TUPRS: Reflecting 3Q beat; tight diesel supply

We increase our TP for Tupras to TRY422.60 (from TRY341.40 previously) as we add the 3Q beat and the strong diesel cracks so far in 4Q. These are partly offset by the significant increase in Turkish natural gas tariffs for refiners since October’22, which leaves the company’s earnings more reliant on the duration of above-cycle product cracks. We maintain our Neutral rating.

Credit Suisse energy team expects higher diesel margins to sustain: QTD average
regional diesel cracks are up 27% compared to 3Q22, including a strong start to
November as well. The higher diesel margins are partly reflected in the jet fuel, which is
another relevant middle-distillate for Tupras. Credit Suisse Energy Team highlights that the upcoming EU embargo on Russian oil products (February’23) could extend the seasonally high diesel cracks (European Energy 3Q22 wrap; 7/11/22).

The energy cost bill running up to US$5.5/bbl in 4Q22?: Following a series of industrial tariff hikes, the Turkish natural gas entity, BOTAS, linked the tariff for the oil refiners to the 25-day average price prevailing in the spot gas market. Blending this with the electricity auto production tariffs, we estimate the average cost of NG for Tupras might have risen to TRY22/m3 QTD (=US$5.5/bbl), up from US$3.8 in 1H22 (and US$1.5 only in mid-2021, all based on our estimates).

Catalysts Industry sustaining higher diesel margins for longer. Dividends around late-
March (CSe: 16%/7% yield in 2023/24E). Risks include product cracks normalising faster than the regulated energy tariffs, fluctuations in the headline crude prices or in the
product spreads.

Valuation: The shares are at 9x our 12M-forward P/E vs 8x consensus average in the
three years prior to COVID.



Credit Suisse