2% 10.8% ROA 1.1% 1.1% 1.1% 1.1% P/E 5.6x 9.8x 8.8x 7.5x P/BV 1.04x 0.95x 0.85x 0.77x Share Perf. 1M 3M 1Y Absolute -12% -15% 7% Relative to ISE100 -8% -11% -11% 33 Yapi Kredi (YKBNK TI/YKBNK.IS) Marketperform Capital injection need could create pressure… • Strong balance sheet expansion thanks to the accelerated loan growth. • Mid-term capital injection needs may put pressure on the stock. • While trading at discount to both its 5-yr historic P/BV and peers, Yapi Kredi offers tightest ROE gap (ROE-CoE) among the peers (please see page 5) . While trading 11% discount on P/BV, P/E indicates 14% premium. The stock is currently trading at 0.85x P/BV and 8.8x P/E on our 2015E, which indicates a 11% discount and 14% premium respectively when compared to coverage universe. We foresee ROE to stay flat in 2015 at 10%, which is the lowest among our coverage banks. Although we expect recent regulatory adjustment to put pressure on fee generation, Yapi Kredi will continue to have highest fee income share both in total banking revenues and in total assets. Even though the bank generated 27% loan growth the fee income generation was at 9.7% y/y, mainly affected by sector wide fee regulation. In 2015E we expect 20% loan growth and 5% fee growth for the bank. In 2014 while fees/revenues stayed flat at 29% (peers 23%) share of fees in assets declined to 1.3% (peers 1.0%) from 1.5% in 2013. We expect those ratios to come down to 26% and 1.2%, respectively. Lowest ROE and lowest Tier-1 ratio, capital increase is on the agenda. At 10% Yapi Kredi’s ROE is one of the lowest in our coverage and also below the peer average of 13%. With 10.9% Tier-1 CAR the bank has one of the lowest among the peers, where average is 13%. As guided by the bank during 4Q14 call, currently there are various options (which includes Tier 2 alternative, Tier 1 or capital increases) which have been considered to support the capital to continue the robust growth going forward. Efficiency wise, Yapi Kredi lags behind peers and we don’t expect this to change in short term fuelled by strong growth initiative. Incorporating significant investment in 2014 Yapi’s opex realised at 18% (above the peer average of 13%). On efficiency comparison; 1) fee coverage of cost at 56% vs Tier-1 peer average of 50% however it the lowest among the private peers which have 63%, 2) cost to total assets at 2.4% vs 2.1% peer average and and 3) cost to total revenues 53% vs peers 50% however well above the private banks average of 43%. In 2015, while we see some improvement in cost/revenues we expect cost/asset to remain flat.
  34. 34. Ata Finance Group YKBNK FINANCIALS YKBNK Income Statement (TL mn) 2010 2011 2012 2013 2014 2015E 2016E Net Interest Income (NII) 3,200 3,310 4,492 4,664 5,606 6,913 7,926 Fees and comm 1,596 1,827 1,761 2,006 2,201 2,318 2,581 Net trading income & FX gains -67 -255 -39 115 -416 -292 -112 Bank revenues 4,729 4,882 6,214 6,786 7,390 8,939 10,395 Staff cost -990 -1,138 -1,236 -1,330 -1,563 -1,836 -2,187 Other cost -1,499 -1,552 -1,756 -2,009 -2,367 -2,781 -3,313 Total OPEX -2,489 -2,690 -2,993 -3,339 -3,930 -4,617 -5,500 Operating Income 2,241 2,192 3,221 3,447 3,460 4,322 4,895 Associates 155 128 183 133 174 183 192 Other income 1,207 811 338 1,625 597 526 449 Income before provision 3,603 3,131 3,743 5,204 4,232 5,031 5,536 Provisions for loan losses -969 -456 -788 -1,097 -1,258 -1,989 -2,007 Other provisions -114 -321 -506 -378 -604 -433 -438 Pre Tax Income 2,520 2,355 2,449 3,729 2,370 2,609 3,091 Taxes -459 -498 -536 -526 -525 -548 -680 Net income 2,060 1,857 1,913 3,203 1,845 2,061 2,411 Adjusted NI 2,060 1,857 1,913 2,003 1,845 2,061 2,411 Balance Sheet (TL mn) Cash and alike 6,853 11,873 13,807 21,677 24,538 26,991 29,690 Due from banks 1,065 1,814 2,721 3,002 2,395 2,635 2,898 Trading securities 882 448 840 1,665 1,197 1,317 1,448 Fixed income securities 17,464 19,594 20,548 19,566 23,605 26,438 29,610 Loans 52,615 67,780 75,769 96,039 121,993 146,362 175,341 Total IEA 78,879 101,508 113,685 141,948 173,729 203,742 238,989 Assets total 84,776 108,103 122,180 148,881 181,201 208,402 240,554 Deposits 52,725 63,517 68,044 86,308 105,120 122,991 143,899 Interbank funds 2,960 5,918 4,730 3,393 6,201 7,131 8,232 Funds borrow ed 8,373 13,723 12,420 16,428 18,122 19,342 20,826 Int bearing liabilities 64,057 83,158 85,194 106,128 129,442 149,464 172,957 Other liabilities 10,401 13,245 20,124 25,444 32,632 37,756 44,010 Shareholders Equity 10,318 11,700 16,862 17,309 19,126 21,182 23,588
  35. 35. Ata Finance Group YKBNK SELECTED RATIOS Balance sheet ratios (%) 2010 2011 2012 2013 2014 2015E 2016E Loans/Total assets 62.1 62.7 62.0 64.5 67.3 70.2 72.9 Securities/Total assets 20.6 18.1 16.8 13.1 13.0 12.7 12.3 Loans/Deposits 99.8 106.7 111.4 111.3 116.1 119.0 121.8 NPL 3.4 3.0 3.2 3.6 3.4 3.7 3.7 LLP/NPL 58.2 37.3 51.2 41.5 43.0 50.0 50.0 CIR 52.6 55.1 48.2 49.2 53.2 51.6 52.9 Fees coverage of cost 64.1 67.9 58.8 60.1 56.0 50.2 46.9 Cost/Total assets 2.9 2.5 2.4 2.2 2.2 2.2 2.3 NIM 4.3 3.4 4.1 3.6 3.7 3.5 3.5 Net fees/Total assets 2.1 1.8 1.5 1.5 1.3 1.2 1.2 ROE 22.2 16.9 13.4 18.7 10.1 10.2 10.8 ROA 2.8 1.9 1.7 2.4 1.1 1.1 1.1 CAR (%) 31.3 27.5 13.0 21.9 21.7 15.0 15.4 Growth measures (%) Loans 39.0 28.8 11.8 26.8 27.0 20.0 19.8 Deposits 29.1 20.5 7.1 26.8 21.8 17.0 17.0 Assets 31.3 27.5 13.0 21.9 21.7 15.0 15.4 Net interest income -8.0 3.5 35.7 3.8 20.2 23.3 14.6 Fees and comm 11.1 14.4 -3.6 13.9 9.7 5.3 11.4 Cost 7.6 8.1 11.2 11.6 17.7 17.5 19.1 Net income (Adj) 52.1 -9.8 3.0 67.4 -7.9 11.7 17.0 Per share data and valuation metrics BVPS (TL) 2.37 2.69 3.88 3.98 4.40 4.87 5.43 EPS (TL) 0.47 0.43 0.44 0.46 0.42 0.47 0.55 P/E 8.8x 9.7x 9.5x 9.0x 9.8x 8.8x 7.5x P/BV 1.75x 1.55x 1.07x 1.04x 0.95x 0.85x 0.77x 60 70 80 90 100 110 120 130 140 150 160 YKBNK XBANK Share price performance (Rebased to 100)
  36. 36. Ata Finance Group 36 TURKEY Emirhan Cad. No: 109 Atakule 34349 Istanbul – TURKEY Tel-PBX: 90-212-310-6200 www.atainvest.com Sales Title Tel E-mail Elif Erdem Director 90-212-310-6262 eerdem@atainvest.com Mert Ozener Sales 90-212-310-6267 mozener@atainvest.com Research Title Tel E-mail Cemal Demirtas Head of Research 90-212-310-6428 cdemirtas@atainvest.com DUBAI
  37. 37. Ata Finance Group This material was produced by Ata Yatırım Menkul Kıymetler A.Ş. (“ATA”), or its Affiliates, solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances, and is not to be copied, or made available to any person other than the recipient. It is distributed in the world by ATA, or an authorized affiliate of ATA (such entities and any other entity, directly or indirectly, controlled by ATA, the “Affiliates”). This document does not constitute an offer of, or an invitation by or on behalf of ATA or its Affiliates, or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources which ATA or its Affiliates consider to be reliable. None of ATA or its Affiliates accept any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to significantly higher risks than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all of the preceding provisions. ATA or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report; ATA or its affiliates have not managed or co-managed a public offering of these securities, or received compensation for investment banking services from the issuer of these securities in the past 12 months, and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. However, one or more of ATA or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein, and may buy or sell those securities or options thereon, either on their own account, or on behalf of their clients. As of the publication date of this report ATA does not make a market in the subject securities. ATA or its Affiliates may, to the extent permitted by law, act upon, or use the above material, or the conclusions stated above, or the research or analysis on which they are based before the material is published to recipients, and from time to time provide investment banking, investment management, or other services for, or solicit investment banking, or other securities business from any entity referred to in this report. Stock Ratings: For the purposes of our research report, our rating system is defined as follows; OUTPERFORM - The stock is expected to return above the benchmark index (ISE-100) over 12 months in the market, or else provides the best risk/reward ratio. MARKETPERFORM - The stock is expected to return in line with the benchmark index (ISE-100) over 12 months in the market, or else does not offer a compelling risk/reward profile. UNDERPERFORM - The stock is expected to return below the benchmark index (ISE-100) over 12 months in the market, or else with unacceptable risk relative to the potential reward. NEUTRAL - There are crucial uncertainties surrounding stock performance preventing us from attaching a relative rating compared to the benchmark. Disclaimer

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