Tupras Keep Your Optimism

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1 TURKEY OIL AND GAS AUGUST, 217 Tupras Common TUPRS TI Recommendation BUY Last price TRY11 Target price (from TRY19) TRY13 Upside 1% Free float 9% Market cap $,7 mln ADT, 1 days $25.2 mln Prices as of August, 217 Key data E 21E Financials (IFRS), TRY mln Revenues 36,93 3,55 5,257 51,72 EBITDA 3,735 3,195 6,11,57 EBIT 3,29 2,65 5,1 3,6 Net income 2,55 1,793,76 3,36 Adjusted EPS, TRY Profitability EBITDA margin 1% 9% 12% 9% EBIT margin 9% % 11% 7% Net margin 7% 5% 9% 6% Price ratios P/S EV/EBITDA P/E P/CF neg Growth Revenues -7% -6% % 3% EBITDA 365% -1% % -2% Adjusted EPS 75% -3% 162% -29% Price performance, % 1m 3m 6m YTD Common Relative to BIST Aygaz Common AYGAZ TI Recommendation (from BUY) HOLD Last price TRY16.13 Target price (from TRY16.3) TRY16.6 Upside 3% Free float 2% Market cap $1,37 mln ADT, 1 days $1.5 mln Prices as of August, 217 Key data E 21E Financials (IFRS), TRY mln Revenues 6,2 6,79 7,95,16 EBITDA EBIT Net income Adjusted EPS, TRY Profitability EBITDA margin 5% 6% 5% 5% EBIT margin % 5% % % Net margin 7% 6% 9% 7% Price ratios P/S EV/EBITDA P/E P/CF Growth Revenues -9% 5% 1% 5% EBITDA 6% 17% -5% 1% Adjusted EPS 92% -1% 72% -17% Price performance, % 1m 3m 6m YTD Common Relative to BIST Tupras Keep Your Optimism Since our March 1 report on Tupras, Favorable Environment Means More Room to Run, the stock has gained 37% and outperformed the BIST 1 by 13%. In our March report, we argued that a turnaround in middle distillate s would help the company deliver healthy refining margins this year, and we became more bullish than the consensus on the company s operating outlook. In the end, Tupras managed to beat even our 1H17 EBITDA and net income forecasts, by a staggering 36% and 2%, respectively. Furthermore, product s have staged a strong start to 2H17, with a supply disruption at one of Europe s largest refineries at the end of the month providing an even more favorable refining environment for the company. We raise our 217 net refining margin estimate for Tupras to $./bbl from $6.5/bbl. This gives us a new target price of TRY13 per share. The stock is trading at a 21E P/E of.5, a 21% discount to peers. We expect Tupras to post a 25% dollar DPS CAGR over 216-1E. We keep our BUY recommendation on the stock. Target price raised to TRY13 per share, BUY maintained. We roll forward our target price by one year, and it now reflects stronger than expected refining margins in 1H17 and our more bullish view on middle distillate s for 2H17. We now anticipate a 217 net refining margin of $./bbl (up from $6.5/bbl) versus $.2/bbl in 1H17 and management guidance of $7.-7.5/bbl. Based on our new estimates, the stock is trading at a 217E EV/EBITDA of 5.5 and P/E of 6.1, versus a respective 5.6 and.9 for the peer group, and is offering a 13% dividend yield on 217E net income. We would recommend using any weakness in the stock, such as profit-taking following the recent rally, as a buying opportunity. Recent strength in product s supports our more bullish view for 2H17. Gasoline and diesel s have climbed 16% and 31% since June (to $15.6/bbl and $13.6/bbl, respectively) amid supply disruptions and burgeoning demand. Should the current levels prove sustainable, we see upside to our new 217 EBITDA and net income forecasts, which are already a respective 35% and 62% above the Bloomberg consensus. On top of that, the current environment augurs well for operating performance in 3Q17 as well. Implications of our revised forecasts for Aygaz. Aygaz indirectly owns a 1% stake in Tupras, so we also reflect our improved bottom line and dividend forecasts for Tupras in our Aygaz valuation. We now project net income of TRY71 mln for 217 (up from TRY51 mln) and a DPS of TRY2., which offers a 15% dividend yield. We value the company s stake in Tupras using a dividend discount model, so we raise our target price for Aygaz by 2% to TRY16.6 per share. Taking into account the limited upside, we lower our recommendation from BUY to HOLD. Selim Kunter Selim.Kunter@denizinvest.com Sinan.Goksen@denizinvest.com, DENI on Bloomberg

2 AUGUST, 217 TUPRAS KEEP YOUR OPTIMISM Valuation We value Tupras using a sum-of-the-parts (SOTP) methodology. For the core refining business, we utilize a DCF analysis and a peer comparison, to which we assign equal weights. For Tupras s % stake in the OPET retail fuel business, we use a 217E P/E of 5. versus.9 for peers and 6.1 for Tupras. We use a lower multiple due to the lack of details on the unit s operating performance. We roll forward our target price by one year, and our new target of TRY13 per share (up from TRY1. per share) reflects the stronger than expected 1H17 refining margins and our more bullish view on middle distillate s; we keep our forecasts unchanged for 21 and beyond. We now forecast diesel s (1 ppm CIF MED) averaging $12.9/bbl in 2H17 (versus $12.5/bbl previously). We also raise our gasoline forecast for 2H17 to $1.7/bbl (from $1./bbl). We now project an $./bbl net refining margin in 217 ($.2/bbl in 1H17) versus the management s full-year guidance of $7.-7.5/bbl. Our SOTP valuation yields a fair value of $.6 bln for Tupras, implying a 217E EV/EBITDA of 6.1 and P/E of 6.9, versus a respective 5.6 and.9 for the peer group. Given Tupras s position as Turkey s sole refiner, its consistently wider refining margins than competitors, strong dividend outlook (a 216-1E CAGR of 25% in dollar terms) and average FCF yield of 1% for 217E-19E, we believe the stock deserves to trade at a premium to peers. In our DCF model, in addition to a 6.5% risk-free rate, we use a 5.% equity risk premium and beta of 1., which results in an average WACC of 9.6%. We use a % terminal growth rate. Upside risks to our valuation include stronger than expected product s, potential inventory gains (either feedstock or products) and further lira depreciation. Given that annual diesel consumption in Turkey stands at around 22 mln tonnes and Tupras produces less than 5% of this, even once SOCAR s STAR refinery (expected diesel output of 5 mtpa) is completed (scheduled for 219), Turkey will still be a net diesel importer. Therefore, we do not expect the launch of the refinery to have a material impact on Tupras s sales or margins. Tupras valuation, $ mln Equity value Weight Core business 7,75 DCF 6,22 5% Peer comparison 9,2 5% OPET (fuel retailing unit) 95 Tupras fair value,6 Target price, TRY per share 13. Current price, TRY per share 11.1 Upside potential 1% Multiples comparison Bloomberg EV/EBITDA P/E ticker 217E 21E 217E 21E ERG SpA ERG IM Hellenic Petroleum SA ELPE GA MOL Hungarian Oil & Gas PLC MOL HB Motor Oil Hellas SA MOH GA PKN Orlen PKN PW Saras SpA SRS IM Total SA FP FP BP PLC BP/ LN Neste Oyj NESTE FH Median Tupras Premium/discount to peers -2% 25% -32% -21% 2 DENIZ INVEST RESEARCH

3 TUPRAS KEEP YOUR OPTIMISM AUGUST, 217 Net refining margins, $/bbl E 21E Tupras net refining margin Mediterranean complex Quarterly net refining margins, $/bbl (2) 1Q1 2Q1 3Q1 Q1 1Q15 2Q15 3Q15 Q15 1Q16 2Q16 3Q16 Q16 1Q17 2Q17 3Q17E Q17E Tupras net refining margin Mediterranean complex Brent oil, $/bbl (rhs) Tupras production, mln tonnes E 21E Gasoline yield 21.7% 19.3% 19.5% 19.2% 19.2% LPG yield 3.5% 3.1% 3.3% 3.6% 3.6% Naphtha yield.5%.9% 1.% 1.2% 1.2% Diesel yield 26.5% 2.5% 31.6% 3.% 3.% Jet fuel yield 17.7% 17.% 15.2% 15.% 15.% Fuel oil yield 17.% 1.1% 6.7%.5%.5% Asphalt yield 9.6% 1.% 11.6%.3%.3% Other yield 2.1% 23.% 23.9% 2.% 2.% Total produced Crude processed Tupras sales volumes and forecasts, mln tonnes E 21E Gasoline LPG Naphtha Diesel Jet fuel Fuel oil Asphalt Other Total Quarterly product s, $/bbl 16 Tupras dividend performance, TRY per share % % % % 6 1Q16 2Q16 3Q16 Q16 1Q17 2Q17 3Q17E Q17E E 21E % Gasoline Diesel DPS Dividend yield (rhs) OUR FORECASTS VERSUS THE CONSENSUS Tupras posted a surprisingly high net refining margin of $.2/bbl (net of inventory effects) and clean EBITDA (net of inventory gains/losses) of $27 mln in 1H17, both of which were well above market expectations. Product spreads, most importantly for diesel and gasoline, have widened since then amid the supply disruptions. The Mediterranean complex refining margin averaged $6.2/bbl in July (versus $5./bbl in 1H17). We believe that Tupras has every incentive to keep run rates above 1% in 2H17 given the better refining environment. DENIZ INVEST RESEARCH 3

4 AUGUST, 217 TUPRAS KEEP YOUR OPTIMISM We have a more optimistic stance on Tupras than the market. We are currently a respective 1% and 3% above Bloomberg s 217 consensus EBITDA and net income figures. As of end 1H17, Tupras had already reached a respective 67% and % of the full-year consensus EBITDA and net income forecasts, so the market appears to be largely ignoring the still-strong refining margins and product spreads. We therefore expect upward revisions to the consensus estimates. Forecast revisions 217E 21E Old New Diff Old New Diff Revenues 56,9 5,257-12% 59, 51,72-12% EBITDA,752 6,11 27%,57,57 % EBITDA margin.3% 12.% 7.7%.% Net income 3,15,76 52% 3,116 3,36 % Net margin 5.% 9.% 5.3% 6.5% Estimate comparison 217C 217E E/C 21C 21E E/C Revenues 52,1 5,257 -% 57,6 51,72-1% EBITDA,3 6,11 35%,7,57 2% EBITDA margin.5% 12.% 7.%.% Net income 2,95,76 62% 2,2 3,36 19% Net margin 5.6% 9.%.9% 6.5% Changes in 217 consensus expectations, TRY mln 7, 6, 5,, 3, 2, 1, Jan Feb Mar Apr May Jun Jul Aug Changes in 21 consensus expectations, TRY mln 5,, 3, 2, 1, Jan Feb Mar Apr May Jun Jul Aug 217C EBITDA 217C net income 217E EBITDA 217E net income 21C EBITDA 21E EBITDA 21C net income 21E net income 12m forward EV/EBITDA m forward P/E Aug 1 Oct 1 Dec 1 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 1 Oct 1 Dec 1 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Tupras MSCI Europe Oil & Gas Index Tupras 3y average Tupras MSCI Europe Oil & Gas Index Tupras 3y average DENIZ INVEST RESEARCH

5 TUPRAS KEEP YOUR OPTIMISM AUGUST, 217 Sensitivity Analysis EBITDA AND NET INCOME We forecast % EBITDA growth in 217 (up 55% in dollar terms) under our new diesel and gasoline spread assumptions for 2H17 ($12.9/bbl for diesel and $1.7/bbl for gasoline). Our calculations indicate a 2% increase in 217 EBITDA for every $1/bbl change in the diesel and a 1% increase for every $1/bbl change in the gasoline. As the company is operationally long dollars, for every 1% drop in the lira against the dollar, we estimate a 6% improvement in EBITDA in lira terms (and a.5% improvement in dollar terms, as we estimate that 95% of costs are dollar-denominated). Despite the $2.5 bln short position on its balance sheet, as the company s operating profit benefits from the weaker lira against the dollar, bottom-line sensitivity to USD/TRY is fairly low. We estimate that for every 1% drop in the lira against the dollar, our 217 net income estimate declines by less than 1%. 217E EBITDA sensitivity, TRY mln 217E net income sensitivity, TRY mln 12 2.% 1 2.% % % %.5% %.5%.% diesel gasoline jet fuel 1% cut in natural gas tariff 1% lower opex 1% higher USD/TRY.% -25 diesel gasoline jet fuel 1% cut in natural gas tariff 1% lower opex 1% higher USD/TRY -.5% Nominal change % change (rhs) Nominal change % change (rhs) DENIZ INVEST RESEARCH 5

6 AUGUST, 217 TUPRAS KEEP YOUR OPTIMISM Ownership structure Enerji Yatirimlari 51.% Free float 9.% Tupras IFRS financials, TRY mln E 21E 219E INCOME STATEMENT Revenues 1,7 39,723 36,93 3,55 5,257 51,72 55,17 Gross income 1,73 1,263,126 3,69 6,62,97 5,2 Gross margin 3.6% 3.2% 11.2% 1.5% 12.9% 9.5% 9.5% SG&A (7) (717) (77) (995) (1,2) (1,11) (1,172) EBITDA 1,1 3,735 3,195 6,11,57,6 Adjusted EBITDA 1,1 3,735 3,195 6,11,57,6 EBITDA margin 2.5% 2.% 1.1% 9.2% 12.%.%.9% DD&A (2) (25) (6) (51) (57) (76) (5) EBIT ,29 2,65 5,1 3,6,36 Interest income 61 (12) (221) (265) (6) 7 Forex gain (55) (91) (1,115) (716) (36) (33) (95) Revaluation gain Other gains (26) (259) EBT ,225 1,9 5,1 3,75 3,955 Income tax 1,16 1, (131) (1) (373) (393) Minority interest (2) (11) (1) (2) (2) (2) (21) Net income 1,197 1,59 2,55 1,793,76 3,36 3,51 Adjusted net income 1,197 1,59 2,55 1,793,76 3,36 3,51 Net margin 2.9% 3.7% 6.9% 5.1% 9.% 6.5% 6.% EPS, TRY Adjusted EPS, TRY BALANCE SHEET Assets Cash and equivalents 3,663 3,9 3,2 6,51,9,911 9,511 Receivables 1, ,5 3,1,25,6,62 Inventories 3,56 2,371 2,12 3,6,3,792 5,51 Other current assets ,73 2 1,512 1,613 1,693 Total current assets 9,765 6,991,72 13,667 1,21 19,722 2,9 Total non-current assets 11,375 1,91 16,72 17,551 1,77 19,13 2,552 Total assets 21,139 21,933 25,7 31,21 37,2 39,535 1,5 Liabilities Short-term borrowings 1, ,71 1,95,21,73 5,122 Payables 6,79 5,61 3,61 6,9,,77 9,17 Other current liabilities 2,52 2,17 3,96 3,71,62 5,31 5,3 Total current liabilities 1,396,561,2 12,66 16,95 1,75 19,6 Long-term borrowings 5,7 6,97, 1,176 7,933,77,175 Other non-current liabilities Total non-current liabilities 5,6 7,159,273 1,391,177 9,13,59 Total liabilities 16,1 15,72 17,12 23,51 25,2 27, 2,17 Minority interest Equity 5,9 6,157,35, 11,2 11,93 13,17 Total liabilities and equity 21,139 21,933 25,7 31,21 37,2 39,535 1,5 Net debt/(cash) 2,59 3,57 6,92 6,,119,57 3,75 CASH FLOW STATEMENT Net income 1,197 1,59 2,55 1,793,76 3,36 3,51 Minority interest DD&A Working capital change 1,91 1,69 (3,51) (91) 7 (117) 25 Other assets change (6) (971) 52 1, (132) 1,675 1,366 Operating cash flow 2,59 2,35 (29) 2,753 5,95 5,63 5,71 Capex Other investments Investing cash flow (2,159) (2,17) (9) (2) (1,29) (1,15) (1,23) Change in debt ,23 (659) 57 (62) Dividends paid (96) (396) (1,62) (1,557) (3,765) (2,6) Share issues/(purchases) Other (7) (15) (26) () () () () Financing cash flow (71) (12) (29) 22 (2,617) (3,7) (3,951) Forex effects Net change in cash (71) 3,23 2, 17 6 RATIOS P/E EV/EBITDA P/BV Net debt/ebitda Total debt/ebitda ROE 2.1% 25.9% 35.3% 21.9% 7.3% 2.3% 2.2% ROIC neg 11.1% 15.3% 1.1% 19.5% 12.9% 13.% Dividend per share, TRY Dividend yield 1.% 5.7% 5.% 13.2% 9.% P/S P/CF neg Revenue growth -3% -3% -7% -6% % 3% 7% EBITDA growth -19% -21% 365% -1% % -2% 7% EPS growth -1% 22% 75% -3% 162% -29% 5% 6 DENIZ INVEST RESEARCH

7 TUPRAS KEEP YOUR OPTIMISM AUGUST, 217 Ownership structure Koc Holding.7% Temel Ticaret 5.% Koc Family.% LPGD 2.5% Free float 2.3% Aygaz IFRS financials, TRY mln E 21E 219E INCOME STATEMENT Revenues 6,5 7,61 6,2 6,79 7,95,16,11 Gross income Gross margin 9.5% 7.5% 1.5% 11.7% 1.% 1.3% 1.5% SG&A () (9) (23) (76) (5) (551) (59) EBITDA Adjusted EBITDA EBITDA margin.2% 2.9% 5.3% 5.9%.7% 5.1% 5.3% DD&A (2) () (6) (6) (7) (116) (127) EBIT Interest income Forex gain (22) (5) (2) (3) (2) (2) (1) Revaluation gain Other gains EBT Income tax (32) (19) (39) (53) (5) (61) (65) Minority interest () () () () Net income Adjusted net income Net margin 3.% 3.1% 6.5% 6.2%.9% 7.% 7.1% EPS, TRY Adjusted EPS, TRY BALANCE SHEET Assets Cash and equivalents Receivables Inventories Other current assets Total current assets ,25 1,36 1,95 1, 1,552 Total non-current assets 2,321 2,699 2,91 2,95 3,31 3,39 3,552 Total assets 3,1 3,12 3,916,31,9,92 5,1 Liabilities Short-term borrowings Payables Other current liabilities Total current liabilities ,7 96 1,2 1,51 Long-term borrowings Other non-current liabilities Total non-current liabilities Total liabilities 95 1,53 1,36 1,573 1,577 1,67 1,73 Minority interest Equity 2,23 2,359 2,61 2,7 3,232 3,257 3,371 Total liabilities and equity 3,1 3,12 3,916,31,9,92 5,1 Net debt/(cash) CASH FLOW STATEMENT Net income Minority interest DD&A Working capital change 15 (5) 115 (26) Other assets change (67) 6 (31) 17 (23) 53 (5) Operating cash flow Capex Other investments 6 (1) Investing cash flow (11) (2) (13) (3) (99) (99) (99) Change in debt (13) (13) Dividends paid (3) (175) (11) (315) (5) (71) (591) Share issues/(purchases) Other (2) (27) (27) (27) (27) Financing cash flow (7) (57) 31 (3) (77) (75) (63) Forex effects 1 Net change in cash (12) (67) 31 RATIOS P/E EV/EBITDA P/BV Net debt/ebitda Total debt/ebitda ROE.9% 9.5% 16.% 15.5% 23.9% 1.2% 1.9% ROIC 7.9% 6.% 1.% 12.% 19.3% 15.6% 16.% Dividend per share, TRY Dividend yield 6.2% 3.6% 2.1% 6.5% 9.3% 1.% 12.2% P/S P/CF Revenue growth 7% 1% -9% 5% 1% 5% 5% EBITDA growth 3% -2% 6% 17% -5% 1% % EPS growth -33% 6% 92% -1% 72% -17% 6% DENIZ INVEST RESEARCH 7

8 AUGUST, 217 TUPRAS KEEP YOUR OPTIMISM Analyst certification I (Selim Kunter) hereby certify that the views expressed in this research report accurately reflect my personal opinions about the companies and the securities discussed herein. This report has been submitted to the issuer of the financial instrument it relates to before its publication. Like all employees of Deniz Yatirim, the remuneration can be based in part on the results of Deniz Yatirim as a whole. No part of our compensation was or is related to any recommendation or opinion expressed in this report. Company specific regulatory disclosures Deniz Yatirim or any entity of Denizbank can perform commercial banking, brokerage and advisory services for or on behalf of any of the companies or organizations referred to in this report. Furthermore, Deniz Yatirim or any entity of Denizbank may hold a position either independently or for the benefit of third parties, or trade in the securities of any company or organization referred to this report, as a broker, market maker, or in any other role. The following disclosures relate to relationships between Denizbank or its subsidiaries and companies covered by the equity research division of Deniz Yatirim and referred to in this research. Denizbank may have from time to time non-securities related banking relationships with the companies covered by its research department. Measures preventing conflicts of interest To the extent permitted by law, Deniz Yatirim, or its officers, employees or agents, may have bought or sold the securities mentioned in this report, or may do so in the future. Analysts' remuneration can be based in part on the results of Deniz Yatirim which may include investment banking revenues. Analysts are required to respect the information sharing policy that restricts disclosure of recommendations to third parties or to any other department of Deniz Yatirim prior to the distribution or the public disclosure thereof. Similar information barriers apply to the staff involved in the corporate banking, corporate finance and structured finance activity in order to prevent conflicts of interest. They are not allowed to enter into transactions involving securities of a listed company for their own account or for the account any third party, when involved in the customer relationship with such company nor communicate on the relationship with such company outside the corporate department without the prior authorization of the Compliance Officer. DENIZ INVEST RESEARCH

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