For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

TURKEY– Retail

May 17, 2021

ŞOK Marketler

Company Data

Price Performance

Research: +90 (212) 700-3769 research@infoyatirim.com.tr Institutional Sales: +90 (212) 700-3770 cenkerdal@infoyatirim.com.tr

INFO Research Team

Valuation

Initiating with Hold on with fair valuation. We are initiating SOK Marketler, the national soft discounter, with a Hold rating. We acknowledge SOK’s good growth and turnaround story which saw the company pay off debts, post a net profit and announce first dividends. For now though, we think the share price fairly reflects this outcome, and we do not find sufficient upside based on our DCF. Furthermore, we think the retailer does not look cheap even on our above consensus 2022E net income. We set our 12-month price target at TL15.45 which implies 29% potential upside.

One-stop-shop experience with convenience. Following its acquisition by food conglomerate Yildiz Holding, SOK redefined its business model in 2015 with a new store concept and organic growth model. The retailer positions itself with a “one-stop-shop” experience that aims to satisfy core consumer needs at the nearest location. Expanding its number of stores by a CAGR of 18% since 2012, it currently has the third largest network with 8,145 stores and 31 warehouses nationally, after A101 and BIM. In 2020, SOK posted TL 21.4bn of sales with 9.8% EBITDA margin posting a net profit of TL 273m. The retailer employs 35k people.

Going online. Responding to the pandemic, SOK launched its online sales in 2020, servicing customers from individual stores with electric vehicles. The customers are able to order from a mobile app, online or by calling which is a unique model according to management. The product coverage is extensive with the same in-store prices, but requires a minimum order of TL 50 which compares favourably to the SOK’s TL 27.6 like-for-like basket size in stores. Targeting to run a nimble operation, SOK is currently employing less than 300 personnel for the entire model. Given the minimum order requirement and low capex, management is adamant that the operation in profitable and offers good returns.

A turnaround story with improvement all around. Following its IPO in 2018, SOK quickly paid its bank debts and now enjoys a healthy balance sheet with a manageable 0.6x Net debt/EBITDA. In terms of profitability, 2020 was also a watershed as the retailer posted its first ever net profit that was supported by a profit before taxes. Remarkably, management also announced its first dividends amounting to 29% pay out ratio and 1% dividend yield.

Shareholder overhang. SOK’s turnaround has been impressive, but also well noted. In fact, the shares are trading at 22x and 15x consensus earnings for 2021E/22E respectively, which is above the industry bellwether BIMAS. At the same time, SOK’s operating and share price performance is captive to its financial shareholder base (12%) which will likely cash out when the opportunity arises.

Not cheap on our bullish estimates. Given the ongoing pandemic conditions into Q2, we think we may see industry-wide upside to management expectations later in the year as the expected “normalisation” gets pushed forward. On that account, we project above consensus top-line growth for SOK which results in 2021E/22E earnings on average 40% above consensus. Even with such bullish outlook, SOK does not look particularly cheap compared to peers. Therefore, we are initiating with a Hold rating.

Turnaround priced in

Source: INFO RESEARCH estimates

Source: Company data, INFO RESEARCH estimates

0.0

0.4

0.8

1.2

1.6

5

7

9

11

13

15

17

2018

2018

2018

2019

2019

2019

2019

2020

2020

2020

2020

2021

SOKM share pricerelative to BIST-100

SOKM Relative to BIST-100(18 May 2018=100)

Stock Ticker SOKM

Stock Rating HOLD

Price Target 15.40

Up/downside to PT 29%

Share Price 11.95

52-week range (TL) 11.0 -12.0

No.of shares (mn) 612

Free Float 36%

MCAP (TL mn) 7,313

MCAP (USD mn) 882

EV (TL mn) 8,453

EV (USD mn) 1,015

Net Debt (USD mn) 152

3M ADV (USD mn) 17

3M ADV/FF MCAP (%) 5.4%

LTM Dividend Yield (%) 0.0%

2020 21E 22E 23E

P/E (x) 26.8 15.5 10.1 6.2

EV/EBITDA (x) 4.1 3.5 2.7 2.1

EV/Sales (x) 0.4 0.3 0.3 0.2

Div. yield (%) 1.1 1.9 7.0 11.4

SOKM 2018 2019 2020 2021E 2022E 2023E

Net Income (TL mn) 67 -299 273 472 726 1,186

Consensus Net Income (TL mn) 67 -299 273 317 493 692

Revenue (TL mn) 12,061 16,052 21,354 26,710 34,244 42,508

EBITDA (TL mn) 630 1,470 2,099 2,479 3,180 4,118

Net Debt/EBITDA (x) -0.11 1.12 0.61 0.50 0.19 0.03

HOLDPrice: TL11.95

Price Target: TL15.45

2

May 17, 2021

Exhibit 1. Financial Summary

Source: Company data, INFO RESEARCH estimates

Income Statement Financial Analysis(TL mn) 2020 2021E 2022E 2023E 2020 2021E 2022E 2023E

Net Sales 21,354 26,710 34,244 42,508 Growth (%)

Cost of Sales -16,318 -20,512 -26,299 -32,519 Sales 33.0 25.1 28.2 24.1

Gross profit (loss) 5,036 6,198 7,945 9,989 EBIT 60.8 26.5 27.6 35.7

Operating Expenses -3,634 -4,424 -5,682 -6,918 EBITDA 42.8 18.1 28.3 29.5

Core EBIT 1,402 1,774 2,263 3,071 Net Profit -191.3 73.2 53.9 63.2

Inc.& Exp. from Other Operations -553 -635 -814 -1,011 Margins (%)

Reported EBIT 849 1,139 1,448 2,060 Gross Margin 23.6 23.2 23.2 23.5

Financial Income/Expenses -577 -579 -588 -512 EBITDA Margin 9.8 9.3 9.3 9.7

Interest Expense 0 0 0 0 EBIT Margin 6.6 6.6 6.6 7.2

Other Financial Inc/Exp -521 -528 -523 -431 Net Margin 1.3 1.8 2.1 2.8

Other income 22 -3 -3 -4 Efficiency

PBT from continuing operations 294 557 857 1,544 Receivables Days 2 2 2 2

Tax on Continuing Operations -22 -84 -129 -355 Inventory Days 38 38 36 35

Profit from continuing operations 272 473 728 1,189 Payables Days 89 90 90 90

Net Profit 273 472 726 1,186 Opex/Net Sales (%) 17.0 16.6 16.6 16.3

EBITDA 2,099 2,479 3,180 4,118 Profitability (%)

ROA 3.5 5.2 6.3 8.5

Balance Sheet ROE 107.7 73.0 58.9 62.0

(TL mn) 2020 2021E 2022E 2023E ROIC 51.0 51.3 67.3 78.2

Current Assets 3,377 3,843 5,257 6,403 Leverage (x)

Cash and Marketable Securities 1,149 1,535 2,442 3,010 Asset/Equity 30.66 14.01 9.32 7.30

ST Trade and Related Receivables 117 146 188 233 Net Debt/Equity 5.09 1.92 0.48 0.06

Inventories 2,090 2,136 2,594 3,118 Net Debt/EBITDA 0.61 0.50 0.19 0.03

Other Short-Term Assets 21 26 34 42

Long Term Assets 4,385 5,218 6,242 7,575 Key Operating IndicatorsFixed Assets 3,468 4,241 5,180 6,420 2020 2021E 2022E 2023E

Intangible Assets 692 696 701 707 Like-for-like sales (store/per day) 8,041 9,217 9,968 11,407

LT Receivables 28 34 44 55 change, yoy 15% 15% 8% 14%

Other Long-Term Assets 198 247 317 393 Like-for-like basket 23.5 27.6 29.5 33.4

Total Assets 7,762 9,062 11,499 13,978 change, yoy 42% 17% 7% 13%

Short Term Liabilities 5,746 6,359 7,966 9,659 Like-for-like customer 342 334 338 341

ST Financial Payables 778 845 898 916 change, yoy -20% -2% 1% 1%

ST Trade and Other Payables 4,604 5,058 6,485 8,018 Number of stores* 8,145 9,106 9,926 10,720

Other Short-Term Liabilities 364 455 584 725 change, yoy 13% 12% 9% 8%

Long Term Liabilities 1,762 2,057 2,302 2,411 * Including Sok Mini

LT Financial Payables 1,660 1,929 2,139 2,210

Other Long-Term Liabilities 101 126 161 200 Key macro assumptions Equity 253 647 1,233 1,914 2020 2021E 2022E 2023E

Total Paid-in Capital 612 612 612 612 GDP growth, real 1.8% 4.0% 3.0% 3.0%

Treasury Stock -181 -181 -181 -181 CPI 14.6% 13.5% 11.0% 10.0%Accumulated Profıt/Loss 402 796 1,382 2,063 USDTL, ave 7.86 8.02 7.91 8.80

Reserves and Other Items -580 -580 -580 -580 USDTL, eop 7.42 8.40 9.20 9.98

Total Liabilities and Sh. Equity 7,762 9,062 11,499 13,978

Cash Flow Statement(TL mn) 2020 2021E 2022E 2023E

Earnings before Adjustments 272 472 726 1,186

Depreciation and Amortization 698 705 918 1,047

Other Adjustments 635 547 549 460

Changes in Working Capital 544 465 1,048 1,097

Cash Flow from Operating Activities 2,149 2,189 3,241 3,789

Investing Cash Flow -493 -654 -892 -1,097

Capital Expenditures (CapEx) -517 -605 -822 -1,020

Cash from Other Invesment Operations 25 -50 -70 -76

Financing Cash Flow -939 -1,148 -1,443 -2,124

Changes in Financial Debt 0 0 0 0

Net Cash from Capital Increase /(Decrease) 0 0 0 0

Dividends Paid 0 -80 -142 -508

Cash from Other Financing Operations -939 -1,068 -1,301 -1,615

3

May 17, 2021

Valuation

We value SOK with a DCF valuation utilising our free cash flows to equity (FCFE) estimates. The key valuation assumptions are as follows:

1) Risk-free rate of 18%, in the range of current 10-yr Turkish government bonds,

2) Equity risk premium of 7%, a higher rate compared to 5.5-6.0% we use to compensate for market volatility and perceived risks,

3) Stock beta of 0.80 based on the trading history starting from the IPO date, May 2018,

4) Terminal growth rate of 12.3% which is in line with our nominal GDP growth assumption in the terminal year,

5) Capex as % of sales halving at the end of forecast period from 2.4% in initial years, in line with our assumption of slower growth.

SOK is currently trading at 15.5x of our 2021E net income estimate which is 40% above consensus estimates.

Exhibit 2. SOKM DFC Valuation

Source: Company data, INFO RESEARCH estimates

TL mn 2020A 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Revenues 21,354 26,710 34,244 42,508 51,449 61,253 71,548 82,374 94,380 107,599 122,067

Growth rate 33% 25% 28% 24% 21% 19% 17% 15% 15% 14% 13%

EBITDA 2,099 2,479 3,180 4,118 4,989 5,946 6,952 8,004 9,171 10,456 11,861

EBITDA margin 9.8% 9.3% 9.3% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7%

Net income 273 472 726 1,186 1,598 2,017 2,334 2,628 2,937 3,266 3,618

Net margin 1.3% 1.8% 2.1% 2.8% 3.1% 3.3% 3.3% 3.2% 3.1% 3.0% 3.0%

+ Depreciation & amortisation 698 705 918 1,047 1,208 1,436 1,771 2,157 2,593 3,070 3,581

- Capex -517 -605 -822 -1,020 -1,183 -1,348 -1,431 -1,565 -1,510 -1,506 -1,465

Capex /Revenues 2.4% 2.3% 2.4% 2.4% 2.3% 2.2% 2.0% 1.9% 1.6% 1.4% 1.2%

- Change in working capital 544 465 1,048 1,097 1,125 1,234 1,296 1,363 1,511 1,664 1,821

+ Net debt issued/(paid) 0 0 0 0 0 0 0 0 0 0 0

- Adjustment for financial leases -418 -540 -778 -1,184 -1,582 -2,023 -2,421 -2,829 -3,266 -3,729 -4,216

Free cash flow to equity (FCFE) 579 497 1,092 1,125 1,167 1,316 1,549 1,754 2,265 2,764 3,339

Discount factor 0.88 0.71 0.57 0.46 0.38 0.30 0.25 0.20 0.16 0.13

DCF for projected period 5,118 435 773 645 541 494 470 431 450 444 434

DCF for perpetuity 4,332

Equity value 9,449

Implied Price Target (PT) 15.4

Potential upside 29%

WACC

Risk free rate 18.0%

Beta 0.80

Equity risk premium 7.0%

Cost of equity 23.6%

Cost of debt, after tax 15.0%

Capitalisation rate 75.0%

WACC 17.2%

Terminal growth rate 12.3%

Market capitalisation (TRY m) 7,313

+ Latest net debt 1,269 + Minority interest 1Current EV 8,583

4

May 17, 2021

Exhibit 3. SOKM Relative Valuation

Source: FactSet estimates via EquityRT, INFO RESEARCH estimates

Exhibit 4. Share price performance

Source: EquityRT, INFO RESEARCH estimates

*relative to the main index on which the stock is listed

MCAP

RT TICKER BBERG Ticker Company Name Country (USD mn) 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E

WALMEX:MX WALMEX* MM Walmart Mexico Mexico 54,613 25.3 22.4 13.6 12.5 1.5 1.4 2.6% 1.4%

JMT:PT JMT PL Jeronimo Martins Poland 12,065 23.6 21.1 7.9 7.3 0.6 0.6 2.2% 0.6%

PIK:ZA PIK SJ Pick n Pay South Africa 1,940 21.4 17.8 7.5 6.6 0.5 0.4 3.2% 0.4%

MGNT:RUM MGNT RM Magnit Russia 7,074 14.3 12.8 5.1 4.6 0.6 0.5 10.5% 0.5%

FIVE:GB FIVE LI X5 Retail Russia 8,586 13.1 11.6 3.8 3.5 0.5 0.4 8.4% 0.4%

MGROS:IS MGROS TI Migros Turkey 810 28.1 12.6 3.9 3.5 0.3 0.3 0.0% 0.3%

BIMAS:IS BIMAS TI BIM Turkey 4,752 14.9 12.7 7.7 6.6 0.6 0.5 5.1% 0.5%

BIMAS:IS Median 21.4 12.8 7.5 6.6 0.6 0.5 3.2% 0.5%

SOKM:IS SOKM TI SOK Turkey 882 15.5 10.1 3.5 2.7 0.3 0.2 1.9% 7.0%

Premium/Discount to

Turkish retailers -28% -21% -40% -46% -47% -49% -0.2x 16.4x

EM peers -28% -43% -54% -59% -58% -63% -40% 11.7x

Dividend YieldP/E EV/SALESEV/EBITDA

YTD 1M 3M 12M YTD 1M 3M 12M

Walmart Mexico 10.9 -1.9 1.0 14.4 12.3 -3.8 1.4 -1.4

Jeronimo Martins 16.6 13.2 25.7 19.1 9.8 11.2 14.6 -1.0

Pick n Pay 10.7 1.3 -1.8 19.1 -0.7 0.2 -4.4 6.0

Magnit -5.1 0.9 -2.2 58.4 -17.9 -6.0 -12.5 -2.5

X5 Retail -12.5 1.5 -12.5 17.1 -24.3 -5.4 -21.7 -27.9

Migros -13.4 -1.1 -14.9 13.3 -11.2 -3.4 -7.8 -21.6

BIM -11.8 -6.2 -6.4 17.8 -9.6 -8.4 1.4 -18.4

SOK -5.3 -8.1 -6.9 8.3 -3.0 -10.2 0.9 -25.0

Absolute Return in Local Currency Relative Return in Local Currency*

Exhibit 5. Share price performance

Source: EquityRT, INFO RESEARCH estimates

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Jul-

18

Sep

-18

No

v-18

Jan

-19

Ma

r-19

Ma

y-19

Jul-

19

Sep

-19

No

v-19

Jan

-20

Ma

r-20

Ma

y-20

Jul-

20

Sep

-20

No

v-20

Jan

-21

Ma

r-21

Ma

y-21

12m month forward blended PE Average

5

May 17, 2021

Risks As a soft-discount food retailer, SOK operates in a defensive industry that is well protected against general economic cycles. It also has a healthy financial position with a Net debt/EBITDA of 0.6x and no significant FX exposure. Therefore, the real risks to its business model relates to its operations and market competition.

Beyond such risks, the retailer is exposed to regulatory risks such as the government sponsored food price caps as a measure to “fight food inflation”. As the world food price inflation remains high, there is a risk to repeat of such episodes, but we consider these as short-term as we think such policies are not sustainable in the longer term.

Other regulatory risks relate to changes to retailing hours of stores, limitations on product mix and/or zoning as a means to protect mom-and-pop stores from competition from bigger chains. A major change could potentially impact all food retailers. That said, such a move could also prove unpopular with consumers as they seem to rely heavily on discounters.

6

May 17, 2021

Industry Overview Organised retail taking over, driven by discounters. After years of secular growth, modern retailers finally overtook traditional grocery retailers in 2019. Modern supermarkets make up around 30% of the market, followed by a 20% share for discounters. A further 5% is taken up by other modern formats such as convenience stores, forecourt retailers and hypermarkets. Overall, modern supermarkets are very fragmented with various regional players. Discounters, on the other hand, are a tight group of players including SOK, A101 and BIM which are expanding their footprint rapidly. In 2020, the trio grew their number of stores by over 12% yoy.

2020 a booster year for defensive food retail. The defensive nature of the industry has meant that Turkish food retailers have been already resilient in the past few years despite anemic growth and high inflation. As the consumption moved into homes, the pandemic has in fact given a boost to the industry while wreaking havoc in the rest of the economy.

In the beginning of the year, the general expectations was a reversal of this extraordinary demand to normal by the second quarter as optimism on immunization programs took hold globally. This has now proved premature as Turkey leaves through another wave of infections and implementing another full lockdown. The impact was evident in April consumer confidence index which was down by 7.5% mom dropping to 80.2. The prolonged pandemic conditions can ultimately imply upside to company earnings and management guidance which factored in earlier normalisation.

A potential new retail regulation is an overhang. In February 2021, the national newspapers reported of potential changes to the retail law that would see a number of limitations to operations of food retail including:

- ban on sale of home appliances, electronics and tobacco sales in the chain stores smaller than 1,500sqm,

- minimum 200sqm of shopping area with allocated parking.

If implemented, the regulatory changes have scope to be significant: while tobacco, electronics and such are low-margin products, the food retailers utilise them to drive traffic to stores. As such, tobacco products account for 10% of SOK’s consolidated sales management with limited margin contribution. The limitations on store space would like impede store openings which has been a key element of long-term revenue growth.

On the other hand, the draft law has been on the offing for a considerable time, with rumors resurfacing periodically. Ultimately, the advance of retail chains is putting substantial pressure on small business owners, who are viewed as the backbone of governing AKP. Then again, discounters have become indispensable to significant parts of the population as they are able to offer competitively priced good-quality products in a convenient way. While the 2m small business owners make a populous and potentially strong lobby group, we would be surprised to see government implement changes that may be unpopular with an even bigger consumer base. Therefore, we would expect the ultimate law to be balanced and nuanced.

Exhibit 6. Key information on selected food retailers

Source: Company data, INFO RESEARCH. For BIM, domestic stores only; actual sales area for Migros.

SOK BIM A101 MIGROS CARREFOURSA

Number of Stores (2020YE) 8,145 8,530 10,001 2,319 699

New Stores Openings (2020) 930 999 1,001 183 65

Total Sales (TL mn) 21,354 55,495 N/A 28,790 7,915

SKUs 1,500+ 800 1,200+ 30,000+ 46,000

Est. Sales Area (2020YE, sqm mn) 1.8 2.6 N/A 1.6 0.5

Number of Formats 2 2 1 5 3

7

May 17, 2021

Source: US FAS

Exhibit 7. Share of modern grocery retailers have been rising

Exhibit 8. Discounters take close to 20% of the market

Source: TurkStat Seasonally and calendar adjusted retail index

Exhibit 9. Top organized grocers by sales Exhibit 10. Discount retailers take the lead in store openings

Exhibit 11. Food, drinks and tobacco retail index on the rise Exhibit 12. Breakdown of household expenditures (2020)

Source: TurkStat

Source: US FAS, Migros including M-Jet convenience stores. *2019 sales

Source: US FAS

Source: US FAS

52.8

47.2

0

20

40

60

80

2009 2011 2013 2015 2017 2019

Modern Grocery RetailersTraditional Grocery Retailers

Market Share (%)

BIM10.0%

A1014.9%

Migros*5.0%

Sok3.7%

CarrefourSA1.1%

Other75.3%

8.06.7 6.3

1.9 2.0

10.0

8.4 8.1

2.1 2.2

A101 BIM Sok Ekomini Migros

2018 2019 2020

No. of stores (000)

Traditional grocery retailers

47.2%

Supermarkets29.6%

Discounters19.1%

Convenience stores…

Hypermarkets1.4%

Forecourt retailers

0.8%

50

100

150

200

250

300

2010 2011 2012 2013 2015 2016 2017 2018 2020Traditional Grocery RetailersModern Grocery Retailers

Sales Turnover Index*Food, Beverage, Tobacco

Food&NA Bev.21%

Alcohol&Tobacco

4%

Clothing and

footwear5%

Housing and rent

24%

Furniture, houses

appliances and home

care6%

Transportation16%

Restaurant and hotels

7%

Other17%

8

May 17, 2021

Source: TurkStat

Exhibit 13. Food share in household spending has gone up recently

Exhibit 14. Driven by higher food inflation and slower GDP growth

Source: TurkStat *As of April 2021

Exhibit 15. Number of employed still shrinking, albeit at a much slower rate

Exhibit 16. Minimum wage increases a buffer to overall spending terms

Exhibit 17. Confidence index still in the negative territory... Exhibit 18. ...with deteriorating expectations since April

Source: TurkStat

Source: TurkStat *seasonally adjusted

Source: TurkStat

Source: TurkStat

21.8

20

21

22

23

24

2009 2011 2013 2015 2017 2019

Share of food&non-alch. beverages in household spending (%)

-20

0

20

40

2004 2005 2007 2009 2011 2013 2015 2017 2019

Food&Beverage Processed CPI

Price Index Change(y/y %)

12.7%

0.4%0.0%

-5.1%

2019 2020

change in min. wage (y/y)change in no. of employed (y/y)

-9.6

-.6

-12

-10

-8

-6

-4

-2

0

2

Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21

No. of employed* (y/y %)

0.0

30.0

60.0

90.0

Consumer confidenceindex

Financial situationexpectation of household

over next 12 months

General economicsituation expectation over

next 12 months

-15

-10

-5

0

5

10

Sep-20 Nov-20 Jan-21 Mar-21

Consumer confidence index

General economic situation expectation next 12m

No. of people unemployed expectation next 12m

change (m/m %)

9

May 17, 2021

SOK Marketler Overview Established in 1995 and eventually bought out by the largest food conglomerate Yildiz Holding in 2015, SOK Marketler is one of the fastest growing chains with a 2020A revenue of TL 21.4bn. The soft-discounter currently has the third largest network with 8,145 stores and 31 warehouses distributed across the country, after A101 and BIM.

SOKM offers around 1,500 stock keeping units (SKUs), with its more than 100 private labels and positions itself with a “one-stop-shop” experience that aims to satisfy core consumer needs at the nearest location. Operating predominantly as SOK, the retailer also has a smaller format called “SOK Mini” constituting less than 5% of its network.

Following its acquisition by Yildiz Holding in 2011, the retailer redefined its business strategy in 2015 with a new store concept and an organic growth model. Since 2012, SOK expanded its store network by a CAGR of 18% targeting to open 3 stores every day. In 2020 alone, SOK opened 930 new stores suggesting a 12.9% yoy growth rate. The retailer employs 35k people.

Listed in Borsa Istanbul in 2018. Yildiz Holding took SOK public in 2018, floating 36% of the company by issuing new shares. The proceeds of the public offering was essentially used to pay down the financial debt. Currently, the retailer is controlled by Yildiz Holding which holds shares through Turkish Retail Investment, Gozde Girisim as well as a 5% direct investments. Already an investor pre-IPO, Templeton Strategic Emerging Markets fund holds a 6% stake in the retailer as well as a seat on the Board of Directors. European Bank of Reconstruction and Development (EBRD) participated in SOK Marketler at the time of IPO, and hold a further 6%.

Exhibit 19: SOK shareholders

Source: Company financials

Turkish Retail Investments

24%Gozde Girisim

23%

Templeton Strategic Emerging

Markets Fund6%

EBRD6%

Yildiz Holding5%

Free Float36%

10

May 17, 2021

Store openings to continue according to management. Starting from 2015, SOK has focused on organic growth opening new stores in the order of 1,000 per year. Management argues that there are still further room for store growth in the next 3-5 years. Given that the traditional store formats still account for 45% of the food retail, we tend to agree with this view although we note the increased competition from digital channels.

Exhibit 22: SOK store network

Source: 2019 investor presentation

Exhibit 20: Store openings Exhibit 21: Sales and EBITDA (TL bn)

Source: Company Source: Company

0%

5%

10%

15%

20%

25%

30%

35%

0

1,500

3,000

4,500

6,000

7,500

9,000

2014 2015 2016 2017 2018 2019 2020

Number of stores Growth

0.0

6.0

12.0

18.0

24.0

2016 2017 2018 2019 2020

Sales EBITDA

Source: 2019 investor presentation

Exhibit 23: SOK warehouse network

11

May 17, 2021

Targeting to meet more of customer needs. The company follows a soft-discount model targeting to meet a higher percentage of customers demand. According to management’s own calculations, SOK is able to cater to 95% of customer needs as opposed to 76% in a hard-discount model. It also prides itself for carrying a higher percentage of national brands as well as selling #1 brand for almost every category. In a unique strategy, the retailer also has a portfolio of heritage brands as part of its private label portfolio.

Non grocery items account for 30% of the mix. SOK aims to differentiate its offering and drive traffic by selling non-traditional grocery items such as tobacco, seasonal products, personal care and fresh food items. This constitutes around 30% of its products. According to management, fresh fruit & vegetable, and in-store bakery have the potential to increase basket size and traffic at the same time.

Exhibit 24: SOK Marketler’s product portflio

Source: 2019 company investor presentation

Source: Company data Source: Company data, INFO RESEARCH estimates

Exhibit 25. Like-for-like growth Exhibit 26. SOK Sales (TL bn)

-50%

-25%

0%

25%

50%

75%

100%

1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21

Like-for-like sales (store/per day)

Like-for-like basket

Like-for-like customer0.0

10.0

20.0

30.0

40.0

50.0

2016 2017 2018 2019 2020 2021E 2022E 2023E

12

May 17, 2021

New online strategy margin accretive. Responding to the pandemic, SOK launched its online sales in 2020, servicing customers from individual stores with electric vehicles. The customers are able to order from a mobile app, online or by calling which is a unique model according to management. The product coverage is extensive with the same in-store prices, but requires a minimum order of TL 50 which compares favourably to the SOK’s TL 27.6 like-for-like basket size in stores.

SOK is currently employing less than 300 personnel for the entire model trying to run an efficient operations. Given the minimum order requirement and low capex, management is adamant that the operation in profitable and offers good returns. We would be curious to see how the operation fares after the pandemic.

Vertical integration to farms hopes to drive better price/quality points. In 2020, the retailer also launched its “Fair Agriculture from Farm to Table” initiative. Supporting farmers with minimum purchase agreements for exclusive production, SOK is able to procure a number of its dry and fresh products directly from farmers. According to management, this initiative helps the retailer to offer customer high quality products at affordable prices and contribute to the increased customer traffic.

Improving margins as operating leverage kicks in. Up from 19.7% in 2016, SOK’s gross margin has improved and stabilised just shy of 24% in the last few years. Since 2018, we have also seen some scale economies benefits as the operating expense as percentage of sale has declined from 14.6% to 13.8% in 2020 (adjusted for lease expense and depreciation). In 2020, SOK posted an EBITDA margin of 9.8%, and guides for 9.5% for 2021 within a range of +/-0.5%.

Nearly TL200m of tax assets on previous years’ losses. SOK turned a net profit for the first time in 2018, despite negative before tax operating earnings, thanks to a large offsetting deferred tax income. In 2019, IFRS 16 change was enough to put the retailer in the red again although the profitable growth continued. In 2020, SOK returned to profits thanks to a strong 6.6% EBIT that translated into a 1.3% net margin. The retailer also utilised tax assets accumulated from previous years’ losses which is close to TL200m at the end of 2020. We expect SOK to use the rest of the tax assets in the next two years.

-10%-5%0%5%

10%15%

20%25%30%

2016 2017 2018 2019 2020

Gross margin EBITDA margin

Net income margin

Exhibit 27: Improving margins... Exhibit 28: ...thanks to operational leverage

Source: Company, INFO RESEARCH estimates Source: Company, INFO RESEARCH. Opex excluding depreciation and

adjusted for IFRS 16

13.0%

13.5%

14.0%

14.5%

15.0%

2016 2017 2018 2019 2020 2021E 2022E 2023E

Opex/sales

13

May 17, 2021

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

Exhibit 29. SOKM: Marketing & Sales expenses Exhibit 30. SOKM: G&A expenses

Personel Expenses

52%

D&A20%

Utility Expenses

10%

Transportation

Expenses8%

Other10%

Personnel Expenses

19%

D&A42%

Outsourced

Expenses12%

Cash Collection Expenses

11%

Other16%

Negative working capital although at a declining rate. Like the rest of the industry players, SOK Marketler operates with a negative working capital which amounted to 11% of sales in 2020. The cash conversion cycle which was 100 days in 2016 has halved to 50 days by the end of 2020, as has been the case for many in the industry. In our model, we are broadly sticking to the status quo although we can expect some normalisation in inventory days post the pandemic.

Capex and rental leases account for c. 6% of sales. In line with store expansions, SOK is currently spending around 2.5% of its sales on capex, of which nearly 80% was spent on new store openings. In conjunction, the retailer is spending close to 4% in rental leases.

After the implementation of IFRS 16, the rental leases are recorded as financial debt which currently makes of almost all of its existing TL 2.4bn total debt. As mentioned before, the company paid most of its existing debt with the cash raised from its IPO, and therefore has a strong TL 1.2bn net cash position.

Dividends are negligible for now, but likely improve going forward. As a loss making company up until 2020, SOK did not distribute any dividends. In fact, the retailer had negative equity in 2019, incurring a net loss due to one-off adjustments from implementation of IFRS 16 (rental leases being recorded as financial debt). However, SOK will distribute TL 79.6m of dividends for 2021 net earnings which accounts to 29% pay out ratio on net profit attributable to common shareholders. Given its improving cash generation, we expect SOK to distribute a higher percentage of its net income going forward.

Source: Company data, INFO RESEARCH estimates Source: Company data, INFO RESEARCH estimates

Exhibit 31. Negative working capital requirements Exhibit 32. Large capex+lease outflows due to expansion

-25%

-20%

-15%

-10%

-5%

-120

-100

-80

-60

-40

-20

0

2016

2017

2018

2019

2020

2021

E

2022

E

2023

E

Cash conversion cycle- lhs

Working capital as % of sales- rhs

0.0%

2.0%

4.0%

6.0%

8.0%

2016

2017

2018

2019

2020

2021

E

2022

E

2023

E

Capex+lease expense as % of sales

14

May 17, 2021

DISCLAIMER & DISCLOURES

Analyst Certification

I, Oytun Altaşlı Widmer, hereby certify that the views expressed in this research report accurately reflect the personal views of the INFO Research team, regarding the securities and issuers referred to therein and that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations

or views contained in the research report.

INFO Research Team

Oytun Altaşlı Widmer– Head of INFO Research Team

Ercan Uysal– Advisor to the Board of Directors

Bartu Çolak– Junior Analyst

Kutay Ağırbaş– Junior Analyst

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Hold: If Target Price is within -5 and 5 percentage points of the estimated Cost of Equity

Sell: If Target Price is lower than 5 percentage points of the estimated Cost of Equity

Please note that the analyst’s short-term view may occasionally diverge from the stock’s longer-term fundamental rating.

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