Akenerji BUY

Equity Research-TURKEY
Akenerji
BUY
AKENR.IS/AKENR TI
UTILITIES
15 July 2008
DisCo deal: Vertical integration and a major step on M&A road
Akernerji-CEZ consortium submitted the highest bid for
Sakarya Electricity DisCo, which we see as a solid step for
vertical integration and partnership talks with CEZ. Following
superb 1Q08 results and hike in electricity tariffs, our TP
stands at TRY15.10 for Akenerji and maintain our BUY rating.
Profitability not a one-off show: Thanks to restructuring and
higher electricity prices, Akenerji raised its earnings by 6.5 folds to
TRY34 mn in 1Q08 and its EBITDA margin soared to 23%.
Coupled with higher than expected tariff hikes (22% vs our
expectation of 10%), we revise up 2008E earnings to TRY71 mn
from TRY17 mn and EBITDA margin to 22% from 12%. Further
boost in profitability is likely to come in 2010 when hydroplants will
be operational and thus our EBITDA margin for 2010 stands at
36%.
Joining forces with CEZ: For Sakarya DisCo, Akenerji submitted
the highest bid of $600 mn with a consortium with CEZ. We find
the price tag favorable compared to CEE deal multiples and
welcome vertical integration. Moreover, we see it as a solid step
for partnership with CEZ. Should there be equity stake acquisition
in AKENR, the deal multiple is likely to be in a range of $0.60 mn
(Verbund deal) and $2.00 mn (Ankara Elektrik deal of ZOREN) per
MWhr, closer to the higher end. Yet, we would like to caution that
a JV with CEZ might disappoint investors who bet on tender call.
Price: TRY11.80
Target: TRY15.10
MCap: $626 mn
Total Return: 28%
Price Data (as of 14 July 08)
# of outstanding shares (mn)
Free Float Ratio (%)
12-m Stock Price Range (TRY)
3-m Average Daily Turnover ($ mn)
65
25%
7.20-11.80
2.5
TRY/$ Exchange Rate
ISE National 100 Index
1.21
35,826
Investment Highlights
• Tight supply vs high consumption in power market
• Liberalization story
• Rising electricity prices
Stock Triggers
• Partnership with CEZ
• Electricity distribution tenders
• Nuclear power plant tender
Price Performance
119
144
246
-56
74
86
182
Net income (TRYmn)
-40
71
72
144
-0.62
1.09
1.10
2.20
0.00
EPS reported (TRY)
DPS (TRY)
P/E (x)
P/BV (x)
EV/EBITDA (x)
0.00
0.00
0.00
-19.07
10.83
10.70
5.37
1.29
1.01
0.84
0.70
-212.80
7.20
5.91
3.46
Net debt/equity (%)
0.18
0.21
0.31
0.18
Div. yield (%)
0.00
0.00
0.00
0.00
Bige IREN, Sales
[email protected]
90 212 319 8462
Price (TRY)
05/08
-4
EBIT (TRYmn)
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
01/08
678
09/07
559
12%
74%
05/07
546
2007
20%
40%
01/07
452
3-m
5%
13%
09/06
2010F
1-m
05/06
2009F
01/06
2008F
09/05
EBITDA (TRYmn)
2007
05/05
Sales (TRYmn)
Absolute
Relative
01/05
BUY maintained: Our revised target price of TRY15.10 offers
28% upside for Akenerji. With restructuring and M&A prospects,
we believe Akenerji is well poised to capitalize on attractive
electricity sector in Turkey (liberalization, tight supply, high
demand, rising tariffs).
Relative Price (TRY)
Elvin AKBULUT, Research
[email protected]
90 212 319 8427
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Outlook & Valuation
2008 to mark the turnaround clearly but more to follow from 2010
With the rising electricity prices and restructuring almost complete, we expect turnaround for
Akenerji to be visible as of this year and peak in 2012 when the hydropower plants will be
fully operational.
For 2008 we expect revenues to rise by 26% yoy to TRY546 mn mainly on the back of
higher electricity prices (+28% on average thanks to shifting more of generation to DUY
market). In our model, generation declines in 2008 parallel to sale and shut-down of natural
gas power plants although the company rises capacity utilization to benefit from the
favourable pricing. For 2009, on the other hand, our revenue growth estimate remains at 3%
despite estimated 17% rise in average prices since steam sales will more than halve with
the sale of 3 power plants and generation will slightly decline. It is 2010 when we see a
significant jump in revenues (+21%) thanks to new hydropowerplants and our revenue
estimate isTRY678 mn. Staying on the conservative side, our price increase estimate for
Akenerji declines to 9% to take into account possible new power plants becoming
operational.
Key Financial Estimates for Akenerji
TRY mn
Gross Profit
TRY mn
Gross Margin
250
200
150
100
50
0
-50
40%
30%
20%
10%
0%
-10%
2006
TRY mn
2007
EBITDA
30%
20%
10%
0%
-10%
2007
2008E 2009E 2010E
20%
10%
0%
-10%
-20%
TRY mn
40%
2006
30%
2006
EBITDA Margin
EBIT Margin
200
150
100
50
0
-50
-100
2008E 2009E 2010E
300
250
200
150
100
50
0
-50
EBIT
2007
2008E 2009E 2010E
Net Income
Net Profit Margin
200
150
30%
20%
100
50
0
10%
0%
-10%
-50
-100
-20%
2006
2007
2008E 2009E 2010E
Source: Company & Yapi Kredi Yatirim Estimates
Profitability will also follow a significant uptrend based on our assumptions: 1) closure/sale
of small power plants will increase efficiency 2) rise in natural gas prices will lag that of
electricity prices 3) hydropower plants will bring down the costs with low operating cost of
3cents/ MWhr. Accordingly, we expect EBITDA to turn to positive in 2008 and almost triple
to TRY119 mn compared to 2007 EBITDA adjusted for one-off provision. According to our
1
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
model, the second massive wave of profitability will begin in 2010 with Uluabat and Akocak
hydropower plants becoming fully operational. As a result, we expect EBITDA margin to
surge to 36% in 2010 from 22% in 2008. Considering that listed operators Ayen and Aksu
(with hydropower plants accounting more than 50% of their capacity) posted EBITDA
margins of 66% to 80% levels, we believe that estimating 40% levels is not actually bullish
for Akenerji.
DCF Model for Akenerji
$ mn
08F
09F
10F
11F
12F
13F
14F
15F
16F
17F
EBITDA
95
114
195
230
238
222
189
167
145
126
-Tax on EBIT
12
14
29
36
37
34
29
25
22
18
20
-Capex
138
132
83
22
19
19
19
19
20
-Chng. in NWC
11
13
11
7
5
4
3
3
3
3
Free Cash Flow
-66
-45
72
166
177
165
138
120
101
85
PV of FCF
-46
-38
55
116
112
95
72
57
44
33
Key Estimates
08F
09F
10F
11F
12F
13F
14F
15F
16F
17F
Revenues
436
442
536
575
589
578
518
488
454
422
Electricity Sales
362
407
502
543
557
546
516
487
452
420
2,799
2,715
3,075
3,267
3,431
3,583
3,618
3,655
3,691
3,728
129.16
150.00
163.38
166.05
162.29
152.38
142.72
133.27
122.55
112.76
Steam Revenues
EBIT
74
59
35
68
34
144
33
180
32
187
32
172
32
144
32
126
32
108
32
92
Depreciation
EBITDA
35
46
51
51
50
50
45
41
38
34
95
114
195
230
238
222
189
167
145
126
EBIT
14%
15%
27%
31%
32%
30%
28%
26%
24%
22%
EBITDA
22%
26%
36%
40%
40%
38%
37%
34%
32%
30%
Electricity (MWhr)
Avrg price ($/MWhr)
Margins:
DCF Valuation
Terminal Growth Rate
Cost of Capital (WACC)
2.00%
10.06%
Risk Free Rate
7.75%
(+) PV of FCFs
502
(+) PV of Terminal Value
342
(-) Net Debt as of end 1Q08
Fair Value
63
780
Source: Yapi Kredi Yatirim Estimates
Since the company plans to finance 70% of its upcoming projects via debt (mostly FX
denominated), we raise financial expenses in tandem while we maintain net other income
almost stable. However, we would like to highlight that the company hedges 50-55% of its
FX obligations, thus the company is less prone to FX shocks at times of weaker TRY. As a
result, our net income estimate for 2008 is TRY71 mn vs net loss of TRY40 mn in 2007. We
expect net income to double to TRY144 mn in 2010 with higher electricity sales and rising
profitability.
Between 2010-2012, we pencil in only a slight increase in electricity prices in expectation of
new capacity additions in the overall market but the revenue growth continues with
2
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
hydropower plants in full operation. We also estimate convergence of TEDAS prices with
DUY prices by 2015, the projected time for full liberalization in our view, and then a gradual
decline parallel to increased competition and higher capacity.
With these assumptions we reach a fair value of $780 mn from our DCF.
Based on future capacity of Akenerji (811 MW), implied EV by our DCF analysis indicates
$1.04/MW for Akenerji. Meanwhile, Zorlu Enerji’s offer for Ankara Elektrik implied $3.6/MW,
which we adjust to $2/MW taking into account the planned CAPEX and renewed capacity.
On the other hand, Verbund-Sabanci Holding deal for Enerjisa indicates $0.60/MW based
on existing and planned capacity at the time but the JV took place back in early 2007 when
electricity prices were 40% below the current levels and automatic pricing system was not
on the table. Nevertheless, we assign 80% weight to Enerjisa deal to be on the conservative
side.
Latest Deal Multiples & Implied EV for Akenerji
(Imp.) EV
Future Capacity (MW)
Deal Multiple ($/MW)
Enerjisa
653
1,088
0.60
Ankara Elektrik
660
330
2.00
Akenerji
714
811
0.88
Source: Yapi Kredi Yatirim Estimates
With a blended analysis of DCF and deal multiple, we come up with a target price of
TRY15.10. Considering 28% upside for the stock and favorable catalysts like possible M&A
with CEZ, growth prospects and potential increase in electricity prices, we maintain our BUY
recommendation for Akenerji.
Akenerji’s Valuation
Akenerji
DCF ($ mn, 50% weight)
780
Deal Multiple ($ mn, 50% weight)
651
Fair Value ($ mn)
716
12 M Target Mcap ($ mn)
Target Price (TRY/Share)
788
15.10
Current Price (TRY/share)
11.8
Upside Potential
28%
Source: Yapi Kredi Yatirim Estimates
3
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Power Capacity – Now and Upcoming
Doubling and diversifying capacity
Currently, Akenerji has 11 natural gas (NG) power plants with an installed capacity of
496MW and steam capacity of 1,029 tons in the fast growing Turkish electricity market as
Izmir Plant with 45MW capacity was transferred at $12.5 mn to the direct client Baticim at
the end 1Q08.
Parallel to restructuring for higher efficiency and cost-control, the company has inactivated 6
power plants with a capacity of 69MW and now the active capacity stands at 428MW.
Akenerji will sell 2 more plants with a capacity of 70MW during this year to its direct clients
Akal and Akkim, which are also its sister companies. Therefore, active capacity will fall down
to 358MW at the end of 2008. Yet, the upcoming new capacity will more than compensate
the rationing in natural gas power plants, which have suffered much from the rising natural
gas tariffs.
Installed Capacity Projection of Akenerji
Plants
05A
06A
Thermal (MW)
07F
08F
09F
10F
11F
12F
541
449
434
358
358
358
358
358
Bozuyuk
132
132
132
132
132
132
132
132
Izmir-Kemalpasa
128
128
128
128
128
128
128
128
Cerkezkoy
98
98
98
98
98
98
98
98
Yalova
60
60
60
tbs
Yalova-Akal
10
10
10
tbs
6
6
6
ia.
ia.
ia.
ia.
ia.
Bursa-Gursu
16
16
ia.
ia.
ia.
ia.
ia.
ia.
Izmir-Baticim
45
ia.
ia.
s
Usak
16
ia.
ia.
ia.
ia.
ia.
ia.
ia.
Denizli
16
ia.
ia.
ia.
ia.
ia.
ia.
ia.
Corlu
11
ia.
ia.
ia.
ia.
ia.
ia.
ia.
5
ia.
ia.
ia.
Alapli
Orhangazi
ia.
ia.
ia.
ia.
179
291
291
373
100
100
100
100
79
79
79
79
Feke 1 (Adana)
30
30
30
Feke 2 (Adana)
70
Hydropower (MW)
Ulubat (Canakkale)
Akocak (Araklı)
70
70
Burç (Adiyaman)
0
28
Himmetli (Adana)
0
24
0
30
3
3
Gökkaya (Adana)
Saimbeyli (Adana)
3
Bulam (Adiyaman)
Wind (MW)
Balikesir
Total Active (MW)
Total Inst. (MW)
9
9
15
15
15
15
15
15
15
552
664
664
746
541
449
434
92
108
69
69
69
69
69
541
541
541
426
620
732
732
814
Total Inactive (MW)
358
9
15
Source: Company & Yapi Kredi Yatirim Estimates i.a= inactive, tbs=to-be-sold, s=sold
4
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Akenerji will almost double its installed capacity to 814MW by 2012 with investments in 9
hydropower plants of 373MW and 1 wind power plants of 15MW. Accordingly, non-thermal
plants will account for 50% of the installed capacity and we estimate total generation from
non-thermal to reach around 30%.
Location of Akenerji’s Power Plants
Source: Company
Of the new power plants, 62% of Uluabat, 55% of Akocak and 1.8% of Balikesir power
plants were completed at the end of 2007. The first two will become operational in mid-2009
and the wind power plant will kick off in 2010. For the remaining projects, we expect them to
be fully operational by 2012. We foresee a CAPEX of around $370 mn for these power
plants during 2008-2010 period.
NG Prices & Sensitivity – Cost of hydro & NG
Until DUY market Akenerji suffered much from rising natural gas prices, booking
consecutive losses in the last 3 years in IFRS financials. BOTAS (State Petroleum Pipeline
Corp), which regulates NG prices after approval from Ministry of Energy, has kept the NG
prices constant last year and raised them by 14% ytd this year. Thanks to closure of
smaller, inefficient plants and higher electricity prices, the negative impact of higher NG
prices on Akenerji has been limited.
Moreover, with the hydropower plants in operation as of mid-2008, Akenerji’s vulnerability to
NG prices will decline. At every 1% increase in our NG assumption ceteris paribus, we
estimate the company’s EBITDA to fall by 2% and EBITDA margin by 57 bps for 2008 while
hydropower plants will provide a cushion starting from mid-2009 and in 20010 the decline in
EBITDA falls down to 1% and related margin contracts by 46 bps in the same scenario.
5
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Electricity Prices – DUY & Official Tariffs
Electricity prices are on the rise and now more discernible
Akenerji sells electricity to its corporate clients at a slight discount to the official TEDAS
tariffs and also to semi-liberal DUY market, where major buyer is TEDAS (State DisCo)
itself. Finally electricity prices have started to reflect supply-demand dynamics or at least the
cost basis.
TEDAS prices up by ~40% ytd: After a 4-year freeze on prices, the government raised
TEDAS prices (residential tariff by 15% and industrial tariff by 10%) as of January 1 2008,
which reflected as 19% and 12% on the final prices, respectively, due to adjustments on
other fees and taxes. More importantly, the automatic pricing system took effect on July 1,
resulting in further 21% increase in residential and 22% in industrial tariffs. Accordingly, ytd
increase in TEDAS prices for industrials, which determines Akenerji’s billing of corporate
clients, reached 37%.
The automatic pricing system monitors cost of electricity based on fuel cost, personnel cost,
FX and inflation as well as the extra cost of energy bought from the DUY market. The price
adjustments will take place on the first day of every 4 months (i.e. April 1, July 1, October 1
and April 1).
We see launch of automatic pricing a very significant stage of liberalization as the prices will
no longer be adjusted on ad-hoc basis by the government and thus will be clearer and more
predictable. We expect full liberalization after the completion of electricity distribution
tenders and end of transitory period foreseen in the tender specifications.
To be on the conservative side, we do not reflect any further hike for October while we
foresee further 8% and 5% in 2009 and 2010 respectively.
TEDAS vs DUY prices
DUY
TEDAS
250
200
150
100
50
08
Ju
ly
-0
8
ay
M
be
r07
ov
em
be
r07
Ja
n
20
08
M
ar
ch
20
08
N
Se
pt
em
07
Ju
ly
-0
7
ay
M
be
r06
ov
em
be
r06
Ja
n
20
07
M
ar
ch
20
07
N
Se
pt
em
06
Ju
ly
-0
6
ay
M
20
06
ar
ch
M
Ja
n
20
06
0
Source: TEDAS, TEIAS & Yapi Kredi Yatirim
DUY prices outpaces TEDAS price by 25%: Lunched as a clearinghouse system, DUY
market started to act like a spot market, reflecting the supply-demand dynamics in real-time
basis. The DUY prices have skyrocketed to TRY200/MWh as of early July parallel to
increased usage of air-conditions in the summer time and probable decline in generation by
6
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
hydropower plants.
As a result, daily DUY prices rose by 37% year to date and by 15% on 12-month average.
The price differential between DUY and TEDAS continue in favour of DUY prices, which are
currently 25% higher than the regulated price. We expect strong DUY prices to continue into
3rd quarter while we may see some relative easing in the last quarter with the end of summer
and rising rain. For 2008 and 2009, we incorporate 25% and 20% increase in average DUY
prices to account for tight supply and ration our growth estimate to 10% in 2010.
Electricity Tariff Projections
Per MWHr
Akenerji TRY/MWhr
2005
104
2006
112
2007
127
2008E
162
2009E
190
2010E
207
78
7%
78
13%
97
28%
129
17%
150
9%
163
0%
25%
33%
16%
9%
% Change
Akenerji $/MWhr
% Change
TEDAS TRY/MWhr
120
120
119
148
159
167
% Change
0
TEDAS $/MWhr
89
0%
83
-1%
91
24%
118
8%
126
5%
132
-6%
9%
30%
7%
5%
% Change
n.a.
109
135
168
202
222
% Change
n.a.
n.a.
DUY $/MWhr
n.a.
76
24%
103
25%
134
20%
160
10%
175
n.a.
36%
30%
19%
10%
DUY TRY/MWhr
% Change
Source: TEDAS, TEIAS & Yapi Kredi Yatirim Estimates
Given the attractive DUY prices, Akenerji has raised the share of DUY sales in total
generation to 75%-80% from 60% last year. Accordingly, we estimate Akenerji’s average
electricity sales price to rise by 28% in 2008 and increase by 17% and 9% in the next two
years as we expect some additional capacity to come on stream and ease the tightness in
supply.
7
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
M&A Negotiations & Privatizations
Partnership negotiations with CEZ continue
Aspiring growth through fuel diversification in electricity generation and support its
operations with vertical expansion into electricity distribution, Akenerji continues partnership
talks with Czech energy giant CEZ, which started back in November 2007.
CEZ is state-owned electricity producer in Czech Republic with leading position in Central
European power markets. Vertically integrated from mining to generation, distribution and
supply, the company owns power plants in Poland and Bulgaria with a total capacity of
14,392MW and is in distribution business in Bulgaria and Romania. CEZ aims to be the
leader in power markets in Central and Southeastern Europe.
Highlighting that the partnership could be either equity participation or JV, both companies
had signalled finalization of talks by the end of 1H08. Although the unofficial deadline has
passed, we believe strong coordination has already started with formation of a consortium
called Akcez to bid for distribution tenders. When the consortium was formed, the company
representatives reiterated that the negotiations were still going on separately from the
consortium.
However, we are more inclined to think that CEZ could prefer teaming up with Akenerji in
new projects rather than paying an upfront amount for the natural gas power plants which
are quite small for its size. Akkok Group’s aggressive target of reaching 3000MW capacity
from circa 350MW and formation of a new subsidiary called Akka to facilitate project
financing also support a JV in our view.
Latest Deals
Company
Seller
Buyer
Deal Type
Enerjisa
Ankara Elektrik
SAHOL
Privatization
Verbund
ZOREN
JV
Acquisition
Date
Deal Price
($ mn)
Mar-07
Mar-08
326.2
510
Impl. EV
($ mn)
Capacity (MW)
Existing Future
653
510
370
143
1,088
330
$/MW
Existing Future
1.76
3.57
0.60
2.00*
*EV adjusted for required CAPEX for renovation
Source: Company data & Yapi Kredi Yatirim
Should CEZ acquire equity stake in Akenerji, we expect the price tag to be in a range of
latest deal multiples of $0.60/Mwhr (Sabanci Holding-Verbund deal for Enerjisa) and
$2.00/MWhr (Zorlu Energy’s acquisition of Ankara Elektrik taking into account the upcoming
investment and capacity increase). Yet, we would like to caution that a JV with CEZ might
disappoint investors who bet on tender call. Moreover, exemption from call tender is also
technically possible given Akenerji’s actual free float is 25%.
We would like to highlight that we favor any strong partnership with a viable partner for
Akenerji.
Becoming vertically integrated too
Akcez (consortium of Akenerji (45%), CEZ (50%) and Akkok Holding (5%)) made into the
final negotiations in Baskent (Ankara) electricity distribution tender and submitted the
8
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
highest bid of $600 mn in Sakarya tender.
The Sakarya DisCo multiple corresponds to $455/subscriber and $120/MWhr based on
2006 TEDAS figures vs $430/subsc and $139/MWhr for Baskent. The pricing also looks
favourable with average CEE deal multiples of €326/subscriber ($505/subscriber) and
€78/MWh distributed ($121/MWhr).
Sakarya region is in the industrialized Marmara region with industrial subscribers accounting
for almost half of 5,000 GWhr consumption as of 2006. The region’s loss-theft ratio is also
reasonable with 10.1% compared to Turkey’s average of 15%.
Technical, Tender and Financial Details of Baskent and Sakarya Regions
Technical Details
Baskent
Sakarya
# of cities
7
4
Major cities
Ankara, Zonguldak, Kirikkale
Kocaeli, Bolu, Zonguldak
# of subscribers
Consumed (GWH)
Theft-loss (%)
Consumption
Breakdown
Tender Details
Bidding Deadline
Tender Date
Bidders
Highest Bidder
Highest Bid ($mn)
$/Subscriber
$/MWhr
2,847,668
8,837
9.6%
36.4% residential, 23.7% indust., 17.5%
commerc.
1,318,521
4,995
10.1%
43.8% ind, 26.7% resid., 15.4%
commerc.
Baskent
Sakarya
10-Jun-08
11-Jun-08
1-Jul-08
1-Jul-08
1) Hema Industry 2) Akcez (AKENR-CEZ
1) Alsim Alarko 2) Akcez 3)
consortium) 3) SAHOL (49%) – Verbund SAHOL – Verbund – Enerjisa 4)
(49%) – Enerjisa (2%) consortium 4) UDDA (Unitim, DOHOL, Dogus
DOHOL, Saray Carpet, Kantur-Akdas
Holding and Anadolu Endustri
consortium 5) Park Holding (Parent of Holding (YAZIC’s subsidiary) 5)
CYTAS and PRKTE).
Park Holding.
Sabanci Holding-Verbund-Enerjisa
Akcez
1225
600
430
455
139
120
2006 Financials (TRYmn)
Revenues
Costs
Energy
Personnel
Other
Non-operating
Billed/Collected
Sakarya
636
630
547
67
10
6
95%
Source: TEDAS & Yapi Kredi Yatirim
The transfer of the distribution region to the consortium depends on approvals from the
Tender Commission, Competition Board and Privatization Higher Board, which we expect to
be completed by 4Q08.
We find both the price tag and the location favourable for Akenerji given that it has NG
power plants located in the Marmara region where Sakarya is, heralding possible synergies.
Since the latest financial figures and the investment plans of Akcez are not disclosed yet,
we do not reflect any value from this acquisition on Akenerji valuation.
9
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Upcoming distribution and nuclear tenders on Akenerji’s radar
Akenerji and CEZ are also eyeing other distribution tenders to be held on September 15 for
Meram and Aras regions located in the Central and Eastern Anatolia respectively. These
are relatively smaller compared to the above-mentioned regions and Aras has significantly
higher loss/theft ratio.
Details for Aras and Meram DisCos
Technical Details
# of cities
Major cities
# of subscribers
Consumed (GWH)
Theft-loss (%)
Consumption Breakdown
Tender Details
Application Deadline
Bidding Deadline
Tender Date
Aras
7
Erzurum, Agri, Kars
Meram
6
Konya, Nigde, Nevsehir
691,346
1,409
29.4%
46% residential, 20.3%
state offices, 13%
commercial
1,408,703
4,830
7.8%
23.4% residential, 23.1%
agricultural irrigation,
9.9% commercial.
18-Jul-08
15-Sep-08
t-b-a
18-Jul-08
15-Sep-08
t-b-a
Source: TEDAS & Yapi Kredi Yatirim
The Privatization Administration plans to complete privatization of all the other remaining
TEDAS subsidiaries, 15 distribution regions, by the end of 2009. We see this timetable quite
aggressive but depending on the success of Meram-Aras regions, the tender process is
likely to speed up.
We expect Akenerji to team up with CEZ again in the upcoming distribution tenders and to
focus more on regions where its existing and upcoming plants are located, namely Marmara
region and South Eastern Anatolia as seen in the map on page 5.
Map of electricity distribution regions
Source: Company
10
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Properties of Electricity Distribution Regions
TEDAS Distribution
Company
Region #
Theft-Loss
Ratio (%)
# of
subscibers
Consumption
(Mwhr)
Dicle
1
57.8
944,772
4,763,081
Vangolu
2
63.8
375,767
755,966
Aras
3
29.4
691,346
1,408,703
Coruh
4
12.3
950,510
1,875,268
Firat
5
11.7
630,235
1,913,075
Camlibel
6
8.5
705,867
1,763,146
Toroslar
7
10.9
2,516,365
11,577,353
Meram
8
7.8
1,449,915
4,830,047
Baskent
9
9.6
2,847,668
8,836,777
Akdeniz
10
8.9
1,338,249
4,499,105
Gediz*
11
6.5
2,241,653
11,608,841
Uludag
12
8.8
2,156,032
7,201,260
Trakya
13
9.3
734,268
3,575,211
Ayedas (Ist. Anatolia)
14
10.2
1,911,150
6,971,968
Sakarya
15
10.1
1,318,521
4,995,212
Osmangazi
16
7.2
1,211,819
4,010,446
Bogazici (Ist. Europe)
17
12.3
3,607,318
15,864,198
Menderes
19
7.1
1,387,814
4,695,084
Goksu
20
9.3
453,407
2,768,142
Yesilirmak
21
9.5
1,419,577
3,404,900
* Transferred to private sector
Source: TEDAS2006 Statistics
Apart from distribution tenders, both Akenerji and CEZ are interested in nuclear power plant
tender scheduled for September 24 but they have not bought the specifications. The plant
will have at least 1,200MW capacity and will be located in Mersin Akkuyu in the coastal area
of Southern Turkey.
Moreover, with the legislation of the changes to the Electricity Market Law, privatization of
generation assets will kick off starting from thermal plants. We expect Akenerji and Cez to
show interest in larger assets. Higher bid prices are also likely to reflect favourably on
Akenerji’s stock prices in our view.
11
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
1Q08 Overview
Amazing turnaround in bottomline in 1Q08
Akenerji reported TRY34 mn net profit in 1Q08, raising its earnings by 6.5 folds thanks to
higher electricity prices. The tax financials had also signaled significant growth in the
bottomline with PBT of TRY52.5 mn. The deviation from the tax financials mainly stemmed
from the lack of extraordinary gains in tax financials, which we attribute to sale of one of the
power plant to Baticim.
Key Financials for 1Q08 Realizations
2008/03
2007/03
2008/03
2007/03
TRY mn
TRY mn
Chg.
$ mn
$ mn
34.1
5.2
552%
28.4
3.7
Fin. Exp.
-7.2
-1.2
-487%
-6.0
-0.9
EBITDA
34.7
7.7
353%
29.0
5.5
Operating Pr.
26.7
-6.1
n.m
22.3
-4.4
Net Profit
32.5
-1.0
n.m
27.1
-0.7
151.4
109.4
38%
126.3
77.9
NPM
%22.5
%4.8
EBITDA M.
%22.9
%7.0
OPM
%17.6
-%5.6
GPM
%21.5
-%1.0
Mar 08
Mar 07
Mar 08
Mar-07
82.4
23.2
63.1
16.2
Gross Profit
Net Sales
Margins
Net Debt
Source: Company
The company raised its topline by 34%, which is mainly driven by high DUY prices and rise
in electricity tariffs as well as higher electricity generation. Regulated electricity tariffs were
raised by 12% for industrials at the beginning of the year while daytime DUY prices are
around 27% higher compared to 1Q07 on average.
Electricity Prices
DUY (Daily)
1Q08
TRY/Mwhr
168
$/MWhr
140
1Q07
TEDAS (Industrial)
% Change 1Q08 1Q07
DUY/TEDAS
% Change
1Q08
1Q07
27%
12%
132
27%
133
119
12%
94
49%
111
85
31%
Source: TEIAS, TEDAS & Yapi Kredi Yatirim
Of the 12 natural gas power plants, 7 have been active in 1Q08. With the capacity utilization
rising to 85% from 76% in 1Q07, Akenerji’s net generation was also up by 12% yoy and
majority of it was sold on the DUY market.
12
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
Akenerji: Electricity & Steam Generation (1Q08 vs 1Q07)
Generation (Gwhr)
CUR
Power Plants
steam ('000 tons)
1Q08
1Q07
% Change
1Q08
1Q07
1Q08
1Q07
% Change
Bozoyuk
715
633
13%
95%
84%
829
727
14%
Izmir Kemalpasa
622
692
-10%
80%
89%
0
0
Cerkezkoy
531
501
6%
87%
82%
68
64
7%
Yalova-Aksa
315
159
98%
87%
44%
1,445 1,606
-10%
Yalova-Akal
61
62
-2%
92%
94%
140
143
-2%
-25%
Alapli
Izmir Baticim
Total
23
14
68%
71%
42%
50
66
114
57
100%
59%
30%
0
0
2,381
2,117
12%
85%
76%
2,531 2,605
-3%
Source: Company
As a result, higher electricity prices more than compensated the rise in natural gas costs in
1Q08 and gross margin soared to 21.5% from a negative 1% in 1Q07. The company also
constrained OPEX to sales ratio at 4% and recorded EBIT margin of 18%. The EBITDA
soared to TRY35 mn during the period from TRY8 mn a year back with the EBITDA margin
reaching 23% in 1Q08 from 7% in 1Q07.
Although Akenerji holds net short FX position of TRY101 mn (up from TRY68 mn as of end2007), it hedges 50% of its FX denominated liabilities as of 1Q08 and the company booked
net FX gain of TRY11 mn,
Separately, net debt rose to TRY82 mn ($63 mn) as of end-March from TRY68 mn ($58 mn)
parallel to speed-up in hydropower plant investments for which the CAPEX reached TRY74
mn ($62 mn) including advance payments from TRY17 mn ($12 mn) a year back. Akenerji
expects new HPP capacity to become operative in phases starting from mid-2009.
13
Yapi Kredi Yatirim Research
Akenerji
14 July 2008
BALANCE SHEET
In TRY mn, IFRS
Cash and liquid assets
Inventories
Accounts receivable
2006
2007
2008F
2009F
2010F
140
88
153
168
251
8
7
9
10
10
47
56
74
89
105
Other current assets
15
45
45
49
83
Total current assets
209
196
280
316
449
Fixed assets
366
284
412
521
561
5
2
2
2
3
57
113
69
79
91
Financial Assets
Other non-current assets
Total non-current assets
428
400
484
603
655
Total assets
637
596
764
919
1,103
Short-term debt
13
8
13
23
32
Accounts payable
46
41
45
45
46
6
7
8
8
9
Other current liabilities
Total current liabilities
Long-term debt
Other non-current liabilities
Total non-current liabilities
Minority interest
65
57
66
75
86
127
147
236
309
338
16
1
1
2
2
143
149
237
310
340
1
1
1
1
1
Total shareholders' equity
428
389
460
532
676
Total liabilities and equity
637
596
764
919
1,103
2006
2007
2008F
2009F
2010F
Total revenues
434
452
546
559
678
COGS
467
439
447
445
459
Gross profit
-33
14
99
114
219
25
70
25
28
37
1
-4
119
144
246
INCOME STATEMENT
In TRY mn, IFRS
Opex
EBITDA
Depreciation
Operating income
0
45
0
0
0
-57
-56
74
86
182
16
Financial Expense
11
3
2
7
Net other exp/inc.
-14
4
3
3
3
Pre-tax income
-82
-55
76
82
169
Tax
-22
-15
4
10
25
0
0
0
0
0
-60
-40
71
72
144
2006
2007
2008F
2009F
2010F
8%
4%
21%
3%
21%
EBITDA Growth
n.m.
n.m.
n.m.
22%
71%
Net Profit Growth
n.m.
n.m.
n.m.
1%
99%
Gross Profit Margin
-7%
3%
18%
20%
32%
0%
-1%
22%
26%
36%
-14%
-9%
13%
13%
21%
Minority interest/other
Net income
RATIOS
Sales Growth
EBITDA Margin
Net Profit Margin
Source: Company, Yapi Kredi Yatirim estimates
14
Akenerji
14 July 2008
Yapi Kredi Yatirim Research
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15