AYEN ENERJI Outperform

AYEN ENERJI
AYEN ENERJI
Outperform
Initiation of Coverage
Current/ 2008-end Target Price: YTL 2.39/3.88
New horizons in generation...
AYEN ENERJI (2007-2008)
3.5
We re-initiate our energy sector coverage with Ayen
Energy, the energy company of the Aydiner
Group. We believe Ayen is one of the untapped assets in the energy industry, presenting solid prospects for growth. The current market cap suggests
49% dollar upside potential according to our DCF
based valuation of US$345mn.
YTL
3.1
2.7
2.3
1.9
1.5
03.08
02.08
01.08
12.07
11.07
10.07
09.07
08.07
07.07
06.07
05.07
04.07
03.07
02.07
01.07
AYEN
•
Growth prospects at a discount. Based on our
2008 forecasts, Ayen Enerji trades at an EV/EBITDA
of 7.6x and a P/E of 20x, at a discount to its global
peers. Our current valuation includes three wind
farms and two hydroelectric power plant (HEPP)
projects, which have already been declared to the
ISE. Accordingly, we expect the Company to attain an
installed generation capacity of 400MW by 2012,
compared to the current capacity of 235MW.
•
Step by step, towards a liberalised electricity
market. The automatic pricing mechanism is
expected to be established in the second half of
2008. The mechanism will allow electricity prices to
mimic fluctuations in natural gas prices, mitigating
negative repurcussions of input cost volatility. Ayen
currently benefits from high prices through its Ostim
plant. The company’s first wind farm (AKBUK) which
will fully benefit from DUY prices, is expected to be
operational in the second half of 2008. We are
expecting to see the full outcome of this plant in
2009.
•
Positive impact of new investments in 2010. Renewable energy investments appear attractive in the
wake of incentives provided by the Government. To
benefit from that, Ayen is focusing on new capacity
investments both in hydroelectric and wind power
generation, which will carry the EBITDA levels from
US$38mn to US$80mn in 2012.
•
From a BOT operator to a generation company.
As the revenue portfolio changes in line with the new
projects, we expect Ayen Enerji’s sales to the spot
market (currently DUY) is expected to rise from a current 7% to 71% by 2014 benefiting from higher market prices.
ISE-100
STOCK MARKET DATA (24 March 2008)
AYEN.TI/AYEN.IS
Bloomberg/Reuters
Relative Performance
1 mth
3 mth
-1.2%
12.2%
12mths
41.3%
52 Week Range (YTL):
1.8-3.4
Market Cap (US$mn):
231
Average Daily Vol (US$mn) 3 mth:
2.56
YTD US$ Return (%):
-28.5%
Shares Outstanding (mn):
119.6
Free Float:
15%
Shareholding Structure
Ayen Enerji engages in the installation, production, trade and
transmission of electricity. The Company is the energy company of
Aydiner Group, also active in construction, tourism and infrastructure.
Shareholding
Structure
Stake
(%)
Subsidiaries
Aydiner Insaat
85.00
Ayen Ostim
76.00
Free Float
15.00
Demir Enerji
99.99
Kayseri Elektrik*
96.12
Ayen Elektrik
99.99
Stake (%)
* Kayseri Elektrik is a subsidiary of
Demir Enerji
FIGURES & FORECASTS
2006
2007 E
2008 E
2009 E
Net Sales
(US$mn)
EBITDA
(US$mn)
Net Profit
(US$mn)
EBITDA
Margin
P/E
(US$,x)
EV/ Sales
(US$,x)
EV/EBITDA
(US$,x)
94
78
95
117
53
38
44
72
-11
13
11
29
56.4%
48.6%
46.8%
61.3%
(21.1)
18.2
20.2
7.9
3.6
4.3
3.6
2.9
6.3
8.9
7.6
4.7
Research: +90 (212) 318 2730
Sales: +90 (212) 318 2741
AYEN ENERJI
Investment Case
Diversification will bring revenue and EBITDA growth. The company has started work on three wind farms and two river type HEPPs,
in which administrative preparations are in progress. With the completion of HEPPs and wind farm investments, the company’s installed capacity will nearly double to 400MW by 2012, from the current installed
capacity of 235MW. By then, Ayen will be able to generate 22% of its
total generation from relatively more profitable wind farms. Meanwhile,
sales to the DUY system will amount to 71% of total revenues, underpinning the overall income growth. The capacity increase will also enable the company to exploit the opportunity provided by the chronic
electricity shortages caused by surging electricity demand in Turkey,
driven by the growing economy, rapid industrialization, an increasing
population and a high pace of urbanization. We expect the sales and
EBITDA of the company to reach US$139mn and US$80mn with a
CAGR of 12% and 16%, respectively in 2012.
With privatisations on the agenda, energy will be the hottest sector in 2008 with a demand CAGR of 7%. Low per capita consumption
coupled with high demand spells high growth potential for the Turkish
energy markets. The imbalance between the supply and demand has
increased the interest towards the sector, initiating green field investments especially on the wind farm projects.
Spreads to approach European average. The automatic pricing system which will be installed in the second half of 2008, will mark a second step towards a liberal market. We expect the high price environment to continue until the market becomes saturated. With the establishment of a full liberalised electricity market, the spreads will approach the European averages.
A strong financial structure. The hydroelectric power plants have
protected Ayen’s financials during the last five years while the natural
gas fired power generating companies were caught between the rock
of fixed electricity prices and the hard place of rising natural gas prices
leading to operational losses. However, we believe the diversification in
generation would add further value to the Company, helping Ayen to
catch up with developments in the industry.
Ankara Elektrik Uretim Company Privatization is realized. The Privatization Administration realized the privatization of 7 HEPP, one geothermal and one fuel fired power plants in March 2008. Zorlu Enerji
submitted the highest bid of US$510mn in the privatization of the power
plants exceeding our estimates. The total installed generation capacity
of the privatized energy assets stands at 141MW with a combined annual production amount of 450MWh. The deal valued 1kWh of annual
production at US$1.13mn.
We, are initiating coverage for “AYEN” with an Outperform recommendation. We calculate a further 49% upside potential.
2
AYEN ENERJI
VALUATION
DCF Valuation
We took account of the potential increase in the electricity prices in
valuing Ayen Enerji. We also added the impact of the projects already
declared in our DCF valuation in conservative approach. Accordingly,
our DCF valuation implies a target value of US$345mn for Ayen Enerji,
indicating 49% upside potential over its current Mcap of US$231mn.
AYEN - Free Cash Flow Projections
(US$ mn)
2007 E
Sales
78
COGS
-52
Gross Profit
26
Operating expenses
-2
Operating Profit
22
EBITDA
38
22
EBIT
Taxes on EBIT
-4
18
NOPLAT
Depreciation
16
Gross cash flow
34
Working Capital Need (-)
7
Capex (-)
-2
Free Cash Flow
38.6
2008 E
95
-66
28
-3
25
44
25
-5
20
19
39
-4
-61
-25.3
2009 E
117
-66
51
-4
47
72
47
-9
38
24
62
-3
-146
-86.3
2010 E
114
-64
50
-3
46
68
46
-9
37
22
59
-1
-36
22.1
2011 E
133
-70
63
-4
59
79
59
-12
47
20
67
-4
-16
47.5
2012 E
139
-72
67
-4
63
80
63
-13
50
17
67
-1
-1
65.4
2013 E
136
-70
66
-4
62
76
62
-12
49
14
64
-1
-1
61.6
2014 E
126
-65
62
-4
58
70
58
-12
46
13
59
5
-1
63.4
2015 E
120
-61
59
-4
55
67
55
-11
44
11
55
2
-1
56.3
Margin Assumptions
Gross margin
Operating margin
EBITDA margin
FCF/Sales
29.8%
26.7%
46.8%
-26.7%
43.6%
40.5%
61.3%
-73.6%
43.6%
40.6%
59.8%
19.4%
47.3%
44.3%
59.5%
35.8%
48.3%
45.3%
57.5%
47.2%
48.3%
45.3%
55.9%
45.2%
48.8%
45.8%
55.7%
50.1%
49.2%
46.2%
55.6%
47.0%
45.0%
12.0%
0.88
6.7%
6.0%
5.2%
20.0%
8.3%
45.0%
11.8%
0.88
6.5%
6.0%
5.2%
20.0%
8.2%
45.0%
11.8%
0.88
6.5%
6.0%
5.2%
20.0%
8.2%
50.0%
11.7%
0.88
6.4%
6.0%
5.2%
20.0%
8.4%
55.0%
11.6%
0.88
6.3%
6.0%
5.2%
20.0%
8.7%
55.0%
11.4%
0.88
6.1%
6.0%
5.2%
20.0%
8.6%
55.0%
11.3%
0.88
6.0%
6.0%
5.2%
20.0%
8.5%
65.0%
11.2%
0.88
5.9%
6.0%
5.2%
20.0%
9.1%
Valuation
Weight of equity
Cost of Equity
Beta
Risk free rate
Market Risk Premium
Cost of Debt after tax
Tax rate
WACC
33.1%
28.2%
48.6%
49.4%
Terminal Growth
0%
Present Value
Terminal Value
Present Value of Terminal Value
110
598
337
Adjusted net cash position (9M07)
Net Value
Current Market Cap (US$mn)
Upside potential % (US$)
-103
345
231
49%
Target Share Price (YTL)
Current Share Price (YTL)
Upside potential % (YTL)
3.88
2.39
63%
Source :Garanti Securities, 2007E is for display puposes and not included in DCF analysis.
3
AYEN ENERJI
•
We believe the spot market (DUY market) will continue to be operational in the upcoming period. Recall that “DUY” (Electricity
Market Balancing and Settlement Regulation) is a clearing house
system which creates a competitive environment through price
settings. The DUY prices are currently 10% higher than regular
tariffs. Accordingly, the total generation from wind farms and
newly built hydropower plants will be sold to the DUY market.
The situation regarding BOT type generation will continue at their
contract prices until the end of their license.
•
We have assumed that industrial electricity tariffs would increase
by 12% in 2008, as declared by the Government. We have assumed that the automatic pricing mechanism will be introduced in
the second half of 2008. In 2009 we have further forecasted an
8% increase in electricity prices in YTL terms. DUY prices, on the
other hand, average at around US$110/MWh, at 10-15% higher
than current regulated prices.
•
The Company gave guidance on the production capacities of its
new hydroelectric power plants and wind farms. Accordingly:
New Production Capacities
HEPPs (MWh)
282.195
Pasalar
151.309
Buyukduz
130.886
Windfarms (MWh)
Akbuk
Korkmaz
Mordogan
Total Generation (MWh)
205.467
122.462
83.005
99.409
487.662
Source Ayen
•
We also estimate that the current projects which are already declared, will be completed on time by 2012. By then, it is assumed
that the company would be operating at a total installed capacity
of 400MW. It should be noted that the licencing of KISIK HEPP
terminates in 2008. Camlica HEPP’s license, on the other hand,
will terminate at the end of 2013. Therefore following 2013, we
predict that the total generation capacity will fall by 84MW from
400MW to 316MW in our model.
•
Our DCF model assumes a zero terminal growth rate, as the license term of its KISIK and Camlica-1HEPP ends by 2008 and
2016 respectively. Although we believe the Company would continue investing we prefer to be on the conservative side. We also
used an equity risk premium of 6% and a cost of debt of 6% in
calculating the discount rate. We applied a 6.7% risk-free rate for
the year 2008, gradually decreasing to 5.9% by 2015.
4
AYEN ENERJI
•
In calculating the net debt position we have deducted the expenditures incurred for the expropriation of the land during the construction of Yamula Dam. Meanwhile, we have included the receivables due to electricity production deficit in 2000, 2001 and
2003 for Camlica-1 HEPP. Hence the total long-term financial
receivables that will be included in the cash calculation is
YTL77mn (US$63mn). The total net debt figure therefore,
plunges from US$166mn to US$103mn.
•
We believe that sales to the DUY system will increase substantially with the completion of the current projects, capturing a 70%
share of total revenues. The change is expected to bring in additional revenue.
Change in the Share of DUY sales
2006
2014E
DUY
Sales
Share
7%
*Direct
Share of
DUY (%)
70%
* Direct
Sales
Share
93%
Sales
Share
30%
Source: Ayen, Garanti Securities Estimates
* Direct Sales include BOT and 25% Ostim sales
•
We forecast a CAGR of 10% in revenues in dollar terms, bringing
the total revenues up to US$139mn in 2012. We also expect this
strong pricing environment to keep EBITDA margins high at an
average of 55% levels.
•
Ayen Enerji is expected to spend a total of almost US$260mn on
the construction of three wind farms (Akbuk, Korkmaz and Mordogan) and two river type hydroelectric power plants (Buyukduz
and Pasalar HEPP) until 2011 end. Following these investments,
we project around US$1mn in annual maintenance capex.
Heavy Investment Period 2008-2010
146
61
36
16
1
2008
2009
2010
2011
2012
Source: Ayen, Garanti Securities Estimates
5
AYEN ENERJI
Our Assumptions
Installed Power Capacities by Energy Sources (MW)
Total Installed Power Capacity (MW)
Effective Capacity (GWh)
1. Hydro Electric Power Plant (MW)
Effective Capacity (GWh)
Existing Plants
2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
235
235
266
257
311
380
400
400
316
316
1061
946
957 1451 1451 1657 1733 1733 1304 1304
193.6
193.6
193.6
184
184
252.8
272.8
272.8
188.8
188.8
789
694
632
851
851
1058
1134
1134
705
705
184
184
184
184
184
100
100
193.6
193.6
193.6
KISIK HEPP
CAMLICA-1 HEPP
9.6
9.6
9.6
84
84
84
84
84
84
84
84
YAMULA
100
100
100
100
100
100
100
100
100
100
New Plants
68.8
88.8
88.8
88.8
88.8
BUYUKDUZ
48.8
48.8
48.8
48.8
48.8
PASALAR
20.0
40.0
40.0
40.0
40.0
2. Natural Gas Plants Power
Capacity (MW)
Effective Capacity (GWh)
Ostim (MW)
41
41
41
41
41
41
41
41
41
41
271
41
251
41
295
41
295
41
295
41
295
41
295
41
295
41
295
41
295
41
31.5
31
31.5
305
86
305
86
305
86
305
86
305
86
305
86
305
31.5
31.5
31.5
31.5
31.5
31.5
31.5
31.5
24.0
24.0
24.0
24.0
24.0
24.0
30.75
30.75
30.75
30.75
30.75
30.75
3. Wind Power Plant (MW)
Effective Capacity (GWh)
AKBUK
KORKMAZ
MORDOGAN
Sales Projections (GWh)
BOTs
Kısık
Camlıca-1 HEPP
Yamula
Natural Gas Fired
Ostim
2006 2007 E 2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
789
694
632
851
851
851
851
851
422
422
33
33
33
0
0
0
0
0
0
0
429
429
429
429
429
429
429
429
0
0
327
232
170
422
422
422
422
422
422
422
271
271
251
251
295
295
295
295
295
295
HEPPs
Buyukduz
Pasalar
Wind Farms
Akbuk
30.6
30.6
295
295
295
295
295
295
295
295
295
295
207
131
282
131
282
131
282
131
282
131
76
151
151
151
151
304.9
122.5
304.9
122.5
304.9
122.5
304.9
122.5
304.9
122.5
304.9
122.5
304.9
122.5
Korkmaz
83.0
83.0
83.0
83.0
83.0
83.0
83.0
Mordogan
99.4
99.4
99.4
99.4
99.4
99.4
99.4
1451
1451
1657
1733
1733
1304
1304
Total
1061
946
957
Share in total capacity (%)
HEPP
Natural Gas Plants
Wind
2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
83%
83%
73%
72%
59%
67%
68%
68%
60%
60%
17%
17%
15%
16%
13%
11%
10%
10%
13%
13%
0%
0%
12%
12%
28%
23%
22%
22%
27%
27%
6
AYEN ENERJI
Sales (GWh)
2006 2007 E 2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
BOT Sales
789
694
632
851
851
851
851
851
422
422
Direct Sales
68
63
74
74
74
74
74
74
74
74
203
151
251
526
526
732
808
808
808
808
Total Sales (GWh)
DUY Sales
1,061
908
957
1,451
1,451
1,657
1,733
1,733
1,304
1,304
Electricity Prices Assumptions
2006 2007 E 2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
Regulated Prices(TRY/MWh)
120
Increase in Prices
113
135
145
153
160
165
170
175
179
-5.9%
12.0%
8.0%
5%
5%
3%
3%
3%
2%
Regulated US$/MWh
92
93
111
111
111
111
108
106
105
102
DUY Prices (US$/MWh)
102
102
118
117
117
117
115
113
111
110
30
39
43
45
46
47
47
48
48
49
Natural Gas Prices (Usc/m3)
2006 2007 E 2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
Total Revenues
BOT Revenues (US$ mn)
94
78
95
117
114
133
139
136
126
120
87
57
57
48
45
39
38
37
29
23
6
8
8
8
8
8
8
8
8
7
15
30
61
61
86
93
91
90
89
93%
73%
60%
41%
39%
29%
27%
27%
23%
19%
7%
9%
7%
7%
6%
6%
6%
6%
6%
7%
20%
31%
52%
54%
65%
67%
67%
71%
74%
Direct Revenues (US$ mn)
DUY Revenues (US$ mn)
Share of BOT (%)
Share of Direct Sales (%)
Share of DUY (%)
Operational Costs assumption for HEPPs
2.0 $cent/kWh
Operational Costs assumption for Wind Power
3.0 $cent/kWh
(US$ mn)
2006 2007 E 2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
EBIT
32.5
22.0
25.3
47.5
46.4
58.7
62.8
61.7
57.9
55.3
32.2
21.0
21.0
17.6
16.5
14.4
14.1
13.8
10.7
8.6
BOT
Natural Gas fired
0.3
1.0
1.4
1.4
1.4
1.4
1.3
1.3
1.3
1.3
Hydraulic
0.0
0.0
0.0
0.0
0.0
14.5
19.4
19.1
18.8
18.6
Wind
0.0
0.0
2.9
28.5
28.5
28.5
28.0
27.5
27.1
26.8
Source: TEIAS, Ayen, Garanti Securities Estimates
7
AYEN ENERJI
THE COMPANY
Business Overview
Ayen Enerji was founded by Aydiner Insaat in 1990, to operate in the
electricity generation, transmission, distribution and trade. The company has constructed three hydroelectric power plants (HEPP), and
one natural gas power plant. Ayen currently has 1.5% share in the existing installed hydroelectric power in Turkey.
Installed
Power (MW)
Annual
Production
(mn kWh)
KISIK HEPP
9.6
33
Tekir River (Ceyhan)
CAMLICA-1 HEPP
84
429
Zamanti River
YAMULA HEPP
100
422.3
AYEN OSTIM (Natural Gas)
41
280
Total Installed Power (MW)
234.6
Plants
Total Annual Prod. Cap (mWh)
Plant Location
Kizilirmak River
Ostim
1164.3
Source: Ayen Enerji
Production Distribution by Plants
Yam ula
36%
Kisik
3%
Ayen Ostim
30%
Cam lica
31%
Source: Ayen Enerji
Production Distribution by Resources
Hydroelectric
70%
Natural Gas
30%
Source: Ayen Enerji
8
AYEN ENERJI
KISIK HEPP:
Ayen Enerji realized its first project in 1994 under the Build-OperateTransfer model (BOT). Kisik HEPP, located at Dongel Village of Kahramanmaras province on one of the branches of Ceyhan river. The plant
has a 9.9MW (3x3.2) installed power generating 33mn kWh power annually. Kisik was the third BOT model type project constructed in Turkey.
The licensing term will end in 2008.
Plant Type: Weir with overfall spillway and silting tank
Capacity Utilization :83%
Pricing: Electricity sales price is determined annually with a contract. Accordingly,
price can not be changed during the period. If the production realized is below the anticipated amount, the difference is not compensated by the Ministry of Energy, yet an
exceeding production amount will be sold at the current year’s exact prices.
CAMLICA-1 HEPP:
Camlica HEPP was put into operation in 1998. Located in Kayseri on
Zamanti river, Camlica HEPP has a total installed capacity of 84MW
generating 429kWh power per annum. Camlica is a river type power
plant. The capacity utilization is lower due to the drought that has been
continuing for the last 8 years.
The revenues for each year are guaranteed by The Ministry of Energy
and Natural Resources (MENR), not depending on the energy generated.
However, due to the lesser production in 2000, 2001 and 2003 Ayen
was not paid for the contracted amount. The repayment schedule of the
liability determined between the Ministry and Ayen on August 28 2007.
The total amount is US$33mn according to 9M07 financial results and it
will be repaid in 76 months. We therefore extracted this aount in our net
debt calculation as well.
The licensing term of Camlica-1 will end in 2013.
Plant Type: Gated weir with overfall spillway and silting tank
Capacity Utilization :67%
Pricing: Electricity sales price is determined annually with a contract.
9
AYEN ENERJI
Yamula HEPP:
The Yamula Dam and hydroelectric power plant located 30km northwest of Kayseri on Kizilirmak river is one of the most important BOT
type power and irrigation projects in Turkey. The production at Yamula
was realized according to the program that the Directorate of State Hydraulic Works has prepared for the Kizilirmak basin. The over capacity
flow is kept in the facility’s dam.
For the expropriation expenses related to the flooded land during the
construction of the Yamula Dam is being repaid annually by the Ministry via tariff adjustment. The current figure is US$30mn in the 9M07 results. WE have extracted this figure from our net debt calculation.
Yamula Dam is going to be operational for another 20 years.
Capacity Utilization :79%
Pricing: Electricity sales price is determined annually with a contract. From the date of
operation the sales price is determined by escalating the operation costs according to
the increase in the previous years CPI in USA. According to the contract, during the
loan repayment period, if the production realized is below the anticipated amount, the
difference will be compensated by the Ministry of Energy
Ayen Ostim Natural Gas Plant:
Ayen Ostim Natural Gas Plant is a 41MW Natural Gas plant project,
realized through the Ayen Ostim Energy Production Co subsidiary. The
plant became operational in the second half of 2004. OSTIM currently
consumes one quarter of the total production (26% in 2006) with the
remainder sold to private customers.
Plant Type: Natural Gas fired
Pricing: Electricity sales price is determined annually with a contract. Accordingly,
price can not be changed during the period. If the production realized is below the anticipated amount, the difference is not compensated by the Ministry of Energy, yet an
exceeding production amount will be sold at the current year’s exact prices.
10
AYEN ENERJI
Ayen Enerji’s new investments….
Ayen Enerji has been one of the first movers in power generation
constructing Turkey’s third BOT project, KISIK HEPP on one of the
branches of Ceyhan river. The Company has given priority to diversifying its electricity sources while expanding the total generation.
Diversification in Generation
2006
2011 E
Natural
Gas
Plants
17%
Natural
Gas
Plants %
10%
Wind
0%
Wind %
22%
HEPP %
68%
HEPP
83%
Source: Ayen, Garanti Securities Estimates
In line with this strategy, Ayen is investing in wind farms and
hydroelectric power plant projects. The Company has applied to EMRA
for the production licenses for 3 wind farms in the Marmara and Aegean
region with a total installed capacity of 86MW. We expect the share of
wind power to reach 22% in 2011.
The total capacity of the two river type HEPPs on the other hand, is
88.8MW and administrative works still continue. The five plants will
bring an additional 175MW with a lower cost base.
AYEN ENERJI New Projects
Region
Power Plant
Type
Installed
Capacity
Operation
Period
Didim-Akbuk
Wind Farm
31.5 MW
25 Years
Tasoba Elmali Dam
and Buyukduz HEPP
River Type
HEPP
48.8MW
RIZE
Pasalar
River Type
HEPP
40.0MW
IZMIR
Seferihisar-Sigacik
Wind Farm
24.0MW
EMRA gave
its approval*
-
IZMIR
Karaburun Degirmendagi
Mordogan
Wind Farm
30.75MW
EMRA gave
its approval*
-
Location
AYDIN
GUMUSHANE
Licensed
Water Usage Environment
Right
Report
-
EMRA gave
its approval*
49 years
On-going
* License works have not been completed yet
Source: Ayen, ISE
11
AYEN ENERJI
9M07 FINANCIAL RESULTS...
Ayen posted a net profit of US$4mn in is 3Q07 results bringing the nine
month profit to US$13mn. Production, on the other hand decreased by
a significant 25% in the 9M07 period due to the drought, especially
during the summer.
As the company’s current production plants are built according to BOT
models, the company maintained its margins at relatively high levels
when compared to its peers. However, the drought effect is highly
apparent on margins on a quarterly comparison. Yet as most of the
plants are BOT type the company prepares invoice at year-end for the
contracted amount.
The Company posted an EBITDA of US$9mn in the third quarter, with
an EBITDA margin of 57.8%, marking a premium to its local peers. The
company is burdened by a net debt position of US$166mn. The
adjusted net position is however US$103mn. A period of heavy
investment lies ahead, and we therefore expect the company to remain
burdened by its net debt position in the coming years.
3Q06
1Q07
2Q07
3Q07
Change
3Q07/3Q06
2006/09
2007/09
Change
9M07/9M06
2.3
6.2
7.1
1.2
-47.3%
22.5
14.5
-35.4%
Camlıca HES
29.8
64.5
74.9
20.6
-30.9%
211.5
160.1
-24.3%
Yamula
94.8
29.9
64.0
63.9
-32.5%
279.6
158.0
-43.5%
Ostim
49.4
85.6
76.3
55.3
12.0%
218.9
217.1
-0.8%
Total
176.3
186.3
222.3
141.1
-20.0%
732.5
549.7
-25.0%
Sales (GWh)
Kısık
AYEN Summary Financials
% Change
3Q06
4Q06
1Q07
2Q07
3Q07
9M06
9M07
3Q07/
3Q06
3Q07/
2Q07
9M06/
9M07
22
6
22.2
9.2
13.8
2.9
24.6
13.1
15.6
3.8
100.2
29.3
53.9
19.7
-29%
-41%
-36%
-71%
-46%
-33%
Op. Expenses
0
-0.9
-0.6
-0.6
-0.7
-1.8
-1.9
54%
22%
7%
Operating Profit
6
8.3
2.3
12.5
3.0
27.5
17.8
-49%
-76%
-35%
EBITDA
10
13.6
6.9
17.6
9.0
40.1
33.4
-14%
-49%
-17%
Net Profit
10
10.3
-0.8
10.1
4.0
-21.5
13.0
-60%
-61%
-161%
Net Cash
-169
-176.1
-160.2
-148.8
-166.
-168.6
-166
-22%
-12%
-22%
Gross Margin
29.0%
41.2%
21.2%
53.4%
24.0%
29.3%
36.6%
Operating Margin
26.9%
37.4%
16.8%
50.9%
19.3%
27.5%
EBITDA Margin
47.7%
61.1%
49.7%
71.5%
57.8%
Net Profit Margin
46.0%
46.4%
-5.9%
41.1%
25.5%
US$ mn
Revenues
Gross Profit
Ratios
-5 pp
-29.4 pp
7.3 pp
33.0% -7.5 pp
-31.6 pp
5.5 pp
40.0%
62.0% 10.1 pp
-13.7 pp
22 pp
-21.4%
24.2% -20.5 pp
-15.7 pp
45.6 pp
12
AYEN ENERJI
Electricity Market
More resources needed to meet the capacity…
The electricity industry is a large, high-growth sector in the Turkish
economy. The industry contributes significantly to the country’s GDP
and boasts a size of US$12 billion at current end-user prices.
The more the timing of capacity increase investments overhang, the
more urgent it will be to meet the increase in the demand. Turkey’s
power demand is expected to post a CAGR of 9% in a high demand
scenario where as in a low case scenario the demand is expected to
post a 7% CAGR, according to the studies prepared by Electricity Production Directorate.
The completion of investments will take two to three years and Turkey
is likely to experience energy shortage even during the base demand in
2009. According to the State Planning Organization, at least 55,000MW
of installed capacity is needed until 2020 implying an annual investment spending of US$5bn, which is apart from the 7.4K MW projects
under construction.
Turkish Electricity Demand Scenarios (MW)
70,000
60,000
CAGR : 9%
50,000
40,000
CAGR : 7%
30,000
20,000
Scenario 1- High Demand
10,000
Scenario 2- Low Demand
0
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Source :TEIAS, Garanti Securities
At the lower-end in terms of per capita consumption....
Comparing the net per capita electricity consumptions, Turkey stands
at the lower-end of both neighboring and EU-15 countries with its 1.99
MWh/yr net per capita electricity consumption. However, Turkey is
expected to display the fastest CAGR in the electricity consumption
until the year 2015.
13
AYEN ENERJI
Electricity consumption growth has historically been less volatile than
the overall economic growth in Turkey. Turkey’s electritiy demand
growth when compared to the GDP growth, has proven more resilient
and positive even in the economic crisis periods when the GDP growth
marked a contraction. We now expect an 8% CAGR in the next decade
higher than the average 5.5% GDP growth rate.
GDP Growth (%)
40.0%
30.0%
20.0%
10.0%
0.0%
2013 E
2014 E
2015 E
2016 E
2013 E
2014 E
2015 E
2016 E
2012 E
2011 E
2010 E
2009 E
2008 E
2007 E
2006
2005
2004
2003
2002
2001
2000
-10.0%
-20.0%
-30.0%
Source :TURKSTAT, Garanti Securities
Electricity Demand Growth (%)
12%
10%
8%
6%
4%
2%
0%
2012 E
2011 E
2010 E
2009 E
2008 E
2007 E
2006
2005
2004
2003
2002
2001
2000
Source :TEIAS, Garanti Securities
Despite Turkey’s rich water resources, natural gas comprises the largest share in energy resources (45% share) followed by water (24%),
lignite (18%), coal (8%) and fuel-oil (3%), respectively. The share of
wind power, on the other hand remains insignificant
The continuous increase in the input prices such as oil and gas, and
dependency for imported gas, have been creating a compelling case
for increased renewable energy investments. Hence, Turkey is
encouraging the use of renewable energy to reduce the energy imports
and carbondioxide and other emissions.
14
AYEN ENERJI
The hydropower potential of Turkey is about 128 billion kWh per year.
About 35% of the hydropower potential is utilized and generating
electricity. Hydropower plants with an installed capacity of 11 billion
kWh/year are under construction. Many private companies are
developing small and midsize hydropower projects.
Since 2003, demand increased at a CAGR of 7%, versus a capacity
increase of only 4%. The Turkish Electricity Transmission Company
foresees a production increase from 42,053MW to 48,254MW indicating a CAGR of 1.5;%, still not sufficient to cope with the demand scenarios.
Production Growth (MW)
50,000
48,000
Licensed
46,000
44,000
42,000
Under
construction
40,000
38,000
36,000
Turkey
Production
34,000
32,000
30,000
2007 E
2008 E
2009 E
2010 E
2011 E
2012 E
2013 E
2014 E
2015 E
2016 E
Source: Turkish Electricity Transmission Company
In 2006, the Turkish electricity sector recorded approximately 162
billion kWh of gross consumption and 121 billion kWh of net
consumption (excluding loss/theft and internal consumption).
Distribution losses of the system, which amounted to 19.2 billion kWh
in 2006, are high compared to international benchmarks. Accordingly,
one of the primary objectives of the electricity sector reform has been
defined as reducing the loss/theft ratio to OECD level of 6.8%.
Transmission and Distribution Losses
15.6
17.1
GREECE
HUNGARY
11.2
9.5
9.9
SPAIN
PORTUGAL
9.5
SWEDEN
8.3
8.2
AUSTRALIA
NORWAY
NEW ZEALAND
8.1
7.3
SWITZERLAND
CANADA
7.2
FRANCE
7.8
6.8
USA
8.0
6.6
AUSTRIA
ITALY
GERMANY
6.5
5.5
BELGIUM
NETHERLANDS
5.2
KOREA
4.8
3.9
FINLAND
4.5
3.7
1.6
3.5
6.2
Average: 6.8%
MEXICO
TURKEY
POLAND
UNITED
KINGDOM
DENMARK
LUXEMBOURG
Source :IEA Statistics, Electricity Information 2007
15
AYEN ENERJI
Automatic Pricing…
The Government is preparing for automatic pricing system, however,
the deadline is extended from end of March to July 1st.
The Government still negotiates on a draft text of the reform, which
aims to remove political interference in energy price decisions and
leave it to markets. Officials stated that the Government plans to
liberalise the price mechanism for state energy companies before
privatisation of electricity distribution and production facilities.
After steady prices for five years, the Government raised electricity
prices by 20% for households and 12% for industry on Jan 1, 2008. As
a preparation period a Market Settlement and Balancing Regulation
(DUY system) was placed on September 2006 in order to relieve the
imbalance between supply and demand in the electricity market. Before
the introduction of DUY, increase in the natural gas prices had a severe
negative impact on the company margins.
DUY is a clearing house system aimed at creating a competitive environment for price setting in the electricity market. With the introduction
of DUY, generation companies were relieved to a certain extent, from
where they were caught between the rock of fixed electricity prices and
the hard place of rising natural gas prices.
The full liberalization of the sector should ensure that energy prices will
be reflecting full costs and eliminate both direct and indirect subsidies
and cross-subsidies. Measures will be taken to increase transparency
in energy regulation and in price setting.
Regulated Electricity prices vs DUY prices (YTL/MWh)
200
175
150
125
100
75
50
Day
Peak
Night
Regulated
25
Dec-07
Oct-07
Aug-07
June-07
April-07
Feb-07
Dec-07
Oct-06
Aug -06
Source: Market Financial Settlement Centre (PMUM), TEDAS
16
AYEN ENERJI
Industrial Electricity Prices in European Countries
Gross price
tax
Increase in price
Source: Eurostat & TEDAS
Electricity prices in Turkey does not stand at the lowest end, yet the
prices are below the European average levels.
Electricity distribution privatisations ...
The Privatisation Administration (PA) has re-started the privatisation
process, with the simultaneous tender of Baskent (Ankara Elektrik Dagitim A.S., Region 9), Sakarya Elektrik Dagitim A.S.(“SEDAS”, Region
15), and one region yet to be named from Southeast or East Anatolia.
The “Baskent” region includes Ankara, Kirikkale, Zonguldak, Bartin,
Karabuk, Cankiri and Kastamonu, while the “Sedas” region includes
Sakarya, Bolu, Duzce and Kocaeli.
The parties that were pre-qualified in 2007, will carry their existing position. For Ankara and Sakarya a total of 54 parties have obtained prequalification in which most of them have applied for the both regions
Electricity Distribution Privatizations
Source: Market Financial Settlement Centre (PMUM), TEDAS, PMUM
Source: TEIAS
17
AYEN ENERJI
These privatisations are expected to bring the loss & theft ratio down
by about 5 pp on average from a current 16%, bringing in 22bn kWh of
additional energy, worth approximately YTL2bn.
The announced consortias include Calik-Iberdrola, Alarko-SNET
(Endesa), Dogan Holding Kantur-Akdas-Saray Hali, Dogan HoldingDogus Holding-Anadolu Endüstri-Unit Investment and Enel-Enka.
These companies will aim to capture an important share of the energy
distribution market, which is defined as a cash cow business. Other
international bidders include German E.ON, Enbw, the US based AES,
Suez-Tractebel and Edison Spa.
Prequalified Parties for the two regions
BASKENT SAKARYA
AES Amsterdam Holdings
X
X
Ak Enerji
X
X
Aksa Elektrik (note that this is not the listed Aksa!)
X
Alsim Alarko Sanayi
X
Asli Insaat & Torunlar Gida JV
X
Barmek Holding
X
X
Dogan Holding & Saray Hali
X
E.ON Energie AG
X
X
Edison
X
Eksim & Kuveyt Turk Katilim Bankasi JV
X
X
EnBW Energie Baden-Württemberg AG
X
X
Enel
X
X
Enerjisa
X
X
Enka
X
X
Eren Holding
X
X
Gama Enerji & General Electric JV
X
Global Investments Holding & Energaz JV
X
Gurollar Enerji JV
X
Habas
X
Hema Endustri
X
Iberdrola-Calik JV
X
Iberdrola-Turcas JV
X
Ic-Ictas Insaat
X
X
Kantur-Akdas Insaat JV
X
Karkey Karadeniz Elektricity Production
X
Limak
X
X
Novosibirskenergo Enerji & Elektrifikasyon JV
X
X
Nurol Holding
X
X
Park Holding
X
X
Prisma Energy
X
X
Suez-Tractebel Enerji.
X
Turkuaz Petrol & Cukurova Holding JV
X
UDDA JV (Unit Investment BV.-Dogus Holding36
X
Dogan Holding and Anadolu Endustri Holding)
37 Yuksel Insaat
X
X
38 Zorlu Enerji
X
X
39 Bereket Enerji
X
40 Suez-Tractebel Enerji
X
1
2
3
4
5
6
9
10
11
12
13
14
15
16
17
18
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Source :Privatization Administration
18
AYEN ENERJI
Generation Privatizations….
Ankara Natural Electricity Production Privatization (Ankara Dogal
Elektrik Uretim)
The nine energy assets were merged under Ankara Dogal Elektrik
ahead of the expected privatization. The energy assets include the Tercan, Kuzgun, Mercan, Ikizdere, Cildir, Beykoy ve Atakoy Hydroelectric
Plants, the Denizli geothermal plant and Engil natural gas plant.
The total installed generation capacity of the privatized energy assets
stands at 141MW with a combined annual production amount of
450kWh.
Under the privatization process, the operating rights of the hydroelectric
and geothermal power plants is transferred for a period of 30 years and
the Engil natural gas fired plant will be sold through a block-sale. Interest in the sale of these energy assets was high and a total of 27 interested parties participated in the bidding process including Turkish conglomerates Zorlu, Calik and Kiler, and construction companies Ozaltin
and Turkerler.
Zorlu Enerji submitted the highest bid of US$510mn in the privatization
of the Ankara Natural Electricity Generation Company, beating our estimates. The share transfer of the power plants is expected to take place
in June-July 2008. With this privatization Zorlu intends to grow significantly in the energy segment and the company aims to increase its
generation capacity to 3,500 to 4,000MW by 2012.
Source :Privatization Administration
19
AYEN ENERJI
Nuclear Energy….
Turkey is preparing to undertake three nuclear power plants, each
rated at 1,500 MW and making up a total nuclear capacity of 4,500
MW, by the year 2020 with the latest technology, which is known as
Generation 3.5. It should be recalled that to build a nuclear power plant
is a complex, expensive and timely investment, which would also
require particular know-how to operate.
Yet, to solve the long-term demand problems, nuclear energy would be
a good alternative which would reduce the Turkey’s dependency on
Iranian and Russian natural gas, ensuring a supply security.
Nuclear power plant projects present opportunities for private sector
companies whom are willing to participate in the tender process. Yet,
as the Turkish groups that were interested in the nuclear energy generation do not have the know-how, they are required to team up with
international partners. It has been stated that foreign ownership in
nuclear power plants will be limited to 40%. We have listed below, the
company/groups that are currently in-talks.
TEKFEN - KOC - BEREKET: Talks continue with the Canadian AECL
company to build a model known as “Candu”. If the talks succeed in a
partnership they will form a consortia to bid in the nuclear plant project.
ENKA: Enka agreed to form a strategic partnership agreement with the
South Korean electricity generation company KEPCO. KEPCO’s
nuclear energy plant works with water pressure model and the useful
life of the plant is 60 years.
ENERJİSA: Enerjisa has finalized its partnership with GE. GE’s model
which utilizes boiling water technology could work up to 1500MW
installed capacity.
The effect on prices, although difficult to predict, might not be
significant due to long construction time needed when combined with
average 7.3% (average of high and low scenarios) Turkish annual
peak demand growth rate. Considering a five-year construction
period (assuming Turkey starts construction in 2008), three plants
with a combined capacity of 4,500MW capacity could be operational
by 2013 (which we would regard as the best case), at which time,
Turkish peak demand would have increased more than the planned
nuclear capacity. Thus, we believe the effect on independent power
producers will be minimal.
20
AYEN ENERJI
Balance Sheet (US$mn)
2006/09
2007/09
Change
2006
2007 E
2008 E
2009 E
50
30
-41%
47
32
35
44
Cash and Cash Equivalents
0
1
119%
10
2
5
10
Short-Term Trade Receivables
9
7
-29%
6
9
9
10
Other Short-Term Receivables
38
21
-46%
22
20
20
23
Inventories
0
0
24%
0
0
0
0
Other Current Assets
2
1
-14%
9
2
1
2
295
331
12%
313
326
388
510
Other Long-Term Receivables
21
48
126%
27
50
50
50
Tangible Fixed Assets
223
259
16%
233
243
285
407
Intangible Fixed Assets
8
7
-7%
8
8
8
8
Other Long-Term Assets
43
17
-61%
45
25
45
45
Total Assets
345
361
4%
360
359
423
554
Short Term Liabilities
77
44
-43%
62
46
63
60
Short-Term Financial Loans
56
34
-39%
57
35
50
50
Short-Term Trade Payables
2
1
-70%
1
1
1
1
Other Short-Term Payables
15
0
-100%
0
0
1
1
Other Short-Term Liabilities
4
9
124%
4
10
11
8
147
133
-10%
157
132
185
352
Long-Term Financial Loans
139
132
-5%
157
132
185
352
Other Long-Term Liabilities
7
0
-93%
0
Current Assets
Long Term Assets
Long Term Liabilities
Shareholders' Equity
119
175
47%
138
181
176
142
Total Liabilities and S.holders'
Equity
345
361
4%
360
359
424
554
Income Statement
2006/09
2007/09
77
54
-47
GROSS PROFITS/LOSSES
Change
2006
2007 E
2008 E
2009 E
-30%
94
78
93
117
-34
-28%
-59
-54
-65
-66
29
20
-33%
38
24
28
51
Operating Expenses
-2
-2
7%
-3
-2
-3
-4
NET OPERATING PROFITS
28
18
-35%
36
22
25
47
Income & Exp From Other Oprt.
11
-7
n.m.
0
-11
-7
-7
-45
11
n.m.
-29
6
-5
-5
2
-1
n.m.
2
-1
1
1
-4
22
n.m.
8
16
14
36
Taxation on Income
-17
-9
-50%
-19
-3
-3
-7
NET PROFIT AFTER TAXES
-21
13
n.m.
-11
13
11
29
Net Sales
Cost Of Sales
Financial Expenses
MINORITY INTERESTS
INCOME BEFORE TAXES
21
AYEN ENERJI
Definition of Stock Ratings
Stock Ratings
OUTPERFORM (OP)
Previous Rating
The stock's total return is expected to exceed the return of the ISE-100 by more than 10% by the end of 2008.
MARKET PERFORM (MP) The stock's total return is expected to be within 10% of the ISE-100 by the end of 2008.
UNDERPERFORM (UP)
The stock's total return is expected to fall below the return of the ISE-100 by more than 10% by the end of 2008.
Garanti Securities
Garanti Building Nispetiye Mah. Aytar Cad.
No.2/8 34340 Levent Istanbul Turkey
ICM Contact Information:
ICM:
Facsimile:
E-mail:
+90 212 318 27 32
+90 212 217 84 70
[email protected]
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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. This
document is not a solicitation to buy or sell any of the securities
men22
tioned. All opinions and estimates included in this report constitute our
judgment as of this date and are subject to change without notice.
This report is to be distributed to professional emerging markets investors only.