Equity Research - TURKEY

November 21, 2005 Initiation of Coverage

Conglomerates

Ihlas Holding
A RESTRUCTURING STORY
We initiate coverage of Ihlas Holding (Ihlas) with a MARKET OUTPERFORMER recommendation on the back of the Holdings short-mid term restructuring prospects and compelling valuation. Based on conservative assumptions, we derive a US$312 mn target NAV for Ihlas Holding through the sum-of-the-parts method, implying an attractive 36% upside. As the restructuring programme is central to our recommendation, we would like to caution that any setback to this process would pose a risk to our investment theme. Portfolio restructuring takes centrestage -- Having spent the last four years placing the group back on a sound financial footing, Ihlas Holding is now shifting its focus to portfolio restructuring. Involving the sale of non-core assets, portfolio restructuring is set to lead to a more focused business mix and raise fresh funds for the Holdings core businesses, which have been identified as construction/real estate development, media, household appliances, marketing, health and education. Further asset sales in the pipeline -- Following its recent withdrawal from the food and beverages sector, Ihlas Holding is aiming to continue with further asset sales over the next 612 months. Potential divestiture candidates include TGRT TV, Bisan, Ihlas Sigorta and Ihlas Kargo, regarding some of which, the sale process has already been initiated. We see . restructuring as a major catalyst to draw investor interest back to Ihlas Holding shares, which the investment community has been ignoring since the failure of its finance arm, Ihlas Finans, in early 2001. Limited liabilities to Ihlas Finans -- Ihlas Finans liquidation process remains under way in accordance with the Turkish Commercial Code. Ihlas Holdings liabilities towards Ihlas Finans are limited by its shareholding and its Ihlas Pazarlama shares, which were pledged earlier against dealers debt.
Actual vs Estim ated Consolidated Financials (US$m n) and m ultiples* FYE: Net Net EV / December Sales Grow th EBITDA Grow th Earnings Grow th P/E EBITDA 2003A 232 n.a. 21 n.a. 3 n.a. 81.6 13.8 2004A 376 62% 35 72% 23 717% 10.0 8.0 2005F 471 25% 76 115% 12 -46% 18.6 3.7 2006F 433 -8% 71 -6% 12 -2% 19.1 4.0 *Inflation adj Turkish GAAP financials for 2003 & 2004 and IFRS financials thereafter
Please see the important disclosures at the end of this report.

MARKET OUTPERFORMER

Market Value
Close (TRY / $)* Current MCap.* 0.79 / 0.58 $229 mn

Target Value
Target Mcap. Target Price ($) Upside (Downside) $312 mn 0.79 36%

Capitalisation
Enterprise Val. Net Debt Number of Shares Free Float $283 mn $55 mn 395 mn 72%

Performance
Avg. Daily Vol. Life H/L ($) 52w H/L $9.7 mn 16.21 / 0.24 1.02 / 0.50

Daily Price Chart (in US)

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 04-02 11-02 06-03 02-04 09-04 04-05 11-05

(%) 1m 3m 12m
as of Nov 18, 2005

Absolute -4% 1% -28%

Relative -16% -17% -56%

Serap MUTLU serap.mutlu@efgistanbulsec.com +90 (212) 317 2705 For Sales Please Contact Banu Basar +90 212 317 2860 Cem Oksun +90 212 317 2757 Adil Rizvi +90 212 317 2863

Ihlas Holding Conglomerates

November 21, 2005

VALUATION
Having made considerable progress towards healing the wounds of the past, Ihlas Holding is now shifting its focus to portfolio restructuring, which envisages the divestiture of its non-core assets. Through restructuring, Ihlas Holding aims to attain a more focused and leaner portfolio and raise fresh funds for its core businesses, which it has already identified as construction/real estate development, media, household appliances, marketing, health and education. As the primary phase of this process, Ihlas Holding has withdrawn from the food and beverages sector in late October by divesting its stakes in Kristal Kola, Ihlas Gida ve Ticaret AS and Kristal Gida Dagitim AS. This process is set to continue with further asset sales over the next 6-12 months, since there is still ample room for further rationalisation within Ihlass overly diversified portfolio. The Holdings most likely divestiture candidates in this respect are TGRT TV (broadcasting), Ihlas Sigorta (insurance), Ihlas Kargo (cargo) and Bisan (motor and non-motor vehicles). Ihlas has already initiated the sale process for some of these assets and aims to divest its stakes provided that it finds the right price. In our view, if well pursued, restructuring will help 1) reveal the hidden values within Ihlas Holdings business portfolio since most of its major assets are unlisted and thus hard to value due to the absence of adequate data on their financials, 2) enable Ihlas Holding to attain a leaner and more lucid structure, which is set to contribute to its NAV transparency, and 3) more significantly, rationalise Ihlass existing business portfolio and unleash fresh capital to invest into the more promising core businesses, such as construction, marketing and media etc, which should create value over the mid-long term. These said, we see restructuring as a major catalyst to help attract investor attention back to Ihlas Holding shares, which the investment community has shunned since the failure of its finance arm, Ihlas Finans, in early 2001. Given its quasi-conglomerate structure (i.e. holding equity stakes in a number of group companies besides undertaking the groups activities in the construction, education and health sectors), we value Ihlas Holding by the sum-of-the-parts method. For the sake of conservatism though, we value only the Holdings major subsidiaries while disregarding the less significant ones, as the latter have either no or negligible financial data. Moreover, our valuation is based primarily on multiple analysis (taking into account peer comparison wherever possible), since we do not have adequate historical data and/or future projections (depends on the outcome of the restructuring process) to build up a more comprehensive DCF model for the companies. Hence, our valuation is based mostly on current financials (ignoring potential growth) and should therefore be viewed with that caveat in mind. Employing the above assumptions, we arrive at a US$312 mn target NAV for Ihlas Holding via our sum-of-the-parts model, which represents a compelling 36% upside to current levels. In view of this attractive upside and the expected benefits from portfolio restructuring, we initiate our coverage of Ihlas Holding with a MARKET OUTPERFORMER rating. Yet investors should keep in mind that our recommendation is, to a large extent contingent, upon the success of the restructuring programme and any delay and/or pause in this process would pose a major risk to our investment theme.

EFG stanbul - Equity Research

Ihlas Holding Conglomerates

November 21, 2005

Exhibit 1: Ihlas Holding -- Sum of the Parts Valuation (US$mn) Valuation Criteria Media Ihlas Gazetecilik AS (Turkiye daily) TGRT TV Ihlas Haber Ajansi (News Agency) Household Appliances Ihlas Ev Aletleri Motor and Non-Motor Vehicles Bisan Bisiklet Construction/Land Development Ihlas GYO (Ihlas REIT) Ihlas Holding - Construction Business 5x 2005E EV/EBITDA 11x 2005E EV/EBITDA 0.5x 2004 P/Sales Effective Stake 95.59% 55.31% 97.49% Estimated Ihlas Holding's Value stake 41.8 170.3 7.5 219.6 20.6 20.6 58.7 58.7 24.5 40.0 64.5 47.1 47.1 6.5 6.5 14.5 14.5 2.2 2.2 Health Ihlas Holding - Health Business 0.5x 2004 P/Sales 100.00% 6.9 6.9 45.1 395.4 -8.9 39.9 94.2 7.3 141.4 7.6 7.6 54.7 54.7 7.5 40.0 47.5 46.3 46.3 6.2 6.2 7.6 7.6 2.2 2.2 6.9 6.9 15.1 305.2 -8.9 311.5 228.5 -26.6% 36.3% Share in NAV 13% 30% 2% 45% 2% 2% 18% 18% 2% 13% 15% 15% 15% 2% 2% 2% 2% 1% 1% 2% 2% 5% 98% -3% 100%

Mcap

37.07%

2x 2005E EV/EBITDA

93.26%

Mcap 5x EV/EBITDA

30.58% 100.00%

Marketing
Ihlas Pazarlama AS Insurance Ihlas Sigorta AS Others Ihlas Kargo AS Education Ihlas Holding - Education Business 0.5x 2004 P/Sales 100.00% 5.5x 2005E EV/EBITDA 98.18%

0.25x 2005E P/Premium

95.03%

0.5x 2005E EV/Sales

52.36%

Listed Companies Unlisted Companies Unconsolidated Net Debt Estimated Target NAV Market Value of Ihlas Holding Premium/(Discount) to target NAV Implied Upside/(Downside)
Source: EFGI Research Estimates

Call option on Ihlas Holding shares -- Enver Oren, the major shareholder (27%) as well as the chairman of Ihlas Holding, has sold a call option against his 33.8 mn Ihlas Holding shares (representing 8.6% of the share capital) to RP Explorer Master Fund (RP Capital) in Sep05. The call option, which is American type with a term of 18 months, awards RP Capital the right to purchase up to 20.3 mn Ihlas Holding shares (60% of the underlying shares) at TRY1.03 per share and up to 13.5 mn Ihlas Holding shares (40% of the underlying shares) at TRY1.19 per share at any time until March 14, 2007 (the expiration date). In connection with this call option, Mr. Oren has lent his 60.4 mn Ihlas Holding shares (representing 15.3% of the share capital) along with the right of disposal to RP Capital for the duration of the call option and has received in return US$20 mn collateral from the fund. According to the agreement

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between the parties, if RP Capital does not exercise the call option by March 14, 2007, then it will return the underlying shares to Enver Oren. If, on the other hand, the option is exercised either fully or partially, then the US$ equivalent of the exercised portion will be offset against the collateral given and the transaction will be closed accordingly. According to the information provided by Ihlas Holding, RP Capital is a Cayman Islands registered fund, founded by a former Merrill Lynch senior manager and the owner of the Czech financial group, PPF. The fund, whose shares are traded on the Ireland stock exchange, has a size of US$200 mn. The fund targets high returns via mid-long term investments and invests mainly in the Eastern European, Middle Eastern and African markets. The aim of this option transaction, as stated by Mr. Oren at the onset, is to attract foreign interest into Ihlas Holding shares and accordingly increase the foreign ownership ratio in the stock, which currently stands at a mere 17.4% compared with 48-87% for the other ISE-listed conglomerates and an average 67% for our coverage universe. Exercise prices lend further support to our estimated valuation -- The call option has an exercise price of TRY1.03 per share for 60% of the underlying shares and TRY1.19 per share for the remaining 40% shares, implying 30% and 50% respective upsides over the Holdings current share price (TRY0.79 per share). According to the Company, the exercise prices were determined by respectively adding 30% and 50% expected upsides on Ihlas Holdings September 8, 2005 closing price, which also stood at TRY0.79 per share. Compared with these exercise prices and implied upsides, our estimated 12-month target price (TRY1.08 per share) and associated 36% upside potential look fairly comfortable, lending further support to our estimated valuation for Ihlas Holding. Furthermore, the strong upsides envisaged in the exercise prices could be construed as a signal of strong investor faith in the short-mid term prospects of Ihlas Holding.

EFG stanbul - Equity Research

Ihlas Holding Conglomerates

November 21, 2005

RECENT DEVELOPMENTS
Latest status of Ihlas Finans -- Ihlas Holding took a battering when its 50.27% owned finance subsidiary, Ihlas Finans fell into financial difficulties in late 2000. As will be recalled, Ihlas Finans, which offered a range of non-interest banking services, ran into payment difficulties in Nov 2000, when fears of banking sector instability sparked a liquidity crunch in the money markets and triggered massive deposit outflows from the company. The liquidity squeeze led to the cancellation of Ihlas Finanss operating license in early Feb 2001, as the company failed to fulfil its commitments and solve its liquidity problems despite the measures taken. At that time, Ihlas Finans was the leading Islamic finance house with 216,592 depositors and some US$1 bn in funds, representing approximately one third of the total in the sector. Yet, unlike the deposits at commercial banks, the deposits at Islamic finance houses, because of their special status, were not covered by the Savings Deposit Insurance Fund (SDIF) at the time. Hence, after the cancellation of its operating license, Ihlas Finans was not taken into receivership, unlike other bailed out regular banks. Instead, Ihlas Finans was closed down and put through a liquidation process in accordance with the general provisions of the Turkish Commercial Code, just like any other insolvent incorporated company. Accordingly, the BRSA has no authority or responsibility over Ihlas Finanss liquidation process, which is instead overseen by a board appointed by Ihlas Group itself (which repays the depositors funds parallel to the collection of Ihlas Finanss receivables). Although this lifts the financial burden on the state, it hurts the depositors via slowing down the collection process. Note that the Banking Law was subsequently amended to allow SDIF to take over the monitoring of the liquidation of Islamic finance houses, but Ihlas Finans was exempted from this requirement. Upon the initiation of the liquidation process, the liquidation board has outlined a repayment plan, according to which, the creditors were to be repaid in the following order of priority: 1) state (taxes), 2) personnel (severance payments), 3) current account holders, 4) profit/loss participation account holders, 5) other creditors, and 6) shareholders. Ihlas Finans has already settled its debt with the state and its personnel and is currently in the process of reimbursing its current account and participation account depositors. According to the latest announcement by the liquidation board, Ihlas Finans has reimbursed US$448 mn of its outstanding debt to this date, reducing the total number of its depositors from 216,592 to 89,669 since the beginning of the liquidation process. As per our talks with the management, Ihlas Finans aims to repay its remaining debt through to 2009. Holdings liabilities towards Ihlas Finans -- As Ihlas Finans is liquidated in accordance with the provisions of the Commercial Code, rather than the Banking Law, Ihlas Holdings financial and legal liability towards Ihlas Finans is limited by the amount of its shareholding in the company. Hence, the Holding is protected by law from any indirect effects of the liquidation process while also being entitled to receive anything that is left over at Ihlas Finans at the end of the process, i.e. after all liabilities are settled. According to management, Ihlas Finanss total trade and financial receivables have exceeded its total trade payables and deposits by about US$200-250 mn at the start of the liquidation. Yet, we think that there will inevitably be some delinquencies within the receivables portfolio, which will restrict the amount to be left over, if any, to Ihlas Holding, at the end of the process. Before the liquidation, Ihlas Group companies had US$6.4 mn of cash and US$7.3 mn of non-cash liabilities towards Ihlas Finans. Yet, these were settled after the start of the liquidation process and as a result, neither Ihlas Holding nor any one of its partners or companies owes any debt to Ihlas Finans at present. One issue worth noting, though, is that Ihlas Holding has pledged its 97% Ihlas Pazarlama shares against the US$400 mn

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portion of Ihlas Pazarlamas dealers debts to Ihlas Finans in early 2001 in order to prevent deposit outflows from Ihlas Finans. This pledge will remain effective until the end of the liquidation process and if Ihlas Finans has any remaining debt from these dealers at the end of the process, then Ihlas Holding will have to relinquish its Ihlas Pazarlama shares, which poses a risk. Yet, this risk is still limited by the value of the shares, which we estimate at US$46 mn vs. the underlying US$400 mn debt. Healing the wounds of the past -- After the failure of Ihlas Finans, which coincided with one of Turkeys worst economic crises, Ihlas Holding has primarily focused on improving the groups finances and rectifying the impact of the economic crisis through a combination of the following measures: A series of rights issues and capital injection into ailing businesses, Asset sales and withdrawals from non-core sectors, Partial share sales in some traded and non-traded stocks, Debt reduction through funds raised (from US$166 mn to US$78 mn), Debt restructuring with banks (which resulted in a maturity extension and/or early debt settling under favourable terms), A shift in emphasis from revenue maximisation to cost control and profit maximisation, A strategy switch from leverage based growth to equity based growth.

These measures helped Ihlas Group companies to strengthen their financial position and remain operational in the last five years. Now comes the time for the second round of restructuring -- Having made considerable progress towards healing the wounds of the past and placing the groups finances on a sound footing, now is the time for Ihlas Holding to focus on portfolio restructuring. Despite having been on the Holdings agenda for long, portfolio restructuring was hampered by adverse market conditions, the groups own financial problems and the priority attached to financial restructuring within the group following the failure of Ihlas Finans. Portfolio restructuring, which involves mainly the divestiture of the non-core assets, is likely to proceed more smoothly down the line, given increased political and macroeconomic stability that is more conducive to asset sales, growing foreign appetite for Turkish assets, and local groups enhanced financing capabilities. A series of successful privatisations and asset sales in recent months are a good testament to this new environment. Notwithstanding some asset sales and withdrawals from some unrelated businesses over the past few years, Ihlas Holding still has an overly diversified business portfolio, littered with a myriad of sectors ranging from media, motor vehicle production, construction and marketing to health, education, insurance, cargo and household appliances. As Ihlas Holding has identified its core businesses as construction/real estate development, media, health, manufacturing and marketing of household appliances and education, there is still ample room for asset sales and portfolio restructuring down the line. As the first example of this process, Ihlas has recently withdrawn from the food and beverages sector via divesting its stakes in Kristal Kola, Ihlas Gida ve Ticaret and Kristal Gida Dagitim AS while more asset sales are in the pipeline for the next 6-12 months. Via disposing its non-strategic assets, Ihlas Holding aims to attain a more focused and compact business portfolio and raise fresh funds for its core businesses. The latter is essential if Ihlas Holding is to go back to its old hey days, when it used to be a mid-scale quasi-conglomerate company.

EFG stanbul - Equity Research

Ihlas Holding Conglomerates

November 21, 2005

Ihlas Holding Business Portfolio

Media - Ihlas Yayin
Holding - TGRT TV - TGRT News TV - TGRT EU TV - TGRT Marketing TV - TGRT FM Radio - Turkiye Newspaper - Magazines - Ihlas Net

Construction & Real Estate - Ihlas Holding

Construction Group - Ihlas REIT - Ihlas Oxford Mortgage

Marketing
- Ihlas Marketing

Manufacturing
- Ihlas Ev Aletleri - Bisan

Health - Ihlas
Holding Health Group (Turkiye Hospital) - Ihlas Armutlu Holiday Resort - Ihlas Kuzuluk SPA - Ihlas Kuzuluk Thermal Resort

Education - Ihlas
Holding Education Group

Others
- Ihlas Kargo - Ihlas Sigorta

Source: Ihlas Holding, EFGI Research

Ihlas Holding has identified the following assets for sale in the coming period. The Holding has already initiated the sale process for most of these assets and would divest its stakes provided that it could find the right price: TGRT: Although media is seen a core business, TGRT TV, which is the groups most valuable asset, is put up for sale due to following reasons: 1) Ihlas believes that it could invest the sales proceeds in more profitable ventures, 2) market segmentation and thematic niche channels are expected to gain importance going forward, and lastly, 3) the Group has two other thematic TV channels, which, if wanted, could be expanded with moderate capex in the future. TGRT TV is one of the top 5 mainstream national TV channels in Turkey with a c7% share in viewership and a c7% share in total TV ad revenues. Owning the largest private TV transmitter network in Turkey, TGRT TV enjoys an unequalled terrestrial coverage reaching 85% of the population. In addition, it is available to all of Turkey as well as to Europe, the Middle East, North Africa, Central Asia and the Caucasus, North America and Australia via satellite. Ihlas Holding owns an indirect 55.31% stake in TGRT via its 97.9% owned media conglomerate, Ihlas Yayin Holding. As will be recalled, Ihlas Yayin Holding was set up in mid 2003 to gather all the media assets of Ihlas Group under a single umbrella with a view to benefit from administrative and financial synergies and to lay the ground for the prospective IPOs of the media companies via the creation of a more transparent and profit oriented structure. Thus, it will be Ihlas Yayin Holding, which will be selling its 56.5% stake in TGRT TV. As per our talks with the management, Ihlas Yayin Holding may utilise the expected cash proceeds from the sale of TGRT TV to purchase further stakes in the media companies and/or to reduce their debt. Note that Ihlas Yayin Holding currently has a 20.11% stake in Turkiye Newspaper, a 50% stake in Ihlas News Agency and a 95% stake in each of TGRT News TV and TGRT Marketing TV. Ihlas Yayin Holding will probably be purchasing the additional shares from Ihlas Holding and Ihlas Pazarlama, as these are the other major shareholders in Turkiye Newspaper and Ihlas News Agency.

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November 21, 2005

Exhibit 2: Ihlas Yayin Holding -- Shareholding and Participation Structures

Ihlas Holding (97.9%) Ihlas Yayin Holding (Media Conglomerate)

TGRT TV (56.5%) Individuals: (43.5%)

Turkiye Newspaper (20.1%) Ihlas Holding: (37.0%) Ihlas Pazarlama: (39.2%)

Ihlas News Agency (50.0%) Ihlas Holding: (24.0%) Ihlas Pazarlama: (25.0%)

TGRT News TV (95.0%) Individuals: (5%)

TGRT Marketing TV (95.0%) Individuals: (5%)

Source: Ihlas Holding, EFGI Research

As other alternatives, Ihlas Yayin Holding may 1) participate in Ihlas Holdings future construction projects, i.e. may purchase the land and then transfer it to Ihlas Holding in return for some housing units or 2) help the Holding raise debt for its new projects by putting up its cash as collateral with the banks. Moreover, Ihlas Holding has plans of opening Ihlas Yayin Holding to the public in the future, which could also unleash some capital to Ihlas Holding. As announced officially already, Ihlas Group is in discussions with 5 interested parties for the sale of TGRT TV. According to media reports, the interested parties include: 1) The Canadian CanWest, which recently launched an aggressive inroad into the Turkish media market by purchasing two of ex-Uzans radio stations for demanding prices ($56 mn in total). As investors will recall, CanWest had also participated in the Star TV tender where it submitted the third highest bid with US$305.75 mn. (vs. Dogan Yayin Holdings winning bid of US$306.5 mn and the reserve price of US$155 mn). We believe that CanWests appetite for Turkeys lucrative media market will not be satiated with the purchase of two radio stations and that they would definitely seek to buy a TV station in Turkey. In that respect, CanWest stands as one of the most likely buyers for TGRT TV. Note that two other stations, Flash TV and Kanal 6 TV, are also said to be up for sale and could be an alternative to TGRT TV. 2) The Central European Media Enterprises Ltd (CME), which is founded and controlled primarily by Ronald Lauder, the son of Este Lauder (the founder of the worlds largest privately owned cosmetics company, Este Lauder). CME currently operates a leading group of networks and TV stations across Central and Eastern Europe and reaches approximately 90 mn people in its 6 markets. 3) News Corporation, one of the worlds largest media conglomerates founded by the media tycoon, Rupert Murdoch. For the remaining two interested parties, media reports do not disclose any names but only suggest that one is a JV with a foreign partner and the other has the backing of a foreign investment fund.
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Since the due diligence process is still in progress and a confidentiality agreement has been signed with the interested parties, Ihlas Holding refrains from disclosing any information on the latest financials of TGRT TV. Yet, from our former meetings with the management, we know that TGRT TV had about US$43 mn of ad revenues in 2004 and an average 27% EBITDA margin in the last three years. The high EBITDA margin may seem surprising, though it reflects largely the groups decision to cut TGRTs programming expenses in the last few years in a bid to contain costs and improve profitability. Since this strategy will be difficult to sustain in an increasingly competitive environment and could cost TGRT market share if not addressed, it constitutes yet another reason for Ihlas Group to dispose of TGRT TV. Assuming that TGRT TV grows its ad revenues by 20% in 2005 (which is conservative in light of the expected c35-40% growth for the overall TV ad market) and maintains a 30% EBITDA margin, we arrive at a US$170 mn valuation for TGRT TV by applying a target 11x EV/EBITDA multiple (we assume zero net cash/(debt) position for TGRT TV in the absence of relevant data). This may seem too conservative when compared with the US$306.5 mn paid for Star TV, which had a slightly higher 9% viewership share and a 9% ad revenue share but probably a lower EBITDA margin vis--vis TGRT as of 2004. So, we could argue with a relatively high degree of confidence that TGRT TV could also fetch a higher price than our estimated valuation; hence, we should not be surprised in case of a transaction price in the vicinity of US$200 mn. Note that in 2002-2003, when its shares were transferred to Ihlas Yayin Holding, TGRT TV was valued at US$154 mn by Grant Thornton, an independent audit company. Bisan: 93.3% owned bicycle and moped producer Bisan, is another divestment candidate for Ihlas Group since the Group does not consider motor vehicle production as a core business. As will be recalled, Ihlas Group had formerly withdrawn from the domestic distribution of Kia-branded vehicles in Turkey as part of another restructuring programme.

Exhibit 3: Bisan -- Shareholding Structure

Ihlas Holding (98.18%)

Ihlas Pazarlama (95%)

Ege Mosan (99.9%)

Bisan

Source: Ihlas Holding, EFGI Research

Originally a bicycle and moped producer, Bisan has expanded over time into the manufacture of wheel chairs and spare products, in order to tackle seasonality and

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utilise its unused capacity. The company at present has a capacity to produce 900,000 bicycles, 70,000 mopeds and 25,000 wheelchairs. Having well established its place in the two-wheel sector, Bisan decided to expand into the four-wheel sector in 2004 and signed a distributorship agreement with the Russian GAZ company, Russias largest producer of commercial vehicles, to import and distribute Sobol and Gazelle branded light commercial vehicles in the Turkish market. Meanwhile, Bisan also stepped up its efforts in overseas markets and exported 30% of its total production in 2004. Bisan recorded US$31 mn of revenues and US$11 mn of EBITDA in 1H05 and had US$26 mn of net cash as of 1H05. Based on its 1H05 performance, we forecast Bisan to report US$55 mn of net sales and US$16.5 mn of EBITDA for the full-year. We value Bisan via a target 2x EV/EBITDA multiple (since we lack sufficient data to build up a DCF model) which yields an estimated US$59 mn valuation. Ihlas Holding is planning to offer part of Bisans shares to public in 1H06 if it fails to attract a buyer for the company. Ihlas Holding owns Bisan shares indirectly via its 95% owned subsidiary Ege Mosan, which holds 99.9% of Bisan. Ege Mosan is currently an inactive company. Ihlas Sigorta: 88.25% owned Ihlas Sigorta, seen as a non-core asset, is another company on Ihlas Holdings sell-off list. Operating in non-life insurance segments, Ihlas Sigorta is a small scale insurance company with a 0.9% share in total non-life premium generation as of 2004.

Exhibit 4: Ihlas Sigorta -- Shareholding Structure

Others 4.8% Ihlas Pazarlama 6.9%

Ihlas Holding 88.3%

Source: Ihlas Holding, EFGI Research

Ihlas Sigorta recorded US$13 mn of premium generation and US$0.5 mn of gross technical profit in 1H05. We estimate the companys full-year premium generation at US$26 mn and gross technical profit at US$0.8 mn. Based on the average 0.25x P/Sales ratio for the ISE-listed non-life insurance companies, we value Ihlas Sigorta at US$6.5 mn. Ihlas Kargo: The 53.4% owned Ihlas Kargo, is another potential divestment candidate for Ihlas Holding.

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Exhibit 5: Ihlas Kargo -- Shareholding Structure

Individuals 47%

Ihlas Pazarlama 53%

Source: Ihlas Holding, EFGI Research

Ihlas Kargo recorded US$14 mn of net sales and US$0.06 mn of EBITDA in 1H05, which we expect to reach US$28 mn and US$0.11 mn, respectively for the full-year. Based on a target 0.5x EV/Sales multiple, we arrive at a US$14.5 mn fair valuation for Ihlas Kargo. Food and Beverages Sector -- Ihlas Group has recently withdrawn from the food and beverages sector by divesting its stakes in the soft drinks producer, ISE-listed Kristal Kola and associated distribution companies, Kristal Gida Dagitim AS and Ihlas Gida ve Ticaret AS for a total sum of US$8.9 mn. Being the primary shareholder of these companies, Ihlas Holding received the bulk of the cash flows from the sale with cUS$8 mn.

Exhibit 6: Sale of Food & Beverage Companies % stake divested Kristal Kola sale Ihlas Holding 35.3% Ihlas Ev Aletleri 2.7% Kristal Gida Dagitim AS sale Ihlas Holding Ihlas Pazarlama Ihlas Gida ve Ticaret sale Ihlas Holding Ihlas Pazarlama Direct cash flow to Ihlas Holding
Source: Ihlas Holding, EFGI Research

Cash flow from sale (US$mn) 7.80 0.59

Implied Valuation (US$mn) 22.07

20.0% 42.0%

0.13 0.27

0.64

20.0% 20.0%

0.04 0.04 7.96

0.18

We would like to highlight at this point that Ihlas Holding, unlike its ISE-listed peers, is not a pure conglomerate company, since, besides holding equity stakes in group companies, it also undertakes the groups activities in the construction, health and education sectors. Along with its portfolio rationalisation strategy, Ihlas Holding also aims to simplify its structure and become a pure conglomerate company via transferring its operations to the relevant
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subsidiaries, as it had done earlier by transferring the distribution of newspaper and household appliances to the related companies. Hence, within this context, we might see Ihlas Holding transfer its construction activities to its 50% owned subsidiary, Ihlas Yapi, in the future.

CORE BUSINESSES
Targets for core businesses -- As we mentioned in the earlier sections, one of the main aims of the portfolio restructuring will be to create fresh capital for the core businesses, which the Holding has identified as construction/real estate development, media, health, manufacturing and marketing of household appliances and education. In our view, 6 core sectors could also be too many to sustain for the longer term, thereby prompting another round of restructuring down the line. As we will be discussing below, among its 6 core sectors, Ihlas Holding has ambitious growth plans particularly for the construction sector. Media sector -- Despite the planned sale of TGRT TV, Ihlas Holding will maintain its presence in Turkeys promising media sector via the following assets: Turkiye Newspaper (Ihlas Gazetecilik) -- Being a national daily since 1970, Turkiye is one of Turkeys top 10 daily newspapers with an average daily circulation of c200,000 (c4% market share) and a c3% ad market share. Capitalising on Ihlas Groups strong distribution power, Ihlas Gazetecilik distributes about 85% of the newspapers directly through door to door delivery, which results in a stable and loyal customer base for the company. Ihlas Gazetecilik has printing facilities in 6 provinces with a combined printing capacity of 1.5 mn copies/day, which leaves ample room for boosting Turkiye newspapers daily circulation. According to management, Turkiyes reader base is highly receptive to cultural product campaigns, so going forward the newspapers daily circulation (accordingly ad revenues) could be easily increased via launch of new promotional campaigns. In 1H05, Ihlas Gazetecilik recorded US$6 mn of circulation revenues, US$8 mn of ad revenues, US$20 mn of net sales and US$7 mn of EBITDA. This implies an outstanding 32% EBITDA margin especially when compared with those of its listed peers, i.e. Dogan Gazetecilik (2%) and Hurriyet (25%). For the full-year, we expect Ihlas Gazetecilik to post US$13 mn of circulation revenues, US$17 mn of ad revenues, US$43 mn of net sales and US$13 mn of EBITDA. We value Ihlas Gazetecilik at US$42 mn via 5x EV/EBITDA, which is very conservative in comparison to the current 12-14x 2005 EV/EBITDA multiples for its ISE-listed peers. Note that Turkiye newspaper was valued at US$100 mn by Grant Thornton during the transfer of its shares to Ihlas Yayin Holding back in 2003. TGRT News TV -- TGRT News TV, which is Turkeys sole 24-hour news channel, was born out of TGRT TVs successful newscasts in late 2004. Supported by Ihlas News Agencys national and global newsgathering power, TGRT News TV enjoys a natural competitive advantage in providing timely and accurate news reports. TGRT TV reaches some 60% of the population via Turksat, cable and Digiturk. Since TGRT News TV is still at its infancy stage, we currently do not assign any value to the company. Following the sale of its mainstream TV channel, TGRT TV, Ihlas Group intends to invest into TGRT News TV to evolve it into Turkeys leading news channel. TGRT Marketing TV -- TGRT Marketing is a 24-hour live shopping channel that emulates the successful European and American models. The channel offers an

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opportunity in particular to Ihlas Pazarlama, which currently utilises door-to-door marketing, to access wider circles and promote its products more efficiently. We currently do not incorporate any value for TGRT Marketing TV to our model, due to its recent launch. TGRT EU TV -- Launched in late 2004, TGRT EU TV is a bilingual news and entertainment TV channel (broadcasting in both German and Turkish) targeting the 3.5 mn Turks living in Europe. TGRT EU is the first major Turkish TV to be licensed in Germany and is available to most of Europe (reaching some 80% of the European Turkish families) via Turksat 2A satellite and could also be watched in many European cities via cable. Ihlas Groups aim is to make TGRT EU the preferred medium for the European Turks and advertisers going forward. According to management, TGRT EU TV reached cEUR100-150k of monthly ad revenues right after its launch, which could easily be raised to around EUR1 mn per month going forward. Again, being in the early stages of its growth, we do not compute any valuation for TGRT EU TV. TGRT FM -- A national radio station launched in 1993, TGRT FM enjoys being Turkeys mostly widely available private station with its 127 transmitters in 81 provinces. Ihlas News Agency (IHA), Ihlas Haber Ajansi -- IHA is Turkeys leading news agency with an unrivalled 70% market share in news footage while also ranking as a prominent player on an international scale. According to a BBC survey, IHA is the third largest news agency based on rapid access to international news, capacity of live footage and number of technical facilities in foreign countries. IHA enjoys a unique competency in reaching the news hotspots rapidly and cost effectively, as exemplified by its successes in the coverage of the 9/11, Kosovo and Iraqi wars, etc. It has a special focus on the Middle East Region while also being the major supplier of news in Arabic. IHA has an immense archive of visual and text based news, consisting of 900,000 photos, 261,000 video footages, 1,222,000 news stories and 343,000 video texts. The company boasts a large client base including local as well as leading global TV channels such as CNN, Reuters, etc. in addition to ISPs and newspapers. With its strong support in global and national newsgathering, IHA creates an unrivalled content advantage and synergies for the groups other media companies. Going forward, IHA aims to grow its revenues through more actively sharing its news archives with the worlds leading TV channels in return for a fee. In that respect, IHA views the growing foreign interest in the Turkish TV channels as a potential business opportunity. We currently value IHA at a rather conservative US$7.5 mn (at 0.5x 2004 P/Sales) due to the absence of its recent financials. Note that IHA was valued at a much higher US$48 mn by Grant Thornton in 2003, when its shares were transferred to Ihlas Yayin Holding. Magazines -- Having published its first magazine in 1981, Ihlas Holding is one of the leading players in the magazine segment. The Group publishes a total of thirteen magazines under three different categories: popular, business and international.

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Ihlas Net -- Ihlas Net is the Groups ISP company, providing internet access and internet based value added services particularly to corporate customers. Ihlas Net is also gradually establishing itself as a licensed operator by offering calling card services and long distance calls over VoIP. Manufacturing of Household Appliances -- Ihlas Group moved into the manufacturing of household appliances in order to support its marketing business with quality products. Ihlas Ev Aletleri The ISE-listed Ihlas Ev Aletleri (IHEVA.IS) manufactures a wide array of electrical and non-electrical home appliances and kitchenware, with cleaning robots, water purification devices and water-heaters being its key products. Ihlas Ev Aletleri markets its products through the door to door marketing network of its sister company, Ihlas Pazarlama, which allows it to enjoy lower marketing costs. Thanks to its flexible production and direct contact with customers, Ihlas Ev Aletleri can continuously respond to the changing needs of its customers and improve the quality of its products. The recovering consumer demand, rising incomes and changing shopping preferences towards direct sales represent the major opportunities for Ihlas Ev Aletleri going forward. On the flip side, the company is faced with the threats of rising import competition in the Turkish market and lack of market diversification (as it caters primarily to the groups loyal customer base which consists largely of low-mid income groups). Ihlas Ev Aletleri believes that TGRT Marketing channel could serve them to access new market segments in the future via more effective promotion of their products on TV. Ihlas Ev Aletleri registered US$24 mn of net sales, US$1.6 mn of EBITDA and US$1 mn of net income in 1H05. For the sake of conservatism, we prefer to value Ihlas Ev Aletleri at its current Mcap (US$21 mn). Marketing Marketing has been a core business for Ihlas Holding since its inception. As a strategy, Ihlas Holding targets the low-mid and mid-income segments of the population, who are generally more loyal and also represent the highest potential to increase consumption in a lower inflation environment. Ihlas Pazarlama -- With its nationwide network, which is said to be the third largest in the country with 2,000 sales points (comprised of 500 Ihlas shops, 600 demo offices, 500 distribution offices and 400 certified service outlets), Ihlas Pazarlama constitutes one of the main pillars of Ihlas Group. Ihlas Pazarlamas business concept can be summarized as identifying indispensable products for the households, having them manufactured either within the group or outsourced and then marketing them aggressively. Hence, while acting as the marketing and distribution arm for the groups products (household appliances in particular), Ihlas Pazarlama also markets products that are imported or outsourced from other local producers. According to management, group products currently account for 40% of Ihlas Pazarlamas revenues, with outsourced products constituting the remaining 60%. Going forward though, Ihlas Pazarlama intends to raise the share of group products within its total sales up to 80%, since it enjoys higher margins on these. With its active sales force of 8,000 people, Ihlas Pazarlama mainly utilises door to door marketing. With the recent launch of TGRT Marketing TV, Ihlas Pazarlama has also gained access to an alternative medium, through which it could promote its products more efficiently.

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Ihlas Pazarlama generated cUS$60 mn of net sales in 1H05 while its EBIT stood at cUS$4 mn. Used to enjoy US$200-300 mn of revenues p.a. before the crisis, Ihlas Pazarlama saw its revenues dip after the crisis due to declining demand and working capital problems. Management believes that through restructuring, which will result in a cash inflow to Ihlas Pazarlama via the sale of its stakes in Turkiye Newspaper and IHA to Ihlas Yayin Holding, Ihlas Pazarlama will find the means to pursue a more aggressive marketing strategy and boost its revenues (i.e. expand sales workforce, extend credit terms to dealers, which will also help the group to switch from outsourcing to the more profitable in-house production). Indeed Ihlas Pazarlama has a rather ambitious 150% revenue growth target for 2006. We value Ihlas Pazarlama through a target 5.5x EV/EBITDA multiple, yielding a US$47 mn fair valuation for the company. Construction/Real Estate -- Ihlas Holding is primarily involved in residential development, undertaking mass housing projects for the middle income groups and higher end villa projects for the upper income groups. In additional, it undertakes thermal holiday resort projects, whereby the apartments constructed are marketed under a time-sharing ownership scheme. (Time-sharing system allows an apartment to be used by different households in different periods of the year, usually for 15-days, according to a shared ownership scheme. Under this system each owner is allowed to retain the right to sell, rent or inherit his or her share). Ihlas Holding has entered the time-share housing segment in response to strong demand for such trends and is currently the market leader with c80% market share. In the non-residential segment, Ihlas Holding is involved mainly in the construction of buildings/facilities for its own operations and/or for the group companies rather than for third parties. With its more than 20 years of experience in the sector, the Holding has built 1.3 mn sqm of closed space to date generating total revenues of US$750 mn. Ihlas Holdings strong track record in the sector comprises the construction of: 6,100 apartments and 134 villas in three residential complexes, 2,827 time-share apartments with 62,194 time-share periods. Ihlas Holding headquarters (78,000 sqm), Bahcelievler and Marmara Houses School campuses, TV studios, Kuzuluk Thermal Hotel and Turkiye Hospital.

As pointed at in the earlier sections of the report, construction activities are carried out directly by Ihlas Holding and could be transferred to Ihlas Yapi in the future within the context of restructuring. Under normal conditions Ihlas Holding completes its construction projects in 2-3 years and collects the revenues from sale in up to 5 years. As Ihlas Holding initiates the sale process nearly concurrent to construction, it could carry out its projects with little working capital needs. Thanks to its existing machinery park and equipment, Ihlas Holding also enjoys low capex, except when it purchases the land, in which case the cost of land usually corresponds to about 20-25% of the project revenues. Accounting -- As for the accounting of the construction projects, Ihlas Holding recognizes the revenues and expenses whenever it invoices and delivers the units to the buyers. Until then, it carries all the project costs and revenues in relevant accounts on the balance sheet. As a result of this accounting method, performance of the construction business is reflected to Ihlas Holdings income statement with some lag.

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Ongoing projects -- Ihlas Holding has one ongoing residential project at present, namely the Guzelsehir Project. This project consists of 675 luxury villas to be developed on more than 600k sqm of land in Guzelce, which is situated on the outskirts of Istanbul, close to both E-5 and E-6 (TEM) motorways. The villas in the project are classified under 9 different categories and have a price range of US$250-600k. Ihlas Holding has a US$200 mn revenue target from this project. So far, the Holding has completed the construction of the 300 villas and aims to complete the whole project by the end of 2008. Prospective projects -- In addition to its ongoing Guzelsehir project, Ihlas Holding is planning to start the construction of the additional units at Armutlu Holiday Resort by Nov05. This project involves the construction of 340 time-share apartments with 7,480 time-share periods. The Holding is targeting TRY80 mn (cUS$60 mn based on current exchange rate) of revenues from this project and is aiming to complete the construction within 18 months. Compared with regular residential projects, time-sharing projects can be more profitable, since they involve the sale of the same unit to more than one household and they could also give rise to further revenue sources going forward, i.e. by having the time-share owner share his rent income with Ihlas Holding in cases when he decides to rent his time-sharing period to another party, etc. Ihlas Holding sees further opportunities in the construction sector, particularly in the areas of large residential complexes and earthquake resistant housing, and wishes to exploit these potentials. Hence, construction is likely to be the major growth area for the Holding in the coming period. Regarding prospective projects, Ihlas Holding is considering: 1) a new mass housing project targeting the middle and middle-upper income groups. Ihlas Holding is currently looking for a land in Beylikduzu for this project and is foreseeing US$200 mn of revenue from the project. 2) a new holiday resort project in Cesme, Izmir, which is one of Turkeys major thermal centres, in addition to being one of the countrys most popular vacation sites. This project will be developed on a time-sharing ownership scheme. Please note that Cesme was awarded a tourism region status very recently; hence, the state is likely to grant potential investors some incentives to encourage new tourism investments in this region. The tourism Minister has indicated already in a press interview that they are aiming to evolve Cesme into one of the worlds largest thermal provinces. Ihlas Holding has a US$250 mn revenue target from this project, yet does not disclose further details since the project is still at a premature stage. A new business strategy -- Ihlas Holding, which has undertaken only its own projects to date, is also aiming to participate in third party residential projects as a contractor going forward. Through this new strategy, Ihlas Holding aims to generate additional construction revenues and utilise its existing machinery park more effectively (though returns on these projects are likely to be lower than its own projects). As the initial example of this new vision, Ihlas Holding has given bids for the two projects of the Mass Housing Administration (TOKI) in August 2005, which were to be developed on a revenue sharing basis in Bahcesehir. Yet, according to management, the projects were awarded to another company. As the second example of this new strategy, Ihlas Holding has very recently submitted bids for the two residential projects of the Ankara Metropolitan Municipality jointly (51/49 JV) with another construction company. The first of these projects involves the construction of residential units on the Municipalitys 78,182 sqm land with a total construction area of 191,868 sqm and has an estimated TRY77.9 mn (US$57 mn) cost based on 2005 unit prices. The second project involves the construction of residential units together with commercial and sports facilities on the municipalitys 42,617 sqm land with a total construction area of 117,197 sqm and has an estimated cost of TRY47.6 mn (US$35 mn) again on 2005 unit prices. Both projects will be undertaken in return for a certain number of housing units (c40% of the total to be built). Ihlas
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Holding sees its chances for these projects as highly likely and has a revenue expectation of cUS$100 mn in case it wins the tenders. Generally speaking, Ihlas Holding is very eager to pursue this new strategy and will be targeting similar projects going forward. Preparing for the upcoming mortgage system -- In view of the favourable macroeconomic developments that have set the stage for the launch of cheaper and longer term financing schemes, Ihlas Holding decided to establish a joint mortgage company with the US-based Oxford Capital Investments Inc. namely, Ihlas Oxford Mortgage Ins. ve Tic AS, to tap into this potential. Founded in late 2004, Ihlas Oxford Mortgage Ins. ve Tic AS will develop real estate projects and provide mortgage financing to individuals. Slated for mid-2006, mortgage system is expected to buoy Turkish housing and construction market by enabling larger segments of the population to afford home buying through more favourable financing terms. According to management, Ihlas Holding will contribute to this JV its know how and experience in the development of residential projects, while its JV partner will provide the financing. The JV is preparing to launch mortgage services, as soon as the legal framework is established. Ihlas Holding recorded US$54 mn of revenues and US$7 mn of EBIT from the construction business in 1H05. We expect these figures to reach US$113 mn and US$12 mn, respectively, by YE05. We value the construction business at US$40 mn via 5x EV/EBITDA and by assuming an US$80 mn normalised annual revenue and a 10% normalised EBITDA margin. Ihlas REIT -- Established in 1997, Ihlas REIT (IHGYO.IS) adds an investment partnership and financing component to Ihlass construction business. Being one of the 10 listed REIT companies in Turkey, Ihlas REIT possesses a diversified portfolio composed of a wide range of real estate projects, i.e. villas, time-sharing housing schemes, business centres and restitution projects, etc. The companys latest NAV as of 9M05-end stands at US$18 mn vs. its current Mcap of US$25 mn (though the latter includes the US$7.6 mn cash raised through the recent rights issue). If NAV is adjusted for this, then Ihlas REIT is trading at close to par with its NAV.
Exhibit 7: Ihlas REIT -- NAV Table as of 9M05 (US$mn) Location Land Tekirdag Buildings Office at Ihlas Plaza Real Estate Projects Guzelsehir Park Konaklar Total Value of Real Estate Money and Capital Markets Instruments TOTAL PORTFOLIO VALUE Liquid Assets Receivables Other Assets Debt NAV Cash received from rights issue Adjusted NAV Current Mcap Premium/(Discount) %
Source: Ihlas REIT, EFGI Research

Appraisal date

Sqm

Number Appraisal Portfolio of units Value Value 0.7 5.2 35 villas 20 villas 11.5 4.3 0.7 5.2 8.4 6.7 21.0 0.1 21.2 0.4 3.7 2.2 9.6 17.8 7.6 25.4 24.5 -3.5%

Tekirdag Yenibosna/Istanbul Buyukcekmece/Istanbul Cekmekoy/Istanbul

Dec 24, 2004 12,000 Dec 14, 2004 Jan 19, 2005 Dec 15, 2004 3,681

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Current projects -- Ihlas REIT is currently undertaking the Cekmekoy Park Konaklar Project in Istanbul. Developed to serve the rising demand for low-rise homes in the aftermath of the devastating Marmara earthquake, the project comprises the construction of 20 villas along with social and sports centres on a 21,791 sqm land in Cekmekoy, which is only 15 minutes away from the city. Ihlas REIT initiated the construction of the project in late 2003 and has already completed the pre-sale of all the units. As the construction works are still in progress and the units have not been delivered to the owners, revenues/costs from the project are yet to be reflected to Ihlas REITs P/L. Future projects -- Looking forward, Ihlas REIT is planning to focus on projects similar to the Cekmekoy Park Project, i.e. projects that comprise earthquake resistant single or duplex homes equipped with a variety of social facilities and located in close proximity to main highways so that they could provide easy access to metropolitan areas. Ihlas REIT has recently raised US$7.6 mn through a 50% rights issue, which is likely to be channelled into prospective projects. As regards to such projects, Ihlas REIT has a 12k sqm of land in Tekirdag, on which it could develop a new residential project to tap into the rising housing demand in this region. This project may come to the agenda especially after the introduction of the mortgage system in Turkey, which is expected by mid-2006. As announced officially by the company, Ihlas REIT is currently in touch with a number of real estate development companies and funds to explore possible strategic partnership opportunities for undertaking joint real estate projects in Turkey. Health -- Among the pioneers of private health care services in Turkey, Ihlas Holding owns a fully equipped hospital, as well as two thermal resorts and a thermal hotel. Turkiye Hospital -- This is a 50-bed hospital located in Sisli, with a particular specialization in eye surgery. The hospital has five surgical operation rooms, a 12bed maternity unit, as well as radiology, tomography and laser treatment units. Ihlas plans to build a new 120-bed hospital on the same land, which will come into play only after the resolution of some legal issues. Kuzuluk Thermal Houses -- Kuzuluk Thermal Houses is Turkeys first time-share Spa resort which offers health care services with the full convenience of a holiday village. Located 200 km from Istanbul, the resort comprises fully furnished 1,479 apartments with a total of 32,538 time-share periods as well as several accompanying social and leisure facilities, namely; a thermal health care center, an indoor pool filled with spa water, a health clinic, a pharmacy, a shopping center, restaurants, a conference hall, as well as football and basketball fields. Kuzuluk Thermal Hotel -- Kuzuluk Thermal Hotel was developed as a part of the Kuzuluk Spa complex to combine the health benefits of the spa and natural beauty of Kuzuluk with the conveniences of a luxury hotel. Armutlu Holiday Resort -- Located close to Istanbul in one of Turkeys most prominent thermal centres, Armutlu is the largest and most extensive thermal holiday resort in Turkey. The resort includes fully furnished 1,348 apartments with a total of 29,656 time-share periods and several accompanying social and sports facilities such as olympic indoor pools, aqua park, saunas, bowling hall, cinema theatre, squash hall, shopping center, restaurants, and a water park. We value the health business at US$7 mn by applying a 0.5x P/Sales on 2004 revenues (US$14 mn).

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Education -- Ihlas operates 5 schools hosting in total 2,000 students. These are two elementary schools, two public high schools and a multi-program high school which brings together a general high school, a vocational high school specialized in radio and TV broadcasting and another vocational high school specialized in computers and electronics. We value the education business at US$2 mn by applying a 0.5x P/Sales on 2004 revenues (US$4 mn).

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CONSOLIDATED FINANCIALS
Ihlas Holding has started to release its consolidated IFRS financials for the first time in 2005, which are not directly comparable with the Holdings previously published inflation adjusted and consolidated Turkish GAAP financials. Along with the switch to IFRS reporting, Ihlas Holding has also started to provide a segmental breakdown of its operations, which was not available in its Turkish GAAP financials. Hence, the IFRS financials enable a clearer insight into the performances of the Holdings individual businesses, thereby enhancing overall transparency. Ihlas Holding recorded US$237 mn of consolidated revenues in its 1H05 IFRS financials vs. US$120 mn recorded in 1H04 Turkish GAAP financials. Despite the absence of a segmental breakdown to analyse the drivers of revenue growth, we deem the construction business as the major driver, since Ihlas Holding has started to recognize the revenues from the Armutlu Holiday Resort Project as of 2H04. Note that revenues in the construction business are recognized only when the units are invoiced and delivered to the buyers. On a segmental basis, the household appliances & motor and non-motor vehicles segment accounted for the largest 25% share of 1H05 consolidated revenues (before inter-segment eliminations), followed by the marketing segment (20%), construction segment (18%), others segment (15%), media segment (12%), food and beverages segment (6%) and finally insurance segment (4%).
Exhibit 8: Breakdown of Consolidated Revenues before inter-segment Eliminations

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17.6% 12.4% 1Q05 Media Marketing Household App & Vehicles Others 17.7% 11.8% 1H05 Construction Insurance Food & Beverages 18.9% 12.7% 2005E 16.6% 4.9% 25.9% 4.7% 18.0% 14.7% 6.4% 25.4% 4.2% 19.8% 14.9% 4.8% 23.4% 4.3% 21.0%

Source: EFG Istanbul Research Estimates

As demonstrated in the above chart, the share of the food and beverages segment in total consolidated revenues is projected to retreat to 5% by YE05 due to the Holdings withdrawal from this segment as of late Oct.

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Ihlas Holdings 1H05 consolidated EBIT and consolidated EBITDA amounted to US$14 mn and US$41 mn, respectively, implying a 6% EBIT and 17% EBITDA margin. Though not directly comparable, Ihlas Holding reported an US$8 mn consolidated operating loss and a relatively minor US$6 mn consolidated EBITDA in the year-ago period. On a segmental basis, household appliances & motor and non-motor vehicles, construction and marketing segments stand as the major contributors to consolidated EBIT, while media, food and beverages and others segments make a negative contribution to EBIT as depicted in the table below.
Exhibit 9: Breakdown of Consolidated EBIT before intersegment eliminations (US$mn) 1Q05 1H05 2005E Media -2.6 -4.8 -9.8 Construction 1.5 6.5 12.4 Marketing 0.5 4.3 8.8 Insurance 0.0 0.5 0.8 Food & Beverages -0.6 -0.5 -0.6 Household App & Motor and Non-motor Vehicles 4.8 8.1 15.4 Others 1.6 -0.2 0.4 Consolidated EBIT before intersegment eliminations 5.2 14.0 27.5 Consolidated EBIT Margin 4.1% 6.0% 5.4%
Source: EFGI Research Estimates

We forecast a slight decline in Ihlass consolidated EBIT margin by YE05 on the back of the expected seasonality-related slowdown in the construction segments margins, since timeshare periods sell at higher prices in the summer months. Below the operating line, Ihlas Holding recorded US$1.7 mn net other income and US$4.2 mn of net financial expense in the first half of the year. Thanks to the TRY remaining stable between YE04 and 1H05, Ihlas Holding was able to contain the foreign currency losses on its cUS$66 mn short FX position during the stated period. Since inflation accounting was scrapped as of the beginning of 2005, Ihlas Holding was deprived of monetary gains in 1H05, which -- for comparison purposes --amounted to a notable US$15 mn in 1H04. This notwithstanding, Ihlas Holding managed to post US$8 mn of consolidated net earnings in 1H05 vs. US$3 mn in 1H04. For the full-year 2005, we expect Ihlas Holding to register US$471 mn of consolidated revenues (2004 inflation adjusted Turkish GAAP: US$376 mn), US$26 mn of consolidated EBIT (2004 inflation adjusted Turkish GAAP: US$3 mn), US$76 mn of consolidated EBITDA (2004 inflation adjusted Turkish GAAP: US$35 mn) and US$12 mn of consolidated net earnings (2004 inflation adjusted Turkish GAAP: US$23 mn). YE05 bottom line at US$12 mn may seem somewhat low in relation to the announced 1H05 net profit of US$8 mn, though this reflects our expectations of a seasonal slowdown in some businesses in 2H05, such as construction and motor vehicles and our macro teams forecasts of a weaker TRY by the end of the year, which boosts the Companys net FX losses. As Ihlas Holding is currently undergoing a restructuring process and as such is poised to withdraw from some sectors and/or divest some of its assets, it is hard to forecast the Companys financials for 2006 and beyond. Given the uncertainty as to the timing of the Holdings planned asset sales, we prefer to base our 2006-2007 forecasts on the Holdings existing business portfolio. Hence, our 2006-2007 forecasts should be considered as guidance by investors, which could be subject to change in tandem with potential restructuring efforts.

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Based on its current business portfolio, we expect Ihlas Holding to report US$433 mn of consolidated net sales, US$71 mn of consolidated EBITDA and US$12 mn of consolidated net earnings in 2006. While we foresee a slight slowdown in revenues and EBITDA due to the Holdings withdrawal from the food and beverages segment and a decline in construction revenues (majority of the units within the Armutlu Holiday Resort Project will have been invoiced and delivered in 2005), we expect the bottom line to remain flat with 2005. This is mainly due to the expected growth in Ihlas Holdings cash position and interest income in 2006 thanks to the Holdings recently announced 16.6% rights issue (implying cash injection of US$47 mn at the current exchange rate), which we expect to be held in early 2006. For 2007, we expect Ihlas Holding to post US$512 mn of consolidated revenues, US$77 mn of consolidated EBITDA and US$18 mn of consolidated net earnings. Revenue growth is foreseen to be driven primarily by the new projects in the construction sector. Net debt position -- Ihlas Holding has a consolidated US$63 mn of net debt position as of 1H05 vs. US$52 mn at YE04 and US$66 mn in 1H04. On a standalone basis, Ihlas Holding had a US$14.6 mn net debt position as of 1H05. After adjusting this for the US$8 mn cash flow received from the sale of the stakes in food and beverage companies and the US$2.3 mn paid for Ihlas REITs recent rights issue, we estimate Ihlas Holdings current standalone net debt position at US$9 mn. Planned rights issue -- Ihlas Holding has recently applied to the Capital Markets Board to increase its paid-in capital from TRY394,640,973.5 to TRY460,000,000 via a 16.56% rights issue, which implies an expected cash inflow of US$46.5 mn to the Holding based on the current TRY/US$ rate. We have incorporated this expected cash injection into our 2006-2007 projections by assuming that the rights issue would be held in early 2006.

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Exhibit 10: Ihlas Holding -- Consolidated Income Statements (US$mn) 2004* 1Q05 1H05 Revenues 375.8 104.9 237.0 Cost of Sales -302.4 -83.0 -179.0 Gross Profit 73.4 21.9 58.0 Gross Margin 19.5% 20.9% 24.5% Operating Expenses -70.1 -17.6 -43.6 Operating Profit 3.3 4.3 14.3 EBITDA 35.3 23.9 40.6 EBITDA Margin 9.4% 22.8% 17.2% Income from other operations 82.4 1.7 3.9 Expense from other operations -40.9 -1.0 -2.2 Financial income/(expense) - net -39.9 -3.5 -4.2 Profit before monetary gains, MI and taxes 4.8 1.6 11.8 Net monetary gains 19.2 0.0 0.0 Minority interests 1.10 0.58 0.09 Profit before tax 25.1 2.2 11.9 Taxes -2.2 -0.6 -4.0 Net Income 22.9 1.6 7.9

2005E 470.7 -360.5 110.1 23.4% -84.6 25.6 75.9 16.1% 5.5 -3.8 -9.9 17.3 0.0 0.24 17.6 -5.3 12.3

2006E 433.5 -328.3 105.2 24.3% -82.2 23.0 71.5 16.5% 5.5 -4.2 -8.1 16.2 0.0 0.23 16.4 -4.5 12.0

2007E 511.9 -388.1 123.8 24.2% -92.3 31.5 77.4 15.1% 6.0 -4.6 -9.0 23.9 0.0 0.35 24.3 -6.6 17.7

Source: EFGI Research Estimates, Ihlas Holding *Consolidated and inflation adjusted Turkish GAAP (CMB-21) financials, consolidated IFRS financials from 1Q05 onward.

EFG stanbul - Equity Research

23

Ihlas Holding Conglomerates

November 21, 2005

Exhibit 11: Ihlas Holding -- Consolidated IFRS Balance Sheets (US$mn) 2004 1Q05 ASSETS Current Assets 385 344 Cash & Cash Equivalents 82 81 Marketable Securities 9 5 Accounts Receivables 148 138 Due from related parties 6 5 Inventories (net) 118 95 Other current assets 22 19 Non-current Assets 479 465 Accounts Receivables 3 7 Financial Assets (net) 7 6 Goodwill (net) 101 99 Investment properties 13 12 Property, plant and equipment (net) 239 229 Intangible assets (net) 41 37 Deferred tax assets 47 46 Other long term assets 27 29 TOTAL ASSETS 864 808 LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Short-term Bank Borrowings Current portion of LT bank borrowings Leasing debt (net) Accounts payable Due to related parties (net) Advances received Provisions Other current liabilities Long-term Liabilities Long-term Bank Borrowings Accounts payable Advances received Provisions Deferred tax liability Minority interests Shareholders' Equity Share capital Capital Reserves Retained Earnings Net Income for the period Accumulated profits/(losses) TOTAL LIABILITIES & SHAREHOLDERS' EQUITY

1H05 314 54 5 142 5 91 17 466 7 5 101 13 233 35 43 29 780

2005E 334 54 5 150 6 100 19 450 7 5 97 13 223 28 47 31 784

2006E 348 91 5 138 5 91 17 420 7 4 91 12 219 15 43 28 768

2007E 373 70 4 164 6 108 20 396 8 4 81 11 208 0 51 33 768

387 59 38 8 114 0 136 21 11 105 46 6 7 27 19 47 325 294 192 10 0 (171) 864

329 54 28 7 107 1 103 20 9 114 58 3 7 28 18 46 319 288 188 9 2 (168) 808

290 53 18 7 81 1 98 23 10 108 52 2 7 29 17 50 332 294 186 8 8 (164) 780

308 55 10 6 100 1 103 24 9 104 45 3 8 29 19 48 324 283 179 8 12 (158) 784

286 55 10 3 91 1 95 22 9 89 35 3 7 27 17 45 348 310 168 7 11 (148) 768

323 55 10 1 108 1 113 26 10 89 25 3 8 32 20 40 317 277 150 6 16 (132) 768

EFG stanbul - Equity Research

24

Our rating system comprises the following designations: MARKET OUTPERFORMER (MO), MARKET PERFORMER (MP), MARKET UNDERPERFORMER (MU). The relative upsides to these targets implied by current Mcaps is the main determinant of our rating system. Valuation tools employed most frequently are Discounted Cash Flow (DCF) and international peer group comparison, though other metrics such as historical relative valuation, replacement value are also used wherever appropriate. Our analysts set the fair/target values wi th a 12-month investment horizon. The upside of the market is determined through the aggregate upside of our coverage calculated using free float Mcaps. Our coverage comprises 32 stocks traded on the ISE, which account for around 84% of the total Mcap of the ISE-100. Summary of Our New Stock Rating System We define three major categories in ISE-100 that Rating MARKET OUTPERFORMER (MO) First 50% tranche of the ISE-100 Next 40% tranche of the ISE-100 Last 10% tranche of the ISE-100 >=10 >=15 >=25 <+10 & >-10 <=-10 Required Relative Upside indirectly apply to our coverage as well: Large cap bluechips , which we define as stocks accounting for a c50% weight in the ISE-100, generally comprising 7-10 stocks (currently 8). Medium caps , which we define as stocks whose combined weight constitute the next 40% tranche of the ISE100 (currently there are 32 stocks in this tranche). Small caps , constituting the last 10% tranche of the ISE-100 (currently there are 60 stocks in this Required Relative Return >=10 <+10 & >-10 <=-10

MARKET PERFORMER (MP) MARKET UNDERPERFORMER (MU)

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