21 February 2005 -

Report Summary

Strictly in line with our expectation, TEB disclosed a BRSA bank only net profit of YTL 33.8 mn (US$ 25.3 mn) year-end 2004. Total asset size of the bank narrowed by 6.3% in real terms in the last quarter of 2004 and decreased to almost US$ 2.7 bn. However, total asset size of the bank increased by almost 10% in real terms on annual basis. When analyzed separately, growth in YTL assets is 9.4% in real terms, while FX denominated assets expanded by 31% in USD terms. The profitability of the bank indicates a significant decline with respect to 2003 year end. ROE and ROA declined from 16.9% and 2.0% to 9% and 1% respectively. Banking profitability of the bank was slightly higher than the 2003 level, while the decline in net earnings stemmed mainly from increased operating expenses and provisions. Beside that, the dividend income from equity participations also declined in 2004. We believe that the positive contribution of BNP-Paribas will provide higher return on equity and asset to TEB. We estimate that the ROE will be around 14% in 2005. Although the net earnings of TEB is lower with respect to 2003, we think that partnership with BNP-Paribas will improve the bank`s profitability in the coming years. With its current market capitalization of US$ 413 mn TEB has 21% upside with respect to our target valuation of US$ 500 mn. At its 2004 P/book of 1.40X, we maintain our “Buy” recommendation for the stock.

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