Please see the last page of this report for important disclosures.

RESEARCH

1

May 26, 2015

Aksa Enerji Outperform (Maintained)

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

659

Bloomberg/Reuters:

1 mth 3 mth 12mth

4% -12% -7%

3.7

YTD TL Return: -4%

613

Free Float (%): 21%

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

Foreign Ow nership in Free Float (%):

Average Daily Vol (US$mn) 3 mth:

Shares Outstanding (mn):

Stock Market Data

AKSEN.TI / AKSEN.IS

Relative Performance:

52 Week Range (TL): 2.38 / 3.48

Current Mcap (US$mn)

Price Performance (TL)

1.50

1.90

2.30

2.70

3.10

3.50

01.1

4

03.1

4

05.1

4

07.1

4

09.1

4

11.1

4

01.1

5

03.1

5

05.1

5

AKSEN BIST 100

On the verge of a new era

Aksa Enerji’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. Aksa Enerji plans to

commission the 1st phase (135MW) of the power plant in June, followed

by the 2nd 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.

More lignite power plant investments on the horizon

Aksa Enerji 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

Aksa Enerji 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.

Turkey - Equity - Utilities

Company Update

Please see the last page of this report for important disclosures.

2

May 26, 2015

Utilities

Aksa Enerji

RESEARCH

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%

SUMMARY FINANCIALS

The Company in Brief

Aksa Enerji, 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. Aksa Enerji started trading on the BIST

on May 21, 2010. Kazanci Holding, the parent

company of Aksa Enerji, has over 50 years of

experience in the energy sector.

Shareholders

Kazanci Holding 61.98%

Goldman Sach International 16.62%

Free Float 21.4%

Please see the last page of this report for important disclosures.

3

May 26, 2015

Utilities

Aksa Enerji

RESEARCH

VALUATION Our 12-month target share price TL3.80 for Aksa Enerji is derived from

DCF analysis. We applied the yield on the 10-year Eurobond as the risk-

free 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 Aksa Enerji in 2015. Our DCF model assumes

a conservative 0% terminal growth rate.

Revision in estimates

Aksa Enerji revised its 2015 sector guidance in the 1Q15 financial results

conference call held on May 8th.

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.

Aksa Enerji 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

Please see the last page of this report for important disclosures.

4

May 26, 2015

Utilities

Aksa Enerji

RESEARCH

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.

Aksa Enerji 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.

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.

Source. Bloomberg, Garanti Securities

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%

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%

Please see the last page of this report for important disclosures.

5

May 26, 2015

Utilities

Aksa Enerji

RESEARCH

1Q15 Financials

Aksa Enerji announced a TL96mn net loss in its 1Q15 financial

statements.

In 1Q15, Aksa Enerji posted TL545mn of adjusted net sales, 34%

above the consensus estimate, and TL86mn of EBITDA, 25%

above the consensus.

Aksa Enerji’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, Aksa Enerji’s adjusted EBITDA margin improved by a mere

0.4pp YoY.

Aksa Enerji 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.

*: Company adjusted figure

Aksa Enerji Summary Financials

(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.

Change

Disclaimer

Recommendation History

Source: Garanti Securities

Definition of Stock Ratings

OUTPERFORM (OP) The stock's return is expected to exceed the return of the BIST100 over the next 12 months.

MARKET PERFORM (MP) 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.

RESEARCH

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

RESEARCH