Download Turkish Telcos-Mobile data growth powering up

abc
Telecom, Media and Technology
CEEMEA
Global Research
Turkish Telcos
Mobile data growth powering up
 Mobile segment to remain the key
growth driver; mobile data to drive
the growth
Target prices and ratings
 Fixed line growth driven by Fixed
broadband for Turk Telekom
Turk Telekom
Turkcell
Ticker
Curr
CP
Old New
TP TP
TTKOM.IS
TKC.N
TRY
USD
6.68
15.18
6.8 7.2
18.5 19.0
Rating Pot ret
(%)*
N
OW
8
25%
Potential return equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated.
Priced at close on 7 November 2013
Source: HSBC estimates
8 November 2013
Herve Drouet*
Analyst
HSBC Bank Plc
+44 20 7991 6827
[email protected]
Levent Bayar*
Analyst
HSBC Yatrim Menkul Degerler A.S.
+90 212 376 46 17
[email protected]
Venkata Velagapudi*
Associate
Bangalore
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/qualified pursuant to FINRA regulations
Issuer of report: HSBC Bank plc
Disclaimer & Disclosures
This report must be read with the
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, which forms part of it
 We raise DCF-based TP to USD19.0
from USD18.5 and remain OW for
Turkcell and raise TP to TRY7.2 from
TRY6.8 and stay N for Turk Telekom, on
higher estimates for both
Mobile segment growth to be driven by mobile data: The
good Q3 2013 results have confirmed our bullish view on
Turkcell’s strong fundamentals. Its mobile broadband and
services revenue grew by 19% y-o-y. The contribution of
mobile broadband and services revenue to domestic mobile
revenue increased to 30% (compared to 26% in Q3 2012).
We expect Turkcell’s strategy of promoting smartphone
adoption by launching innovative devices at affordable
prices to continue to bear fruit. In Q3, Turkcell recorded
historically its highest net smartphone additions of 882k on
its network. Given the current smartphone penetration of
26% on Turkcell’s network, we see further scope for
improvement in growing smartphone penetration.
Fixed voice decline to be offset by fixed broadband for
Turk Telekom: We expect the fixed line segment’s growth
to be driven by fixed broadband, ICT and corporate data. We
expect fixed broadband revenues to grow by 10% y-o-y for
FY13 and at a higher single-digit growth rate over the
medium term given the potential for a rise in broadband
penetration and Turk Telekom’s good fibre network and
coverage to leverage the rising BB penetration. We expect
margin dilution due to slowing non-core fixed line services
and an overall gradual fixed line margin improvement driven
by improving monetising capability of fixed broadband.
Valuation: On Turkcell we raise our target price to USD19.0
from USD18.5 and remain Overweight. For Turk Telekom we
raise our target price to TRY7.2 from TRY6.8 and stay
Neutral. We use a cost of equity of 15% (unchanged) for both
the operators. Our higher target prices are driven by our higher
earnings estimates for both operators.
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
Financials & valuation: Turkcell
Overweight
Financial statements
Year to
Key forecast drivers
12/2012a
12/2013e
12/2014e
12/2015e
Profit & loss summary (TRYm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
10,507
3,212
-1,517
1,694
467
2,553
2,486
-524
2,050
1,943
11,446
3,589
-1,509
2,080
507
2,930
2,850
-600
2,337
2,246
12,226
3,979
-1,530
2,449
394
3,107
3,107
-644
2,443
2,443
13,288
4,546
-1,593
2,953
194
3,410
3,410
-702
2,688
2,688
Cash flow summary (TRYm)
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
2,130
-1,750
543
-15
-1,235
1,357
1,885
-1,735
-1,171
0
-391
1,763
3,772
-1,815
-1,815
-4,824
2,868
1,913
4,093
-1,935
-1,935
-2,016
-143
2,101
2,872
5,588
10,211
6,918
19,334
-1,974
2,571
-4,347
14,302
13,726
2,872
5,872
7,468
4,051
17,140
-2,141
2,571
-1,480
11,921
14,303
2,872
6,214
7,781
4,194
18,057
-2,366
2,571
-1,623
12,593
15,040
Year to
12/2012a
12/2013e
12/2014e
12/2015e
52.0
11.6
4,855
50.7
11.2
4,764
50.0
11.8
5,115
49.4
12.3
5,578
Turkcell market share (Turkey)
Turkey ARPU (USD)
Turkey service revenue (USDm)
Valuation data
Year to
12/2012a
12/2013e
12/2014e
12/2015e
1.8
5.9
1.4
14.0
2.1
5.9
0.0
1.6
5.2
1.4
12.1
1.9
7.6
0.0
1.7
5.3
1.5
11.1
2.3
8.5
17.8
1.6
4.6
1.4
10.1
2.2
9.3
7.4
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Balance sheet summary (TRYm)
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
2,946
5,457
9,775
6,999
18,688
-2,253
3,042
-3,957
12,904
13,432
Issuer information
Share price
(USD)
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
15.18
TKC.N
13,358
35
Turkey
Herve Drouet
Target price
(USD)
19.00
Bloomberg (Equity)
TKC US
Market cap (USDm)
13,358
Enterprise value (TRYm)
18,703
Sector
Wireless Telecoms
Contact
44 20 7991 6827
Price relative
Ratio, growth and per share analysis
Year to
12/2012a
12/2013e
12/2014e
12/2015e
12.1
9.8
48.9
50.6
25.2
8.9
11.7
22.8
14.8
15.6
6.8
10.9
17.7
6.0
8.8
8.7
14.2
20.6
9.8
10.0
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
19
18
17
16
15
14
13
12
11
10
9
2011
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
0.8
10.9
16.5
12.3
30.6
16.1
0.8
12.0
16.5
12.8
31.4
18.2
0.9
13.9
18.6
13.9
32.5
20.0
0.9
16.0
21.9
15.8
34.2
22.2
-31.0
-1.2
-30.8
-1.2
-12.6
-0.4
-13.0
-0.4
2.33
2.21
0.00
14.66
2.66
2.55
0.00
16.25
2.78
2.78
5.48
13.55
3.05
3.05
2.29
14.31
Per share data (TRY)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
2
2012
Turkcell
Ratios (%)
Source: HSBC
Note: price at close of 07 Nov 2013
2
5
.
2
2013
Rel to ISTANBUL COMP
19
18
17
16
15
14
13
12
11
10
9
2014
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
Financials & valuation: Turk Telekom
Neutral
Financial statements
Year to
Key forecast drivers
12/2012a
12/2013e
12/2014e
12/2015e
Profit & loss summary (TRYm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
12,706
5,096
-1,697
3,399
-225
3,366
3,016
-773
2,636
2,299
13,465
5,147
-1,755
3,392
-282
2,247
3,103
-517
1,762
2,662
14,457
5,632
-1,792
3,841
-424
3,416
3,416
-683
2,719
2,719
15,500
6,145
-1,860
4,285
-381
3,904
3,904
-781
3,123
3,123
Cash flow summary (TRYm)
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
3,579
-2,435
-1,972
-1,897
718
1,659
3,703
-2,234
-1,970
-2,414
1,888
2,067
4,629
-2,294
-2,294
-1,621
-714
2,168
5,022
-2,384
-3,209
-2,502
689
2,540
4,296
8,687
4,803
800
18,236
-4,535
7,737
6,937
4,169
21,522
4,296
9,190
5,002
800
18,937
-5,719
7,023
6,223
4,387
23,406
4,623
9,714
5,211
800
19,997
-6,337
7,713
6,913
4,637
25,085
Year to
12/2012a
12/2013e
12/2014e
12/2015e
89.8
3,475
486
41.7
9,590
4,614
90.0
3,925
634
44.3
9,952
4,512
94.8
4,468
875
46.8
10,393
4,758
99.2
5,114
1,150
49.1
10,820
4,995
Mobile penetration (%)
Mobile revenue (TRYm)
Mobile EBITDA (TRYm)
Broadband HH penetration (%)
Fixed line revenue (TRYm)
Fixed line EBITDA (TRYm)
Valuation data
Year to
12/2012a
12/2013e
12/2014e
12/2015e
2.3
5.6
1.5
10.2
3.6
7.0
10.3
2.3
6.0
1.4
8.8
5.6
8.7
6.9
2.1
5.3
1.3
8.6
5.3
9.1
10.7
2.0
5.0
1.2
7.5
5.0
10.7
12.3
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Balance sheet summary (TRYm)
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
4,099
8,316
4,367
961
17,208
-2,947
6,010
5,049
6,455
18,767
Issuer information
Share price
(TRY)
Reuters (Equity)
Market cap (USDm)
Free float (%)
Country
Analyst
6.68
TTKOM.IS
11,493
13
Turkey
Herve Drouet
Target price
(TRY)
7.20
7
.
8
Bloomberg (Equity)
TTKOM TI
Market cap (TRYm)
23,380
Enterprise value (TRYm)
30,693
Sector
Diversified Telecoms
Contact
44 20 7991 6827
Price relative
Ratio, growth and per share analysis
Year to
12/2012a
12/2013e
12/2014e
12/2015e
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
6.4
0.4
-2.9
29.0
-7.6
6.0
1.0
-0.2
-33.2
15.8
7.4
9.4
13.2
52.0
2.2
7.2
9.1
11.6
14.3
14.8
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
2011
Turk Telekom
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
2012
0.7
13.9
37.6
17.5
40.1
26.8
22.7
72.9
1.0
70.9
0.7
14.3
50.1
13.2
38.2
25.2
18.3
149.1
1.3
53.4
0.6
13.7
63.6
16.7
39.0
26.6
13.3
127.4
1.1
74.4
0.6
14.1
69.2
17.8
39.6
27.6
16.1
149.1
1.1
72.6
0.75
0.66
0.69
1.84
0.50
0.76
0.46
1.19
0.78
0.78
0.71
1.25
0.89
0.89
0.82
1.32
2013
5
2014
Rel to ISTANBUL COMP
Source: HSBC
Note: price at close of 07 Nov 2013
Per share data (TRY)
EPS Rep (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
3
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
Mobile segment remains the
key growth driver
Mobile broadband and services to
grow rapidly
The good Q3 results have confirmed our bullish
view on Turkcell’s strong fundamentals. Mobile
revenue growth was impacted negatively by
regulatory decisions such as voice and SMS MTR
cuts and the rise in minimum on-net tariffs
effective from 1 July 2013. Turkcell Turkey
revenue grew by 3% y-o-y (7% excluding MTR
cuts), largely driven by growing mobile
broadband and services revenue. Mobile
broadband and services revenue grew by 19%
y-o-y. The contribution of mobile broadband and
services revenue to domestic mobile revenue
increased to 30% (compared to 26% in Q3 2012).
We expect the rapidly growing smartphone
penetration to drive the higher mobile broadband
and services growth. Turkcell’s strategy of
promoting smartphone adoption by launching
innovative devices at affordable prices continues
to bear fruit. In Q3, Turkcell recorded historically
its highest net smartphone additions of 882k on its
network. Given the current smartphone
penetration of 26% on Turkcell’s network, we see
strong potential for improvement in growing
smartphone penetration.
Smartphone penetration driving mobile internet growth
10,000
8,000
35%
Mobile revenue as % of total
15%
12%
4,000
Avea EBITDA Margin
25%
20%
15%
Source: Company data, HSBC calculations
Source: Company data, HSBC calculations
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
5%
Sep-11
Jun-13
Sep-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Jun-11
Sep-11
Mar-11
6%
Jun-11
0
10%
Mar-11
9%
2,000
4
The competitive intensity peaked earlier this year
with all-time lowest prices in H1 2013 due to
aggressive pricing by Avea and Vodafone Turkey
with increased all direction minutes and bundled
offers. We observe that in Q3, all the operators
showed some improvement in pricing by either
eliminating some aggressive tariff plans or by
raising the tariffs on existing plans. We had
30%
Mobile internet as % of
service revenue
6,000
Gradually moving away from price
war
Turk Telekom: Growing Avea contribution to top line;
improving mobile margins
18%
Smartphones (000s)
Avea, the mobile segment of Turk Telekom,
continues to grow strongly despite MTR cuts
effective from H2 2013. The mobile segment’s
revenue grew by 7% y-o-y, largely driven by
mobile broadband and services. Excluding the
MTR cut impact, mobile revenue would have
continued to grow at a double-digit growth rate of
above c17%. EBITDA grew by 36% y-o-y in Q3
2013 and EBITDA margin reached c18%
(compared to 14% in Q3 2012). Given Avea’s
significantly lower EBITDA margins compared to
industry peers, we see scope for improvement in
the EBITDA margin. We expect it to reach 25%
by 2016 compared to 15-16% currently. We
expect Avea’s contribution to group EBITDA to
rise to above c20% by 2016 compared to below
c10% currently.
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
Turkish telcos: mobile subs market share
Turkish telcos: Mobile EBITDA margins
60%
40%
50%
30%
40%
Vodafone Turkey
Turkcell
Avea
Source: Company data, HSBC calculations
Vodafone Turkey
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Mar-11
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Turkcell
Jun-12
0%
0%
Mar-12
10%
Dec-11
10%
Sep-11
20%
Jun-11
20%
30%
Avea
Source: Company data, HSBC calculations
already anticipated this in our previous research
Turkish Telcos: Regulatory Hurdles, 13 May
2013, and expect competitive pressure to ease
slightly in H2.In the chart below, we see the
slower decline or slight increase in APPM trends
in H2 the year.
We expect the market gradually to move away
from a price war over the medium to long term.
Post the acquisition of Vodafone’s US stake by
Verizon for USD130bn, we do not expect
Vodafone Turkey to change its strategy in Turkey
towards profitable growth. We believe it is in the
interest of all the operators to engage in rational
competition and a price war is unsustainable over
the long run. Given the still low EBITDA margins
of Turkish mobile operators compared to
CEEMEA peers, we see scope for margin
improvement once the price war gradually fades.
The tax burden of the telecommunication tax
should also ease gradually as an increasing
portion of the revenue comes from data that is
taxed at half the rate of voice revenues. We expect
the recent amendment to Turkey’s consumer law,
which now allows comparative commercials as
long as the figures are correct and honest, to
improve Turkcell’s competitive edge in mobile
segment further. For example, Turkcell can now
highlight its fastest 3G speed with a chart which
shows the 3G speeds of other players as well
(source: http://www.zaman.com.tr).
Turkish Telcos: APPM (in kurus)
Turkish Telcos: Mobile ARPU (TRY)
11
24
23
9
22
21
7
20
19
Source: Company data, HSBC calculations
Turkcell
Vodafone Turkey
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Avea
Jun-11
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Vodafone Turkey
18
Mar-11
Turkcell
Dec-11
Sep-11
Jun-11
Mar-11
5
Avea
Source: Company data, HSBC calculations
5
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
23.0
Fixed broadband offsetting the decline in fixed voice
7,500
ADSL subs(000's)
ADSL ARPL (TRY)
15,000
22.5
7,000
14,000
22.0
6,500
13,000
21.5
6,000
12,000
21.0
5,500
Source: Company data, HSBC calculations
We expect the decline in fixed voice segment to
be offset by the growing fixed broadband, ICT
and corporate data for Turk Telekom. Overall the
top line grew by 5% y-o-y in Q3 2013, mainly
driven by 8% y-o-y growth in fixed broadband
and growth in non-core fixed line services like
ICT, corporate data, etc by 25% y-o-y. Given the
currently low broadband penetration in Turkey
(c42%) compared to the European level of around
60% and the high expected growth rate of
Turkey’s per capita GDP, we expect broadband
penetration to continue to grow over the near
term. Rising broadband penetration will benefit
Turk Telekom proportion of non-core fixed line revenue
growing
100%
31%
23%
26%
28%
28%
32%
80%
34%
PSTN
32%
ADSL
32%
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
34
31%
36%
Turk Telekom the most given its superior
coverage and fibre network advantages over
peers. We expect fixed broadband revenue to
grow by 10% y-o-y for FY13 and at a higher
single-digit growth rate over the medium term
during 2013-16.
We expect margin dilution in the fixed line
segment as we expect the rise in the proportion of
revenue from non-core fixed line services to slow.
We calculated the implied EBITDA margin for
non-core fixed line services over the last six
quarters by assuming the EBITDA margin from
core-fixed line services at around 49%. Based on
our calculations, EBITDA margin for non-core
fixed line services segment is in the range of
9-12%. The proportion of non-core fixed line
services out of the total fixed line services grew to
Turk Telekom: Fixed line margin and implied margin of noncore fixed line services
60%
Overall Fixed line
Non core fixed line
50%
Other
40%
34%
40%
33%
30%
20%
20% 44%
40%
40%
37%
38%
35%
33%
10%
Source: Company data, HSBC estimates
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Source: Company data, HSBC calculations
Mar-12
0%
0%
6
36
Source: Company data, HSBC calculations
More momentum for Turk
Telekom’s fixed line
segment’s growth thanks to
fixed broadband and ICT
60% 33%
40
38
Jun-11
Jun-13
Sep-13
Mar-13
Dec-12
Sep-12
ARPL (TRY)
Jun-12
Mar-12
Dec-11
Jun-11
Sep-11
Mar-11
PSTN Access lines
Mar-11
Fixed voice on structural decline
16,000
abc
Telecom, Media and Technology
CEEMEA
8 November 2013
34% from 23% over the last six quarters. Given
the already high proportion of non-core fixed line
services, we expect the growth in the proportion
of non-core fixed line services to slow down and
to grow to c43% over the next 10 years, which
implies a slower margin dilution due to non-core
fixed line services. We expect the overall margin
for fixed line to improve gradually considering the
improving monetising capability on the fixed
broadband side and eroding impact of non-core
fixed line services.
Dividend payment in 2014 for
Turkcell
We expect the long-awaited dividend payment to
happen in H1 2014. Turkcell has been unable to
pay dividends since 2010 due to the deadlock over
the shareholder dispute between Cukurova and
Altimo. The AGM (annual general meeting) was
cancelled twice earlier this year due to a lack of
mandatory quorum. Later, Turkey’s Capital
Markets Board (CMB) intervened to impose two
more new directors in addition to the three
independent directors it appointed in March 2013.
To hold a General Assembly at least five directors
need to be present, and we expect the number of
directors to be sufficient to hold an AGM now.
However, the key issue, as we mentioned in our
report Turkcell: All about a dividend decision,
12 June 2013, is the presence of major
shareholder Turkcell Holding and both Cukurova
and Altimo at the AGM. Thus, Altimo still has the
power of veto to block the AGM until it resolves
the dispute with Cukurova.
We expect Cukurova to repay the debt to Altimo
soon, which would pave the way for a resolution
of the shareholder dispute. The key trigger date
will be the decision on the appeal of Cukurova
against TeliaSonera in the New York court
(expected in January 2014). Post this decision,
Cukurova would have 60 days to find financing
and pay Altimo the amount already defined by the
Privy court council in London. Following the
transaction, we believe the incentive for Cukurova
to return Turkcell cash to shareholders will be
very high in order to repay its own financing. We
expect a cumulative dividend payment of
cTRY3bn related to FY10, FY11 and FY12 to
happen in H1 2014. Given the cash balance of
over TRY7bn on Turkcell’s balance sheet, we
expect a dividend of cTRY1.5bn related to FY13
to happen in FY14.
Valuation and risks
Change in estimates
We have updated our financial models following the
Q3 2013 results. We have slightly increased our top
line and earnings estimates for Turkcell considering
the higher-than-expected Q3 results. We expect
Turkcell to achieve FY13 results slightly higher than
the upper band of management guidance. For Turk
Telekom we have not made significant changes to
our top-line estimates. We have increased our
margin estimates slightly given the slower-thanexpected decline in the fixed line segment and
growing mobile margins.
Turkcell
We raise our DCF-based target to USD19.0 from
USD18.5 per ADS. We use a cost of equity of 15%,
a risk-free rate of 5.5%, beta of 1 and market risk
premium of 9.5% (all unchanged). Our higher target
price is driven by our slightly higher estimates.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppt above
and below the hurdle rate for Turkish stocks of
12.5%. Our target price of USD19.0 implies a
potential return of c25%, which is above the Neutral
band of our model; therefore, we are reiterating our
Overweight rating on Turkcell. Potential return
equals the percentage difference between the current
share price and the target price, including the
forecast dividend yield when indicated.
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Downside risks, in our view, relate to regulatory
and domestic competitive risks, which may put
pressure on Turkcell’s margins and growth
prospects. Lower-than-expected dividends and
weak macroeconomic prospects for Turkey and
Ukraine are other downside risks.
Turk Telekom
We raise our DCF-based TP to TRY7.2 from
TRY6.8. We use a cost of equity of 15 %, a
risk-free rate of 5.5%, equity risk premium of
9.5% and beta of 1 (all unchanged). Our higher
target price is driven by our higher margin
estimates over the medium term.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppt above
and below the hurdle rate for Turkey stocks of
12.5%. Our target price of TRY7.2 implies a
potential return of c8%, which is within the
Neutral band of our model; therefore, we rate the
stock Neutral. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
8
The key upside risks are positive developments in
currency movements against the US dollar, the
extent of competition in the mobile segment and
the extent of regulatory interference. Other upside
risks, in our view, include lower-than-expected
inflation, higher-than-expected dividends, high
growth in subscriber acquisitions, higher-than
expected mobile ARPU and broadband ARPL,
brisk IPTV uptake and a delay in the entry of
competition in the fixed-line mass market.
Key downside risks to our valuation are
weaker-than-expected TRY versus USD and
EUR, higher-than-expected inflation in Turkey,
lower-than expected dividends and higher-thanexpected competitive intensity. In the near term,
the share price could be capped by potential share
overhang from the state’s planned secondary
offering of its 7% stake before the end of the year.
Telecom, Media and Technology
CEEMEA
8 November 2013
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Herve Drouet and Levent Bayar
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.
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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 08 November 2013, the distribution of all ratings published is as follows:
Overweight (Buy)
45%
(33% of these provided with Investment Banking Services)
Neutral (Hold)
37%
(34% of these provided with Investment Banking Services)
Underweight (Sell)
18%
(27% of these provided with Investment Banking Services)
Share price and rating changes for long-term investment opportunities
Recommendation & price target history
Turkcell (TKC.N) Share Price performance USD Vs HSBC rating history
From
Neutral
Target Price
29
24
19
14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
9
To
Date
Overweight
Value
08 January 2013
Date
16.60
16.20
12.60
14.50
13.30
15.30
17.00
19.50
16.80
18.50
04 March 2011
05 May 2011
08 September 2011
24 November 2011
19 March 2012
17 August 2012
22 October 2012
08 January 2013
02 September 2013
08 October 2013
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
Price 9
Price 10
Source: HSBC
Source: HSBC
Turk Telekom (TTKOM.IS) Share Price performance TRY Vs HSBC rating
Recommendation & price target history
history
From
Underweight
Target Price
10
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
9
8
7
6
Source: HSBC
5
4
Source: HSBC
10
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
3
To
Date
Neutral
Value
12 March 2013
Date
6.80
7.10
6.50
7.30
8.50
6.80
11 February 2011
24 November 2011
19 March 2012
12 March 2013
13 May 2013
02 September 2013
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Telecom, Media and Technology
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8 November 2013
HSBC & Analyst disclosures
Disclosure checklist
Company
TURK TELEKOMUNIKASYON AS
Ticker
Recent price
Price Date
Disclosure
TTKOM.IS
6.68
08-Nov-2013
2, 5, 6, 7
Source: HSBC
1
2
3
4
5
6
7
8
9
10
11
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
As of 30 September 2013 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of investment banking services.
As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
As of 30 September 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-securities services.
A covering analyst/s has received compensation from this company in the past 12 months.
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
Additional disclosures
1
2
3
This report is dated as at 08 November 2013.
All market data included in this report are dated as at close 07 November 2013, unless otherwise indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
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price sensitive information is handled in an appropriate manner.
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Disclaimer
* Legal entities as at 8 August 2012
Issuer of report
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HSBC Bank plc
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Telephone: +44 20 7991 8888
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Global Telecoms, Media & Technology
Research Team
Global
Stephen Howard
Analyst, Global Sector Head
+44 20 7991 6820
[email protected]
Asia
Tucker Grinnan
Analyst
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Analyst
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Analyst
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