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Please see the last page of this report for important disclosures.
RESEARCH
1
23 February, 2015
Tupras Market Perform (Maintained)
Last Price TL 53.30TL
12-month Target Price TL 62.50TL
Potential Return TL 17%
Current Mcap (TLmn) 13,347
Current EV (TLmn) 17,385
5,441
Bloomberg/Reuters:
1 mth 3 mth 12mth
1% 1% 6%
32.3
YTD TL Return: -4%
250
Free Float (%): 49
86%
Financials and Ratios 2013 2014E 2015E 2016E Research Analyst: Onur Marşan
Net Sales (TLmn) 41,078 40,389 34,764 45,577 +90 (212) 384 1125
EBITDA (TLmn) 1,014 1,013 2,015 2,346 [email protected]
Net Profit (TLmn) 1,197 1,392 1,174 1,312
EBITDA Margin 2.5% 2.5% 5.8% 5.1% Sales Contact:
P/E (x) 11.1 9.6 11.4 10.2 +90 (212) 384 1155-58
EV/EBITDA (x) 17.1 17.2 8.6 7.4 [email protected]
EV/Sales (x) 0.42 0.43 0.50 0.38
EPS (TL) 4.78 5.56 4.69 5.24
DPS (TL) 1.58 0.20 1.20 0.80
Current Mcap (US$mn)
Price Performance (TL)
Stock Market Data
TUPRS.TI / TUPRS.IS
Relative Performance:
52 Week Range (TL): 37.2 / 56.9
Foreign Ow nership in Free Float (%):
Average Daily Vol (US$mn) 3 mth:
Shares Outstanding (mn):
30.00
36.00
42.00
48.00
54.00
60.00
01.1
4
02.1
4
03.1
4
04.1
4
05.1
4
06.1
4
07.1
4
08.1
4
09.1
4
10.1
4
11.1
4
12.1
4
01.1
5
02.1
5
TUPRS BIST-100
Never mind 4Q, look at the RUP benefits
Tupras’ 4Q results due on March 2, will be hit by FX and
inventory losses as reflected in tax financials.
The hydrocracker project is now on-stream, yet the fall
in oil prices, and lower spreads remain major threats to
the Company’s profitability.
We maintain our Market Perform recommendation with a
12-month price target of TL62.50, implying 17% upside
potential. The stock trades at a 2015E EV/EBITDA
multiple of 7.5x - at a premium over the 6.0x average
multiple of its global regional peers.
Expect a weak 4Q amid inventory and FX losses
Oil prices continued their downward trajectory with the Brent price
falling by 39% from $94/bbl at the beginning of the quarter to $57.50/
bbl by the end. Although Med margins have remained strong, the
reported US$204mn inventory loss (higher than our US$150mn
expectation) will have eaten up most of the operating profitability. Tax
results point to a no dividend yet we forecast a tiny TL50mn to be
distributed from reserves. The deferred tax income will be the saviour
for the bottom line in the IFRS results. Note that tax financials
included the Competition Board fine of TL309mn recorded at 2013-
end. We revised down our 4Q net income from TL192 to TL146mn.
RUP now operational, but full impact to be seen later his year
Although the opening ceremony took place in December, the RUP is
still in the testing phase and will become fully operational by 2Q15.
Low crude prices, along with slimmer diesel/fuel-oil spreads, could
erode profitability in the short term; yet once we observe some
stabilization in demand and pricing, Tupras will reap the rewards of
higher profitability. Tupras expects the RUP to generate an additional
US$550mn in annual EBITDA and expects the hydrocracker to provide
the Company with more flexibility in a changing demand environment.
Tax fine puts some pressure on the share price
After the tax investigation for the 2009-2013 period, the Tax Office
fined Tupras a total of TL160mn (TL65.6mn original tax + TL94.4mn
tax related fines) plus overdue interest for the related period. Although
Tupras stated that it would exercise all of its legal rights regarding the
tax fine, we believe a settlement option is more likely for the resolution.
The Company has not yet set aside any provision for the fine.
Turkey - Equity - Oil & Gas
Company Update
Please see the last page of this report for important disclosures.
2
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
The Company in Brief
Founded in 1983, and privatized in 2006, Tupras
(Turkish Petroleum Refineries Co) is an integrated
petroleum company engaged in the oil refining and
distribution sector in Turkey. Based in Kocaeli,
Tupras is Turkey’s sole refiner with a refining
capacity of 28.1mn tonnes and a nelson complexity
of 7.3. The Company also owns 40% of OPET,
Turkey’s third largest petroleum retailer.
Shareholders
Enerji Yatirimlari (SPV) 51%, Free Float 49%
Enerji Yatirimlari (SPV) shareholding Structure:
Koc Holding 77%; Aygaz 20%, OPET 3%.
Income Statement 2013 2014E 2015E 2016E 2014E/2013
Net Sales 41,078 40,389 34,764 45,577 -2%
Cost Of Sales -39,605 -39,311 -32,347 -42,815 -1%
Gross Profit (Loss) 1,473 1,078 2,417 2,762 -27%
Operating Expenses -700 -427 -791 -857 -39%
Operating Profit 774 650 1,626 1,904 -16%
Consolidated EBITDA 1,014 1,013 2,015 2,346 0%
Net Other Income/ Expense -732 -273 -237 -236 -63%
Net financial Income/ Expense -110 -175 -144 -200 59%
Profit (Loss) before Tax 13 202 1,245 1,468 1447%
Tax 1,186 1,203 -62 -146 1%
Minority Interests 2 13 10 10 561%
Net Income 1,197 1,392 1,174 1,312 16%
Ratios
Gross Profit Margin 3.6% 2.7% 7.0% 6.1% -0.9 pp
EBIT Margin 1.9% 1.6% 4.7% 4.2% -0.3 pp
EBITDA Margin 2.5% 2.5% 5.8% 5.1% 0 pp
Net Income Margin 2.9% 3.4% 3.4% 2.9% 0.5 pp
Balance Sheet 2013 2014E 2015E 2016E 2014E/2013
Current Assets 9,765 10,715 10,515 10,832 10%
Cash and Cash Equivalents 3,663 4,000 2,669 2,836 9%
Short-Term Trade Receivables 1,957 2,082 2,360 2,475 6%
Inventories 3,456 3,750 4,631 4,633 9%
Other Current Assets 688 882 857 888 28%
Long Term Assets 11,375 11,350 11,768 12,190 0%
Total Assets 21,139 22,064 22,284 23,023 4%
Short Term Liabilities 10,396 9,529 9,452 9,850 -8%
Short-Term Financial Loans 1,075 900 850 650 -16%
Short-Term Trade Payables 6,794 6,445 6,302 6,358 -5%
Other Short-Term Liabilities 2,528 2,184 2,300 2,842 -14%
Long Term Liabilities 5,604 6,401 5,923 5,352 14%
Long-Term Financial Loans 5,447 6,221 5,723 5,151 14%
Other Long-Term Liabilities 157 180 200 201 15%
Shareholders Equity 5,139 6,135 6,908 7,821 19%
T. Liabilities & S.holders Equity 21,139 22,064 22,284 23,023 4%
SUMMARY FINANCIALS
TUPRS
Rating Company Rating Date Current Rating
Fitch Ratings 12.01.15 BBB- (stable)
Moodys 18.10.12 Ba1 (stable)
Please see the last page of this report for important disclosures.
3
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
INVESTMENT THESIS
We change our 12 month target price for Tupras from TL55.30 to TL62.50
per share, implying 17% upside potential. The steep fall in crude oil prices
led to some hefty one-off inventory losses, as reported US$204mn in the
4Q14 financial statements due on March 2, yet the strong refining margins
could compensate some of these massive losses in 4Q14. We welcome
the recent upward trend in crude oil prices in 1Q15 that could pave the
way for inventory gains, while the appreciation in the US$ will have a
positive impact on operation profitability. All in all, we maintain our Market
Perform recommendation for Tupras. We deem the Company’s business
prospects are solid following the completion of the RUP Project, yet we
will await better entry points for the stock.
Higher refining margins thanks to lower oil prices
Brent prices declined for a sixth consecutive month in December, with the
average price falling by a further $17/barrel (bbl) on the month to $62/bbl,
the lowest since May 2009. Overall, crude oil prices have tumbled by 56%
since June, with no indication that the decline will stop there. There have
even been market rumours of a $40/bbl price, with authorities in Saudi
Arabia declaring that they would be comfortable even if prices fell as low
as $20/bbl.
The price of oil continued to collapse into January as rising supplies
coincided with weak demand growth, with OPEC maintaining its
commitment not to cut production. Despite lower prices, lowest level seen
as US$45.5 per barrel seen on January 13, within the growth in global
demand is only forecasted to accelerate to 0.9mb/d in 2015.
The weakness in oil prices so far manifested itself in the form of higher
gross refining margins thanks to the increase in product price spreads.
Although winter is known as a low margin season, we have seen very
strong Med region refining margins reaching 6$/bbl on a daily basis.
However, it should also be borne in mind that this strong margin
environment should be a temporary phenomenon, and once there is some
stabilization in crude prices we would expect refining margins to come
down sharply as demand dynamics suggest. The combination of abundant
supply from U.S. oil production and strong global supply, combined with a
weakening outlook for the global economy and oil demand growth, could
be listed as the main reasons behind the fall.
Source: IEA
-
2.00
4.00
6.00
8.00
Jan
.13
Fe
b.1
3
Ma
r.13
Ap
r.1
3
May.1
3
Jun
.13
Jul.13
Au
g.1
3
Se
p.1
3
Oct.1
3
Nov.1
3
Dec.1
3
Jan
.14
Fe
b.1
4
Ma
r.14
Ap
r.1
4
May.1
4
Jun
.14
Jul.14
Au
g.1
4
Se
p.1
4
Oct.1
4
Nov.1
4
Dec.1
4
Refining Margins ($/bbl)
Brent Cracking Urals (Cracking)
Please see the last page of this report for important disclosures.
4
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Refining margins unlikely to improve in the coming years
Once crude prices bottom out and stabilise, we would expect product
spreads to plunge from their current high levels, leading to lower refining
margins. Under such conditions, we would also expect Tupras’ margins to
decline, although the Company will have the capacity to switch to more
profitable products now that the fuel-oil conversion (RUP) unit is up and
running - although this may not be sufficient to maintain strong profitability,
unless we see a strong recovery in the demand composition.
We believe the most bountiful years for refining margins are now behind
us, while we do not expect the global refining market to return to its pre-
crisis levels for the foreseeable future, with refining margins likely to come
under pressure in the coming years. Crude differentials are likely to
remain below their historical averages, while expanding refining capacity
will lead to an even more competitive market amid a lack of sufficient
growth drivers in the coming period.
In this context, the completion of the RUP project will prove vital in
sustaining Tupras’ profitability. We would also note that although Tupras
has welcomed Socar’s entry into the market as a second player from 2018
and beyond with its STAR refinery that is planned to be operational by
2017-end, we believe the intensified competition will undoubtedly squeeze
Tupras’ margins, despite the strong local growth.
The STAR refinery will have a refining capacity of 10mn tonnes, mainly
focused on the production of naphtha, a feedstock for Petkim. Even then,
the new diesel capacities will still not be sufficient to meet local demand.
Source: Tupras, Reuters
We expect Tupras to close 2014 with a net refining margin of US$2.75/
bbl. For 2015 and beyond, we expect refining margins to hover at around
US$4-5/bbl, thanks to the addition of the RUP.
0
20
40
60
80
100
120
140
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
Med -TUPRS Margins versus Brent Prices
Med Margins TUPRS margins Brent Prices (rhs)
Please see the last page of this report for important disclosures.
5
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Despite being a one-off, we expect inventory losses to take their toll on
the share price
At tax financilas, the inventory loss came at US$204mn in the 4th quarter
on the back of a steep 39% fall in oil prices. After the beginning of the
year, prices continued their downtrend and had plunged by another 16%
as of January 16, hitting $48 per barrel levels. We assume that the FX
losses will have a one-off impact. Recently, we observed the crude prices
climbing back to US$55-60 per barrel levels paving for inventory gains in
1Q15.
Tupras Inventory effect versus change in Brent prices
Source: Tupras, Reuters
Residual Fuel Oil Conversion (RUP) project to bring strong flexibility
Work on the project got underway in 2008, and was completed with a
capex investment of around US$2.9bn. The project will enable the refinery
to process 4.2mn tonnes of high sulphur fuel oil - where there is a surplus
in Turkey - and produce approximately 3.5mn tonnes of high quality
diesel/jet fuel, gasoline and LPG to Euro-V standards. It also enables the
production of 690,000 tonnes of petroleum coke and 86,000 tonnes of
sulphur. Following the completion of the RUP, the Nelson Complexity
Index of the Izmit refinery increased from the current 7.78 to 14.5 (based
on design capacity).
Source: Tupras
(0.60)
(0.50)
(0.40)
(0.30)
(0.20)
(0.10)
-
0.10
0.20
0.30
0.40
(400)
(300)
(200)
(100)
-
100
200
300
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
2Q
13
1Q
14
4Q
14
(US
$m
n)
Inventory Impact
Product inv. (US$mn)
Crude inv. (US$mn)
Change in Brent price (rhs)
Please see the last page of this report for important disclosures.
6
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
We calculate that the RUP will contribute around US$500mn in annual
EBITDA, a figure lower than the Company’s expectations at the current
product price ratios. We incorporated the RUP product yields announced
by Tupras into our valuation. We would expect product price ratios to
remain depressed in the second half of 2015 on the back of low oil prices,
decreasing the profitability of the project. Nevertheless, we still calculate
that the project will be able to create a minimum of US$350-400mn in
additional EBITDA going forward.
Tupras to still be a dominant player by the end of 2017
Tupras’ existing four refineries account for 100% of Turkey’s domestic
production. Even after the RUP project, there will still be room for
additional refining capacity. In this context, we welcome the addition of the
Socar-Turcas Refinery (STAR), which will come on stream by the end of
2017 with the completion of the US$5.5bn investment. Tupras, as
Turkey’s sole refiner, will continue to enjoy its dominant position (60%
market share, with the rest imported) in the next 3 years. The STAR
refinery will have a refining capacity of 10mn tonnes, mainly focused on
the production of naphtha, a feedstock for Petkim. Even then, the new
diesel capacities will still not be sufficient to meet local demand.
Demand still buoyant in Turkey
Oil has long been one of the key sources of energy in Turkey, accounting
for some 28% of the country’s Total Primary Energy Supply (TPES).
Turkey’s demand for oil increased slightly from 29mn tonnes in 2003 to
35mn tonnes in 2013, chalking up a 10 year CAGR of 2%. The transport
sector accounted for almost half of total oil consumption in 2013. We
expect the current demand composition to be maintained going forward
with an increasing contribution from the transport sector. The airline sector
is projected to grow at a rate double that of GDP, with automotive sales on
course to grow at a rate at least 1-2 percentage points in excess of GDP
growth over the next decade.
Oil products consumption in Turkey (000 tonnes)
Source: Tupras
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Other
Asphalt
Lube Oil
Fuel Oil
Diesel
Jet Fuel
Gasoline
Naphtha
LPG
Please see the last page of this report for important disclosures.
7
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
EIA continuously revising its assumptions downwards
Contrary to what we had been accustomed to, the EIA has revised its
crude oil price assumptions for 2015 downward three times since October
2014, in line with the falling trend in oil prices and OPEC’s decision not to
cut production. The EIA now forecasts that Brent crude oil prices will
average $58/bbl in 2015 and $75/bbl in 2016. The current values for
futures and options contracts suggest a very high level of uncertainty for
the pricing outlook. We do not expect a major change in crude
assumptions in the next reports, now that Brent prices have started to
level out at around US$55 per barrel.
Source: EIA
Will there be a production cut in 2015?
OPEC is resolute that it will not cut production and maintains its
production at 28.8mn barrels a day. OPEC notes that if the recent price
trend continues, the long-term sustainability of capacity expansion plans
and investment projects may be put at risk. OPEC is of the view that a
lack of investment may lead to a supply shortage in the long run, leading
to excessive pricing as seen in 2008. The 12-member Organization of the
Petroleum Exporting Countries pumps about a third of the world's oil.
OPEC states that any oil supply cut would lead to spare production
capacity, a lack of investment and an eventual shortage and price spike
that could exceed that seen in 2008, when oil hit a record high of over
$147 a barrel. Meanwhile, non-OPEC oil producers are expected to
increase output in 2015 at a slower rate than previously forecasted, aiding
a recovery in crude prices. The slowdown in non-OPEC output is intended
to lead to a “rebalancing” of the currently over-supplied global markets in
the second half of 2015, reviving prices, according to International Energy
Agency (IEA). OPEC appears to be closely following how the markets will
respond at the end of 1H15 before considering some concrete moves
towards production cut.
Who says falling oil prices do not affect American production?
About 4,000 workers at nine plants, including seven refineries accounting
for 10% of U.S. refining capacity, went on strike on February 2nd,
immediately sending oil prices up by $3 per barrel. The strike ended on
February 5, with the strikers’ demands met. Since bargaining first started
on January 21, the union has rejected five offers and demanded for an
annual pay rise of 6%. Meanwhile, executives stated that raising pay
could prove highly challenging that now crude prices have tumbled by
60% since June 2014, eroding profits. We now are seeing more reports
that U.S. oil production may stop growing in the second half of 2015 and
could fall in 2016, as low oil prices render the majority of oil wells
uneconomical to run. The oversupply of oil has forced a slowdown in
drilling and put the brakes on a five-year boom that pushed U.S.
production to record highs. The slowdown has largely been driven by the
economics of drilling.
EIA Assumptions 2013 2014 2015E 2016E
WTI Crude Oil ($/bbl) 97.91 93.26 54.58 71.00
Brent Crude Oil ($/bbl) 108.64 99.02 57.58 75.00
Please see the last page of this report for important disclosures.
8
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
More than half U.S. oil wells drilled in 2014 were uneconomical below $60/
bbl and 30% per cent of new wells had break even levels of $81 or higher,
according to a HIS article. A slowdown in over production could have
economic impacts as well.
Breakevens for US shale plays
Source: Wood & MacKenzie, EIA
Will Iraqi oil support Tupras’ margins?
The bitter dispute between Baghdad and Erbil, which became an
international issue, has now finally reached a breakthrough agreement.
The central government and the KRG signed a temporary agreement to
settle the oil dispute in November 2014. With the announcement of this
agreement, Tupras has finally declared that it will be able to pump Iraqi oil
from storage at the Mediterranean port of Ceyhan to the central Turkish
city of Kirikkale for processing. Tupras has not purchased crude from
SOMO (Iraq’s State Oil Marketing Organization) since March 2014. Kirkuk
oil is highly suitable for the Kirikkale refinery in terms of complexity.
Source: Tupras
Please see the last page of this report for important disclosures.
9
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Lower foreign exchange risks and bond issue
The loans for Tupras' RUP project are US$ denominated. Any
depreciation of the TL against the US$ worsens Tupras’ credit ratios,
especially in the event of a sudden depreciation in the TL towards the end
of its financial year. We forecast a $/TL exchange rate of 2.45 at the end
of 2015 and 2.54 in 2016-end. We believe Tupras' currency risk will be
lower once the output from RUP is realized. Tupras also plans to increase
its TL denominated debt exposure by issuing up to TL1bn of bonds and
hedging its foreign exchange exposure with forward and swap contracts.
The first TL200mn tranche of this TL1bn bond was released on January
19. The bond has a 2 year maturity carrying 6 monthly coupons and a
fixed interest rate of 8.99%, with principal payment and interest to be paid
on maturity. The bond issue will help Tupras diversify its loan portfolio as
well as its investor base.
Tax fine represents another threat to Tupras’ profitability
The tax office levied a TL160mn (U$69mn) tax fine on Tupras after an 18-
month investigation. The tax demand for TL65.6mn and related fines of
TL94.4mn is for 2009-2013 period; Tupras announced that it would
exercise all of its legal rights, including negotiations. We believe Tupras
will use its negotiation option, as it has in the past. Recall that, the
Competition Board had issued a TL412mn fine to Tupras back in 2012 for
abusing its dominant position in pricing and contracts. In 2010, the
Company had also faced a total of TL605mn in tax fines for the 2005-2009
period (tax and related fines), which Tupras negotiated down to TL153mn.
Although, we see no significant risk surrounding the tax fine, the provision
to be set aside for the fine will have a direct impact on the tax financials,
pressurising the dividend payment.
Dividend issue will be difficult from 2014 distributable net income
With the low EBITDA generation due to high inventory losses and the
Competition Board’s fine that may impact 2014 dividend, we revised down
our dividend estimate to TL50mn to be distributed from reserves. We also
note that the increase in cash-flow from RUP will lead to higher dividend in
2016 and onwards.
Tax Financials were disappointing
Tupras announced TL856mn net loss in its 2014 tax financials versus
TL337mn before tax net profit recorded a year ago. Operational results
point to a US$204mn inventory loss in 4Q14, totalling US$236mn
inventory loss for 2014. Tupras paid the TL309mn Competition Board fine
in its tax results. The sharp and continuous fall in crude prices led to
higher refining margins and recorded as US$4.56/bbl in 4Q14 (4Q13:
US$2.03/bbl). The capacity utilization rate was recorded as 74.9% in 2014
down 5.3% YoY.
Please see the last page of this report for important disclosures.
10
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Market Perform maintained
We maintain our Market Perform recommendation despite the upward
revision to our target price: We appoint equal weight to DCF method
(5.5% risk-free rate in $ terms, 5.5% equity risk premium, 1x beta, 6.5%
cost of debt($) and 3.0% terminal value) and to peer comparison to value
Tupras. The Company trades at a premium compared to specifically its
Mediterranean peers yet we believe this premium is justified given the
expected positive free cash flow expectations, thanks to the contribution
from the RUP project.
In this report, we raise our 12-M target share price by %13 from TL55.30
to TL62.5. The key drivers behind the revision to our target price are:
i) lower crude oil price and higher refining margin forecasts
ii) a higher expected contribution from the RUP compared to our
previous assumptions starting from 2015E.
As our revised target price implies 17% upside potential, we maintain our
Market Perform recommendation for the Company. We believe global
risks on product prices and increasing global refining capacity, fluctuations
on $/TL rates and tax issues represent the most significant risks for
Tupras.
Trading above its historical average multiples
Tupras’ trailing trading multiples in the last 2 years have been confusing
as the P/E multiple looked cheap as a result of the deferred tax income.
As Bloomberg combines 2014 and 2015 forecasts for EBITDA and net
income proportionately, the EV/EBITDA multiple declines with the higher
contribution of 2015 EBITDA forecast. We deem 10x P/E multiple and 7x
EV/EBITDA is the fair multiple for Tupras, trading slightly above its global
peers.
Source: Bloomberg
6x
7x
8x
9x
10x
11x
12x
13x
12-0
9
03-1
0
06-1
0
09-1
0
12-1
0
03-1
1
06-1
1
09-1
1
12-1
1
03-1
2
06-1
2
09-1
2
12-1
2
03-1
3
06-1
3
09-1
3
12-1
3
03-1
4
06-1
4
09-1
4
12-1
4
1 year Forward Looking P/E
P/E Average +1s -1s +2s -2s
2x
3x
4x
5x
6x
7x
8x
9x
10x
11x
12x
12-0
9
02-1
0
04-1
0
06-1
0
08-1
0
10-1
0
12-1
0
02-1
1
04-1
1
06-1
1
08-1
1
10-1
1
12-1
1
02-1
2
04-1
2
06-1
2
08-1
2
10-1
2
12-1
2
02-1
3
04-1
3
06-1
3
08-1
3
10-1
3
12-1
3
02-1
4
04-1
4
06-1
4
08-1
4
10-1
4
12-1
4
1 year Forward Looking EV/EBITDA
EV/EBITDA Average +1s -1s +2s -2s
Please see the last page of this report for important disclosures.
11
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
REVISIONS TO FORECASTS
With this report, we have revised our assumptions, mainly based on the
fall in oil prices and revised $/TL exchange rate assumptions. We believe
the slowdown in global economies will be partially reflected to the refining
outlook, and is more likely to pull refining margins lower after a
stabilization in oil prices. We expect the deferred tax income to continue to
have a positive impact on the bottom line in 4Q.
Bloomberg vs. Garanti Forecasts
Our target price of TL62.50 is slightly above the Bloomberg consensus of
TL58.0.
Source: Bloomberg, Garanti Securities
Tupras OLD NEW Difference
(TLmn) 2014E 2015E 2014E 2015E 2014E 2015E
Net Sales 43,031 37,022 40,389 34,764 -6% -6%
EBITDA 950 1,864 1,013 2,015 7% 8%
Net Profit 1,439 1,024 1,392 1,174 -3% 15%
EBITDA Margin 2.2% 5.0% 2.5% 5.8% 0.3 pp 0.8 pp
Net Profit Margin 3.3% 2.8% 3.4% 3.4% 0.1 pp 0.6 pp
Target Share Price 55.30 62.50 13%
Tupras Bloomberg Garanti Securities Difference
(TLmn) 2014E 2015E 2014E 2015E 2014E 2015E
Net Sales 40,407 37,433 40,389 34,764 0% -7%
EBITDA 964 2,253 1,013 2,015 5% -11%
Net Profit 1,150 1,246 1,392 1,174 21% -6%
EBITDA Margin 2.4% 6.0% 2.5% 5.8% 0.1 pp -0.2 pp
Net Income Margin 2.8% 3.3% 3.4% 3.4% 0.6 pp 0 pp
Target Share Price 58.02 62.50 8%
Please see the last page of this report for important disclosures.
12
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
VALUATION Our 12-month target Mcap of US$6.4bn (TL15.6bn) for Tupras is derived
from an equally weighted average of DCF analysis and international peer
group comparison.
DCF Valuation We calculated a target value of US$7.4bn for Tupras based on DCF
analysis, assuming a 1.5% terminal growth rate in our DCF model. We
applied the yield on the 10-year Eurobond as the risk free rate while
assuming a market risk premium of 5.5% in calculating the cost of equity.
Accordingly, we assume a 9% WACC for Tupras’ cash flows.
Valuation (US$mn) Value Weight in Valuation
Value
DCF 7,633 50% 3,816
Multiples 5,144 50% 2,572
Est M. Cap of Tupras 6,388
Current M. Cap 5,441
12M - Target Share Price (TL) 62.50
Current Share Price (TL) 53.30
Upside potential (TL) 17%
Assumptions and Results (US$mn) - 12M
Weight of equity 65% PV of FCF 3,782
Cost of Equity 11.0% PV of Terminal Value 5,504
Beta 1.0 Implied Firm Value 9,286
Risk free rate ($) 5.5% Net Cash (9M14, tax fine inc.) -1,654
Market Risk Premium 5.5% Target Mcap 7,633
Cost of Debt 6.0%
Tax rate 20.0%
WACC 9.0%
Terminal Value Growth 3%
Please see the last page of this report for important disclosures.
13
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Peer Group Comparison We also carried out a peer comparison to arrive at a fair value for Tupras.
We compared the Company with global peers in the region. We took both
2015E and 2016E P/E and EV/EBITDA multiples into consideration with
equal weighting in our comparative analysis, driving a fair value of
US$5.14bn from the peer group comparison.
* 2014 figures are for information purposes only Source: Bloomberg, Garanti Securities
Company Name Country P/E* 2014
P/E 2015
P/E 2016
EV/EBITDA*
2014
EV/EBITDA
2015
EV/EBITDA
2016
EV/ SALES*
2014
EV/SALES 2015
EV/ SALES 2016
European Refiners
Hellenic Petroleum SA GREECE - 15.2 7.8 10.6 6.9 5.7 0.3 0.3 0.3
Polski Koncern Naftowy Orlen SA POLAND 15.0 12.4 11.5 6.5 6.3 6.0 0.3 0.4 0.3
Neste Oil OYJ FINLAND 15.6 14.5 - 9.7 8.1 7.7 0.5 0.6 0.5
MOL Hungarian Oil & Gas PLC HUNGARY 12.6 12.3 9.0 5.0 5.1 4.2 0.5 0.6 0.5
OMV AG AUSTRIA 8.8 14.3 9.3 3.8 4.3 3.4 0.4 0.5 0.5
Total SA FRANCE 10.1 15.5 11.9 4.6 6.1 5.0 0.7 0.9 0.8
Average (1) 12.4 14.0 9.9 6.7 6.1 5.3 0.5 0.5 0.5
Asian Refiners
Indian Oil Corp Ltd INDIA 13.7 12.9 9.0 9.7 9.7 7.6 0.3 0.3 0.3
SK Innovation Co Ltd S. KOREA - 13.0 10.2 22.6 9.7 8.5 0.3 0.4 0.3
Bharat Petroleum Corp Ltd INDIA 24.2 15.8 12.5 11.5 10.3 8.8 0.3 0.3 0.3
S-Oil Corp S. KOREA - 16.1 - - 9.9 8.9 0.4 0.5 0.4
GS Holdings Corp S. KOREA - 12.3 9.9 32.5 14.7 12.6 1.0 0.9 0.9
Thai Oil PCL THAILAND - 12.3 10.7 23.1 7.6 6.9 0.4 0.4 0.4
Hindustan Petroleum Corp Ltd INDIA 21.7 13.0 9.9 12.1 9.9 9.0 0.3 0.3 0.3
Average (2) 19.9 13.6 10.4 18.6 10.2 8.9 0.4 0.4 0.4
American Refiners
Marathon Petroleum Corp USA 13.9 12.6 10.9 7.2 6.6 6.2 0.4 0.4 0.4
Phillips 66 USA 12.1 12.3 10.5 6.7 7.2 6.3 0.3 0.4 0.3
Tesoro Corp USA 11.8 13.2 11.7 5.7 5.8 5.3 0.3 0.4 0.4
Valero Energy Corp USA 9.6 10.7 9.7 4.8 5.3 5.0 0.3 0.4 0.3
Delek US Holdings Inc USA 10.4 - 12.1 4.9 6.0 5.5 0.3 0.3 0.3
Western Refining Inc USA 9.2 12.4 11.7 5.1 6.3 7.8 0.4 0.5 0.4
Average (3) 11.2 12.2 11.1 5.7 6.2 6.0 0.3 0.4 0.4
Arithmetic Average (1-2-3) 14.5 13.3 10.5 10.3 7.5 6.7 0.4 0.5 0.4
Average 5,144
Please see the last page of this report for important disclosures.
14
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Tupras at a glance Tupras controls Turkey’s entire refining capacity of 28.1mn tonnes and
qualifies as the seventh largest refiner in Europe overall, with a 5% share
in total capacity. The refiner meets 60-65% of Turkey’s entire demand for
petroleum products. Tupras also owns all of Turkey’s crude oil storage
and around 45% of the country’s product storage capacity.
European refiners by capacity
Source: Oil and Gas Journal
Tupras has four main refineries in Turkey with a total refining capacity of
28.1mn tonnes.
N.C: Nelson Complexity
Source: Tupras
1984
1681
1197
876 854709
613521
427 403 399 396 350 313 311 304 304 300 295 210
To
tal S
a
Exx
on M
ob
il
Roya
l Dutc
h S
hell
Ag
ip P
etr
oli
SP
A
BP
Repso
l YP
F
Tu
pra
s
Pe
troplu
s
CE
PS
A
Ineos
Om
v
ER
G G
roup
Conoco
Phili
ps
Helle
nic
Petr
ole
um
Nest
e O
il
Sta
toil
Ga
lp E
ne
rgia
Sa
ras
Pe
trole
os
Va
lero
Crude Capacity (b/cd)
Tonnes (mn)
Capacity N.C. Before
RUP N.C. After
RUP Sales (2013) (mn tonnes)
Personnel (2013)
Izmit 11 7.78 14.5* 10.7 1,763
Izmir 11 7.66 7.66 8.8 1,267
Kirikkale 5 6.32 6.32 3.8 872
Batman 1.1 1.83 1.83 0.2 463
Total 28.1 7.25 9.9 23.5 4,365
Please see the last page of this report for important disclosures.
15
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
OPET - Fuel Distribution
Tupras holds a 40% stake in Opet, which has 1,388 filling stations (961 of
the OPET brand and 427 of the Sunpet brand) and 1.1mn cubic metres of
storage capacity.
Source. Tupras
Opet is engaged in retail, commercial and industrial sales, storage
operations and the international trade of petroleum products. The
Company also operates in the lubricating oil and jet fuel categories
through its subsidiaries.
Opet commands a number two position in the distribution business with a
19.1% market share in white products. The Company also ranks second
after Petrol Ofisi in the black products segment. Opet recorded total
EBITDA of US$290mn in 2013, with an operating profit margin of 2.3%.
DITAS - Marine Transportation
DİTAS is Turkey’s leading tanker and maritime trade company. Tupras
owns almost 80% of the shares in the company. Providing services for
tanker management, brokerage/chartering, piloting, tugging, audit and
agency services, Ditaş undertakes crude oil transport operations in line
with Tupras’s needs, and the transport of petroleum products in
accordance with the needs of both Tupras and other suppliers. The
Company uses its own tankers as well as tankers it charters based on the
time or line.
Total revenues reached US$103.1mn in 2013 with an operating profit of
US$25.2mn. A total of 4.4mn tonnes of crude oil and 3.1mn tonnes of
product was transported by the company.
Source: Tupras
OPET Terminals Storage Capacity (000 m3)
Marmara 721,000
Mersin 240,000
Aliaga 54,506
Giresun 43,130
Körfez 37,165
Antalya 19,392
Total 1,115,193
Ditaş Tankers M/T
Cumhuriyet M/T
T.Sevgi M/T
T. Gonul M/T
T. Suna M/T
T. Leyla M/T
T. Esra
Tanker Type Crude Oil Oil/Chem. Oil/Chem. Oil/Chem. Oil/Chem. Oil/Asphalt
Year built 2001 2008 2009 2012 2011 2014
Slop Tank Cap. (m3) 4,443 406.4 413.4 1,019.36 141.4 -
Cargo Tank Cap. (m3) 173,759 12,247 12,224 52,925 7,209 16,940
DWT (tonnes) 164,859 10,983 10,983 51,532 6,297 19,968
GRT (tonnes) 84,476 7,318 7,318 29,754 4,225 15,674
Net Tonnage (tonnes) 53,710 3,651 3,651 14,116 2,047 4,702
Length mt 274.18 131.85 131.85 183.31 121.62 156.5
Please see the last page of this report for important disclosures.
16
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Crude Oil Purchases
Turkey is conveniently located at the heart of the World’s key oil producing
regions, enabling Tupras to diversify its crude sources. In fact, Turkey's
importance in global energy markets has been growing, both as a regional
energy transit hub and as a growing consumer. Turkey's demand for
energy has increased rapidly over the past few years, and is likely to
sustain its growth in the future.
One of Tupras strongest capabilities is the use of its geographical
advantage in diversifying its sources of crude oil. The Company
purchases 18 different types of crude oil from ten countries, with specific
gravities ranging between 19-48 API.
Source: Tupras
Tupras - Crude Suppliers breakdown (2013)
Source: Tupras
Tupras imports c. 90% of its crude oil need from international suppliers.
Crude Oil Suppliers (mn tonnes)
2009 2010 2011 2012 2013
Domestic 2.3 2.5 2.4 2.3 2.4
Iran 3.2 7.4 9.7 7.2 5.1
Russia 5.5 2.9 2.1 2.0 1.5
Saudi Arabia 2.1 1.8 2.0 2.8 2.9
Iraq 1.8 2.1 3.1 3.8 6.1
Kazakhstan 0.6 2.2 1.1 2.5 1.5
Italy 0.2 0.1 0.1 0.3 0.3
Libya 0.0 0.0 0.0 1.0 0.7
Others 0.7 0.4 0.3 0.6 0.6
TOTAL 16.4 19.4 20.8 22.5 21.1
Domestic11%
Iran 24% Russia
7%
S. Arabia14%
Iraq29%Kazakhstan
7%
Italy1%
Libya3%
Others3%
Please see the last page of this report for important disclosures.
17
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Until the imposition of the sanctions on Iran, Iran had supplied as much as
50% of Tupras’ total crude needs. After that, Tupras started to reduce its
purchases from Iran to comply with the US sanctions, replacing its
supplies from Iran with Iraqi and Saudi oil.
There is a significant prospect that the sanctions imposed against Iran
may be eased in 2016 or 2017, yet the situation remains unclear. On
November 24th, 2014, Iran and six powers extended the nuclear talks with
Iran by a further 7 months. If Iran complies with the Geneva Interim
agreement, there is a possibility that the sanctions could be eased. Still,
our assumptions do not incorporate any easing in sanctions in 2015 or
beyond. Any positive surprise on this front would serve as a positive
trigger for Tupras. Turkey will be one of the direct beneficiaries of any
possible relaxation in the oil-embargo on Iran imposed by the West.
Tupras enjoys a cost advantage on Iranian heavy crude, which generally
sells at a discount to Brent crude. However, this margin has narrowed as
oil prices have fallen.
Brent versus Iran and Ural crude oil discount (average)
Source: Tupras
Tupras versus Med Refining Margins $/bbl
Source: Tupras
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
2009 2010 2011 2012 2013 2014
Dis
co
un
t (U
S$/b
bl)
Tit
le
IRAN HEAVY IRAN LIGHT URAL
(4.00)
(2.00)
0.00
2.00
4.00
6.00
8.00
10.00
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2010 2011 2012 2013 2014
Tupras versus Med Refining Margins $/bbl
Difference Tupras Med. Ural
Please see the last page of this report for important disclosures.
18
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
RUP project now up and running
Work on the project got underway in 2008 and was completed with a
capex investment of around US$2.9bn. The project enables the refinery to
process 4.2mn tonnes of high sulphur fuel oil - of which there is a surplus
in Turkey - and produce approximately 3.5mn tonnes of high quality
diesel/jet fuel, gasoline and LPG to Euro-V standards. The unit will also
enable the production of 690,000 tonnes of petroleum coke and 86,000
tonnes of sulphur. Following the completion of the RUP, the Nelson
Complexity Index of the Izmit refinery increased from the current 7.78
currently to 14.5 (based on design capacity).
RUP started with test operations and will be fully operational by 2Q15.
Tupras calculates the project to bring in US$550mn of additional EBITDA,
through higher white product yields.
Source: Tupras
We anticipate that Tupras’s total production volume will increase from
21.6mn tonnes in 2012 to 25mn tonnes by 2016. Our calculation for the
RUP is more conservative, expecting US$500mn in additional EBITDA.
While we concur that the RUP project will provide the Company with more
flexibility in periods of volatility, the spread between diesel and fuel oil will
be the main determinant of the RUP’s profitability. However, we still
believe the prospective improvement in EBITDA that the project will bring,
has been almost fully priced-in.
RUP flowchart
Source:Tupras
White Products (000 tonnes) Total Charge (000 tonnes)
Atm. Dip 3,036 LPG 69
Vacuum Dip 1,214 Gasoline 522
Natural Gas 246 Diesel 2,883
Sulphur 86
Total 4,496 Petcoke 696
Natural Gas (fuel) 112 Total 4,256
Please see the last page of this report for important disclosures.
19
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
The financing of the project has generally been a success with attractive
terms and conditions.
Source: Tupras
* The 10 banks are Banco Bilbao Vizcaya Argentaria, S.A., The Bank Of Tokyo-Mitsubishi
Ufj, Ltd., BNP Paribas, Crédit Agricole Corporate And Investment Bank, Deutsche Bank AG-
London Branch, HSBC Bank Plc, Banco Santander, S.A., Sumitomo Mitsui Banking
Corporation Europe Limited, Societe Generale, WestLB AG- London Branch
Investments
Tupras has now completed much of its master plan capex with the
completion of the RUP. The Company’s master plan for the years 2006-
2015 totalled US$5.4bn; much of which has been completed. We expect
the Company to spend a further US$250mn on various energy efficiency
and operational excellence investments in 2015.
Source: Tupras
RUP Financing Loan (US$ mn) Tenor Terms
CESCE 1,110 4+8 Libor +3.05%
SACE 624 4+8 Libor +3.10%
Commerical* (10 banks) 359 4+3 Libor +2.85%
Total 2,093
US$1,950mn
US$1,389mn
US$5,400mn
1989-2005 2006-2010 2006-2015
Investments
Master Plan
274
355395
188 177
628
974
1,201
959
250
2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E
Capex (US$ mn)
Please see the last page of this report for important disclosures.
20
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Dividend
Tupras has been a continuous dividend payer with attractive yields. This
situation is unlikely to change. Tupras generally pays out 90% of its net
profit or 100% of distributable income, or the maximum allowed. The
remaining US$248mn debt of the parent Company, Enerji Yatirimları
(SPV) is expected to be paid in a two year horizon. We still believe there
will be a tiny TL50mn dividend to be paid from the reserves 0.2TL DPS
from 2014 figures.
Source: Matriks
4Q14 expectations
Falling oil prices will saddle Tupras with more inventory losses in 4Q,
although Tupras is working on minimum inventory to avoid bulky losses
and these have been mitigated by plump Med margins so far. Therefore,
negative sentiment caused by falling oil prices may be partly balanced by
strong margins. Meanwhile, clement weather will be supportive
of demand. We expect Tupras to record TL214mn of EBITDA implying a
2.8% EBITDA margin in 4Q. The benefits of improvement in the refinery
margins are negatively impacted by large inventory losses owing to crude
price decline. We believe there is downside to our EBITDA expectation
depending on the inventory losses recorded in the quarter. Looking at
Tupras’ refining EBITDA in the past decade, we believe that 2014E will
most likely be one of the worst years.
Source:Tupras 2014 Tax Results
1.42
2.121.94
2.63
4.19
2.312.50
2.98
3.93 3.85
1.58
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0.00
1.00
2.00
3.00
4.00
5.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Tupras: DPS & Dividend Yield (2003-2013
DPS Dividend Yield - rhs
Inventory Effect (U$mn)
2014
Crude Product Total
1.Q 11.8 38.1 49.9
2.Q -9.9 -0.9 -10.8
3.Q -22.6 -49.0 -71.6
4.Q -60.8 -143.5 -204.3
2014 Total -81.5 -155.4 -236.8
Date TUPRAS
Ref. Margins Med.Ural
Ref. Margin Diff.
2Q 2.63 2.52 0.11
3Q 4.13 1.05 3.08
4Q 2.03 0.30 1.73
1Q 2.41 0.44 1.97
2Q (0.28) 0.06 (0.34)
3Q 5.53 3.45 2.09
4Q 4.56 3.84 0.73
2013 2.45 1.67 0.78
2014 3.21 1.95 1.26
Source: Tupras 2014 Tax Results
Please see the last page of this report for important disclosures.
21
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Turkey Demand Assumptions
TURKEY oil products demand
(000 tons) 2009 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E
LPG 3,620 3,659 3,746 3,706 3,777 3,844 3,911 3,978 4,045 4,045 4,045 4,045
Naphta 1,688 1,650 1,700 1,750 1,760 1,778 1,800 1,800 1,800 1,800 1,800 1,800
Gasoline 2,187 2,075 1,979 1,848 1,854 1,880 1,899 1,908 1,918 1,927 1,937 1,947
Jet Fuel 2,665 2,920 3,288 3,757 3,981 4,316 4,445 4,570 4,700 4,834 4,971 5,113
Diesel 13,942 14,090 14,934 15,786 16,922 17,262 17,626 18,148 18,687 19,241 19,812 20,400
Black Products 4,734 4,503 4,495 4,565 4,846 3,767 3,943 4,171 4,220 4,255 4,280 4,240
Fuel Oil 2,736 1,726 1,499 1,630 1,564 1,474 1,330 1,221 1,190 1,165 1,150 1,070
Asphalt 1,998 2,777 2,996 2,935 3,282 2,292 2,613 2,950 3,030 3,090 3,130 3,170
Other 1,528 2,218 2,467 1,915 1,819 1,829 1,846 1,816 1,821 1,831 1,834 1,836
Lube Oil 314 451 531 409 312 322 339 309 314 324 327 329
Other 1,214 1,766 1,936 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506
Total 30,364 31,116 32,608 33,327 34,959 34,675 35,469 36,392 37,190 37,933 38,679 39,380
TURKEY DEMAND (growth)
LPG 1% 2% -1% 2% 2% 2% 2% 2% 0% 0% 0%
Naphta -2% 3% 3% 1% 1% 1% 0% 0% 0% 0% 0%
Gasoline -5% -5% -7% 0% 1% 1% 0% 0% 0% 0% 0%
Jet Fuel 10% 13% 14% 6% 8% 3% 3% 3% 3% 3% 3%
Diesel 1% 6% 6% 7% 2% 2% 3% 3% 3% 3% 3%
Black Products -5% 0% 2% 6% -22% 5% 6% 1% 1% 1% -1%
Fuel Oil -37% -13% 9% -4% -6% -10% -8% -3% -2% -1% -7%
Asphalt 39% 8% -2% 12% -30% 14% 13% 3% 2% 1% 1%
Other 45% 11% -22% -5% 1% 1% -2% 0% 1% 0% 0%
Lube Oil 44% 18% -23% -24% 3% 5% -9% 2% 3% 1% 1%
Other 46% 10% -22% 0% 0% 0% 0% 0% 0% 0% 0%
Total 2.5% 4.8% 2.2% 4.9% -0.8% 2.3% 2.6% 2.2% 2.0% 2.0% 1.8%
Demand composition
LPG 11.9% 11.8% 11.5% 11.1% 10.8% 11.1% 11.0% 10.9% 10.9% 10.7% 10.5% 10.3%
Naphta 5.6% 5.3% 5.2% 5.3% 5.0% 5.1% 5.1% 4.9% 4.8% 4.7% 4.7% 4.6%
Gasoline 7.2% 6.7% 6.1% 5.5% 5.3% 5.4% 5.4% 5.2% 5.2% 5.1% 5.0% 4.9%
Jet Fuel 8.8% 9.4% 10.1% 11.3% 11.4% 12.4% 12.5% 12.6% 12.6% 12.7% 12.9% 13.0%
Diesel 45.9% 45.3% 45.8% 47.4% 48.4% 49.8% 49.7% 49.9% 50.2% 50.7% 51.2% 51.8%
Black Products 15.6% 14.5% 13.8% 13.7% 13.9% 10.9% 11.1% 11.5% 11.3% 11.2% 11.1% 10.8%
Fuel Oil 9.0% 5.5% 4.6% 4.9% 4.5% 4.3% 3.7% 3.4% 3.2% 3.1% 3.0% 2.7%
Asphalt 6.6% 8.9% 9.2% 8.8% 9.4% 6.6% 7.4% 8.1% 8.1% 8.1% 8.1% 8.0%
Other 5.0% 7.1% 7.6% 5.7% 5.2% 5.3% 5.2% 5.0% 4.9% 4.8% 4.7% 4.7%
Lube Oil 1.0% 1.5% 1.6% 1.2% 0.9% 0.9% 1.0% 0.8% 0.8% 0.9% 0.8% 0.8%
Other 4.0% 5.7% 5.9% 4.5% 4.3% 4.3% 4.2% 4.1% 4.1% 4.0% 3.9% 3.8%
Source: Tupras
Please see the last page of this report for important disclosures.
22
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Tupras Sales Volume Assumptions
Dom. Sales from prod. (0000 tons) 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E
LPG 701 817 827 803 803 900 915 930 930 930 930
Naphta 523 168 239 107 92 564 564 564 564 564 564
Gasoline 1,784 1,810 1,782 1,817 1,833 1,861 1,870 1,879 1,831 1,840 1,849
Jet Fuel 2,484 2,720 3,215 3,414 3,686 3,750 3,853 3,959 4,067 4,184 4,152
Gas Oils 4,637 4,961 6,959 5,303 4,350 7,344 8,539 8,712 9,045 9,189 9,536
Black Products 3,843 3,779 3,792 3,718 2,565 2,870 3,038 2,983 2,974 2,933 2,894
Fuel Oil 1,097 828 983 792 1,192 1,124 1,024 995 972 958 884
Asphalt 2,746 2,951 2,809 2,926 1,945 2,352 2,655 2,666 2,719 2,692 2,726
Others 316 380 266 162 234 282 266 269 274 276 277
Total (000 tons) 14,289 14,635 17,081 15,325 13,562 17,571 19,045 19,296 19,685 19,917 20,202
Import Volume
LPG 125 66 25 0 0 0 0 0 0 0 0
Naphta 30 34 30 30 30 30 30 30 30 30
Gasoline
Jet Fuel 156 94 118 133 146 1613 169 177 186 190 194
Gas Oils 2,076 2,910 1,609 2,809 2,350 2,350 2,350 2,500 2,500 2,500 2,500
Black Products 522 533 438 640 672 706 741 778 817 817 817
Fuel Oil 522 533 438 640 672 706 741 778 817 817 817
Asphalt
Others 1,023 420 60 80 100 100 100 100 100 100 100
Total (000 tons) 3,902 4,053 2,283 3,693 3,298 3,347 3,390 3,585 3,633 3,637 3,641
T. Dom. Sales imp+prod (tons)
LPG 826 883 852 803 803 900 915 930 930 930 930
Naphta 523 198 273 138 122 594 594 594 594 594 594
Gasoline 1,784 1,810 1,782 1,817 1,833 1,861 1,870 1,879 1,831 1,840 1,849
Jet Fuel 2,640 2,815 3,332 3,547 3,832 3,911 4,022 4,136 4,254 4,375 4,346
Gas Oils 6,713 7,871 8,568 8,113 6,700 9,694 10,889 11,212 11,545 11,689 12,036
Black Products 4,365 4,312 4,230 4,358 3,237 3,575 3,779 3,761 3,791 3,750 3,711
Fuel Oil 1,619 1,361 1,421 1,432 1,292 1,224 1,124 1,095 1,072 1,058 984
Asphalt 2,746 2,951 2,809 2,926 1,945 2,352 2,655 2,666 2,719 2,692 2,726
Others 755 857 543 463 334 382 366 369 374 376 377
Total 17,606 18,745 19,581 19,239 16,861 20,917 22,435 22,882 23,319 23,554 23,843
Export Sales (000 tons)
LPG 20 23 25 22 23 0 0 0 0 0 0
Naphta 168 14 17 15 0 0 0 0 0 0
Gasoline 2,010 2,420 2,859 2,772 2,493 3,095 3,184 3,327 3,479 3,576 3,675
Jet Fuel 110 230 119 127 29 752 874 863 851 783 865
Gas Oils 318 163 195 131 100 160 0 0 0 0 0
Black Products 2,330 2,148 2,511 1,725 2,670 3,153 3,045 2,917 2,749 2,619 2,492
Others 7 137 50 4 219 261 284 306 334 363
Total 4,795 5,152 5,860 4,844 5,333 7,379 7,364 7,391 7,386 7,311 7,395
Source: Tupras
Please see the last page of this report for important disclosures.
23
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Tupras Production Assumptions
Capacity 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E
Total Capacity (000 tons) 28,100 28,100 28,100 28,100 28,100 28,100 28,100 28,100 28,100 28,100 28,101
Crude Oil Processed (000 tons) 19,552 20,896 22,118 21,568 20,044 24,370 25,133 25,474 25,784 25,897 26,020
CUR % 70% 74% 79% 77% 71% 87% 89.4% 90.7% 91.8% 92.2% 92.6%
Total Sales (000 tons) 23,265 24,401 26,319 25,051 23,152 29,137 30,557 30,999 31,402 31,548 31,846
Output (000 tonnes)
LPG 685 760 783 794 702 785 800 816 833 849 866
Naphta 795 532 303 146 100 100 100 100 100 100 100
Gasoline 3,809 4,292 4,571 4,573 4,346 4,955 5,055 5,206 5,310 5,416 5,525
Jet Fuel 2,621 2,875 3,293 3,545 3,550 4,502 4,727 4,822 4,918 4,967 5,017
Gas Oils 4,947 5,310 5,560 5,643 5,307 7,504 7,842 8,077 8,320 8,403 8,487
Black Products 5,197 6,172 6,287 5,645 5,403 6,023 6,083 5,900 5,723 5,552 5,385
Others 2,713 826 863 653 482 501 526 553 580 609 640
Total 20,768 20,767 21,661 21,001 19,890 24,370 25,133 25,474 25,784 25,897 26,020
Growth in output
LPG 10.7% 10.8% 3.1% 1.5% -11.7% 11.8% 2.0% 2.0% 2.0% 2.0% 2.0%
Naphta 555.2% -33.0% -43.1% -51.6% -31.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Gasoline -4.9% 12.7% 6.5% 0.0% -4.9% 14.0% 2.0% 3.0% 2.0% 2.0% 2.0%
Jet Fuel 30.8% 9.7% 14.6% 7.6% 0.1% 26.8% 5.0% 2.0% 2.0% 1.0% 1.0%
Gas Oils 4.9% 7.4% 4.7% 1.5% -6.0% 41.4% 4.5% 3.0% 3.0% 1.0% 1.0%
Black Products 27.2% 18.8% 1.9% -10.2% -4.3% 11.5% 1.0% -3.0% -3.0% -3.0% -3.0%
Others -8.7% -69.5% 4.4% -24.3% -26.2% 4.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Yield
LPG 3.3% 3.7% 3.6% 3.8% 3.5% 3.2% 3.2% 3.2% 3.2% 3.3% 3.3%
Naphta 3.8% 2.6% 1.4% 0.7% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Gasoline 18.3% 20.7% 21.1% 21.8% 21.9% 20.3% 20.1% 20.4% 20.6% 20.9% 21.2%
Jet Fuel 12.6% 13.8% 15.2% 16.9% 17.8% 18.5% 18.8% 18.9% 19.1% 19.2% 19.3%
Gas Oils 23.8% 25.6% 25.7% 26.9% 26.7% 30.8% 31.2% 31.7% 32.3% 32.4% 32.6%
Black Products 25.0% 29.7% 29.0% 26.9% 27.2% 24.7% 24.2% 23.2% 22.2% 21.4% 20.7%
Others 13.1% 4.0% 4.0% 3.1% 2.4% 2.1% 2.1% 2.2% 2.3% 2.4% 2.5%
Source: Tupras
Please see the last page of this report for important disclosures.
24
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
Tupras Key Operating Assumptions
2010 2011 2012 2013 2014 E 2015 E 2016 2017 2018 2019 2020
Crude Oil Price (Brent) $/bbl 79.47 111.27 111.58 108.66 98.99 58.00 75.00 70.00 70.00 70.00 75.00
Urals $/bbl 78.01 109.59 110.65 108.28 98.09 57.36 74.18 69.23 69.23 69.23 74.18
Crude Oil Price Discount 1.46 1.68 0.93 0.38 0.90 0.64 0.83 0.77 0.77 0.77 0.83
Tupras Refining Margin 5.87 5.48 5.11 5.27 3.21 5.04 5.22 5.28 5.28 5.37 5.31
Tons (000 tonnes)
Production 20,768 20,767 21,661 21,001 19,890 24,370 25,133 25,474 25,784 25,897 26,020
Total Domestic Sales 17,606 18,745 19,581 19,239 16,861 20,917 22,435 22,882 23,319 23,554 23,843
Sales From Production 13,704 14,692 17,298 15,546 13,562 17,571 19,045 19,296 19,685 19,917 20,202
Imports 3,902 4,053 2,283 3,693 3,298 3,347 3,390 3,585 3,633 3,637 3,641
Exports 2,886 4,147 5,083 4,149 3,920 3,075 3,992 4,045 4,089 4,338 4,434
Revenue (US$ mn)
Sales from production (US$mn) 13,696 18,450 19,731 19,045 15,967 12,870 16,200 15,580 15,796 15,890 16,905
Salesfrom imports (US$mn) 2,513 3,442 1,963 3,166 2,493 1,660 2,049 2,052 2,078 2,080 2,201
Total Sales (US$mn) 16,209 21,891 21,694 22,212 18,460 14,530 18,249 17,632 17,874 17,970 19,107
Core Production Cost (US$ mn) 12,653 17,389 18,626 17,981 15,212 11,670 14,962 14,323 14,521 14,608 15,615
Raw Material Cost 12,424 17,156 18,374 17,738 14,981 11,387 14,670 14,026 14,221 14,305 15,310
Raw Material 78.71 106.90 109.09 109.37 97.48 60.36 75.35 70.94 70.94 70.94 75.45
Crude Cost 76.2 104.4 106.6 106.9 94.8 57.7 72.7 68.2 68.2 68.2 72.8
Others 2.5 2.5 2.5 2.5 2.7 2.7 2.7 2.7 2.7 2.7 2.7
Other Production Cost (US$mn) 228.9 232.7 252.7 243.3 230.5 283.0 292.0 296.6 300.7 302.5 304.4
Other production cost (US$/bbl) 1.45 1.45 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5
Sales from imports
Import volume (000 bbl) 28,963 29,938 16,757 26,965 23,996 24,329 24,621 26,044 26,366 26,395 26,425
Sales (US$mn) 2,513 3,442 1,963 3,166 2,493 1,660 2,049 2,052 2,078 2,080 2,201
Mark-up for imported goods 5% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
COGS 15,283 21,012 20,834 21,357 17,967 13,579 17,233 16,588 16,815 16,887 18,029
Core production cost (US$ mn) 12,653 17,389 18,626 17,981 15,212 11,670 14,962 14,323 14,521 14,608 15,615
Cost of import (US$ mn) 2,387 3,338 1,904 3,087 2,423 1,618 1,998 2,001 2,026 2,028 2,146
Depreciation 113 153 152 133 166 160 164 159 161 144 153
Other Costs 130 131 152 155 166 131 109 106 107 108 115
Gross profit 926 879 860 854 493 951 1,016 1,044 1,059 1,083 1,078
Refining Margin 5.87 5.48 5.11 5.27 3.21 5.04 5.22 5.28 5.28 5.37 5.31
Please see the last page of this report for important disclosures.
25
February 23, 2015
Oil - Refinery
Tupras
RESEARCH
APPENDIX
3Q14 Results - Solid 3Q, positive margins
2014 Tax Financials
Tupras announced TL85mn net loss in its 2014 tax financials versus
TL337mn net profit recorded a year ago. Operational results point to a
US$204mn FX loss in 4Q14 totaling US$236mn FX loss for the whole
year. Refining margin came in as US$4.56 versus US$2.03/bbl refining
margin in 4Q13.
2014 2013 Change
Sales (TL mn) 39,817.0 41,199.7 -3.4% EBIT (TL mn) 859.3 842.348 2.0%
Net Income (before tax) (TL mn) -81.66 336.8 n.m.
Net Income (TL mn) 85.24 - -
Tupras Refining Margin ($/bbl) 4.56 2.03 2.53
Med Refining Margin ($/bbl) 3.84 0.30 3.54
CUR (%) 74.9% 79.1% -4.2 pp
Inventory Gain/(Loss) (US$ mn) (236.80) 93.84 n.m.
Tupras Summary Financials
(mn TL) 3Q13 4Q13 1Q14 2Q14 3Q14 9M13 9M14 3Q14/3Q13 3Q14/2Q14 9M14/9M13
Net Sales 12,167 10,596 9,276 9,598 11,812 30,482 30,686 -3% 23% 1%
Gross Profit 661 335 409 28 600 1,139 1,037 -9% 2018% -9%
Operating Profit 493 125 251 -127 423 649 547 -14% n.m. -16%
EBITDA 553 185 313 -64 488 829 737 -12% n.m. -11%
Net Other Income/Expense -121 -446 21 107 -273 -287 -144 n.m. n.m. n.m.
Financial Inc./ Exp. (net) -1 -15 -63 -69 -36 -95 -169 n.m. n.m. n.m.
Tax 404 437 281 444 249 749 975 -38% -44% 30%
Tax on Income (Expenses) -5 0 -4 2 -1 -6 -3 n.m. n.m. n.m.
Inc. (Exp.) of Deferred Tax 409 438 285 442 250 755 977 -39% -43% 29%
Minority Interests 1 -2 2 3 2 4 7 60% -39% 98%
Net Income 818 114 511 358 377 1,084 1,246 -54% 6% 15%
Net Cash -2,563 -2,859 -4,367 -3,969 -3,642 -2,563 -3,642
Working Capital -813 -1,381 -552 -1,808 -2,646 -813 -2,646
Shareholders Equity 5,016 5,139 5,258 5,616 5,998 5,016 5,998
Ratios
Gross Margin 5.4% 3.2% 4.4% 0.3% 5.1% 3.7% 3.4% -0.4 pp 4.8 pp -0.4 pp
Operating Margin 4.1% 1.2% 2.7% n.m. 3.6% 2.1% 1.8% -0.5 pp n.m. -0.3 pp
EBITDA Margin 4.5% 1.7% 3.4% n.m. 4.1% 2.7% 2.4% -0.4 pp n.m. -0.3 pp
Net Profit Margin 6.7% 1.1% 5.5% 3.7% 3.2% 3.6% 4.1% -3.5 pp -0.5 pp 0.5 pp
Change
Please see the last page of this report for important disclosures.
RESEARCH
26
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 in 12 months.
MARKET PERFORM (MP) The stock's return is expected to be in line with the BIST100 in 12 months.
UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST100 in 12 months.
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RESEARCH