Turkey Wake up call: Macro and Political News, 11th February

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Wake – up call

BIST dropped 2.21% yesterday as the Syrian regime attack on a Turkish observation post near Idlib in Northern Syria killed 5 Turkish troops, reminding of geopolitical risks and potential for military clashes in the region. Benchmark index opened lower on news of regulation changes on banking fees & commissions and floated in a 1,000-point range in negative territory until 3:30PM. Selling pressure intensified with reports of casualties after this hour and the index shed some 3,500 points in half an hour before stabilizing and recouping some of its losses until the close. Foreign investors were better sellers, exacerbating the move in the market. Banks lost 1.86% on average with AKBNK, VAKBN, and HALKB lagging while YKBNK managed to stay afloat. KCHOL, THYAO, TKFEN, SAHOL, ENKAI, AEFES, and TCELL topped the laggards of non-bank blue-chips while VESTL, GUBRF, BRISA, and KORDS were among the handful of gainers. Today, our local macro agenda is muted except that the Treasury will reissue 7-year FRNs and separately offer 2-year sukuk papers ahead of its TL9.23bn domestic redemptions for the week. BIST seems off to a slight positive start as the overnight rebound in American markets is propping up global equities while USDTRY is flattish around the 6.02 mark. U.S. futures are up 0.3% in early trades on top of their 0.4-0.5% overnight gains from the time we left and Asian indices are mostly trading in the green.
Macro and Political News:
(-) Five Turkish soldiers killed by Assad regime forces in Syria’s Idlib… The Defense Ministry announced on Monday that five Turkish soldiers were killed and five others wounded when Assad regime forces hit a Turkish observation point at eastern Idlib’s Taftanaz Airport with heavy artillery. According to the ministry's statement, Turkish forces were retaliating after the strike at the airport.
(-) Presidential sources: Turkish military will continue to hit enemy targets… Presidential Communications Director Fahrettin Altun condemned the recent attack by the Assad regime forces against Turkish troops in Syria’s northwestern Idlib province, highlighting Turkey’s determination to pursue its goals. Referring to the recent attack, Altun said the regime targeted Turkish troops who are in the area as per an agreement in line with international law, with the goal to end violence and the humanitarian crisis adding that the Turkish military will continue to crush those who target the Turkish flag.
(-) Security summit reiterates Turkey’s commitment to retaliate to Assad’s attack in Idlib… The security summit was convened under President Erdogan’s chairmanship late Monday. The summit reiterated “resolve to retaliate in kind” to Assad regime’s recent attack in Syria’s Idlib that killed five Turkish soldiers. A statement released after the summit underscored that Turkey is in Idlib to prevent a new humanitarian tragedy, a possible refugee wave and clashes; and no attack will make it give up on its commitment. The statement came after the soldiers were killed by the regime forces in an attack, in which five others were also wounded.
(-) Turkey neutralizes 101 Assad regime military personnel… Turkey’s Defense Ministry on Monday said its forces rapidly retaliated against the Assad regime under the rules of engagement and its right to legitimate self-defense. On Twitter, the Defense Ministry said that 115 Syrian regime targets were hit and 101 regime military personnel neutralized. Turkish authorities often use the term “neutralized” to imply the terrorists in question surrendered or were killed or captured. The ministry added that three tanks, two howitzer positions, and one regime helicopter were also hit. The ministry also said that Turkey's retaliation against the Assad regime will continue under the rules of legitimate self-defense.
(-) No consensus with Russian delegation on Idlib yet… Foreign Minister Mevlut Cavusoglu said Monday that there has been no consensus with the visiting Russian delegation so far regarding the escalating situation in Idlib. He said that since the talks had failed in the first meeting on Saturday, a second session was in progress. Steps to boost the political process in Syria were reportedly discussed in a three-hour-long meeting that stressed the need to ensure peace in Idlib province. It was decided to resume talks in the coming weeks.
(=) Turkey urges Russia to uphold Sochi deal responsibilities in Syria’s Idlib… Presidential Spokesperson Ibrahim Kalin met Russia’s Special Representative for Syria Aleksandr Lavrentyev late Monday. The call came in the aftermath of five Turkish soldiers who were killed by the Assad regime forces in an attack. Saying that Assad regime forces’ attack on the Turkish observation point at eastern Idlib’s Taftanaz Airport with heavy artillery will face retaliation in Turkey’s capacity to protect itself, Kalin urged Russia to undertake its responsibilities stemming from the Sochi deal. The Turkish Presidency said that the attack is unacceptable, adding that such attacks by the regime should stop immediately. Also the statement underlined that the Russian Federation should undertake its responsibilities stemming from the Sochi agreement, to which it is a guarantor state. The statement reiterated that Turkey is ready to implement any measures to prevent the hindrance of the political process in Syria in order to protect its soldiers and ensure the implementation of the Sochi deal.
Recall, the Sochi agreement was reached on Sept. 17 by President Erdogan and his Russian counterpart Putin. According to the agreement, the cease-fire in the Idlib region would be preserved, with the withdrawal of heavy arms and radicals from the region. Prior to the agreement, the Assad regime was signalling a huge operation on Idlib, which is the last stronghold of the opposition, sparking deep fears in the international community of a new humanitarian crisis. Yet, the regime and its supporters have been violating the agreement.
(=) US Syria envoy Jeffrey to visit Turkey to discuss developments… U.S. Special Representative for Syria Engagement James Jeffrey will visit Turkey on Wednesday. Jeffrey was previously in Ankara as part of a high-level U.S. delegation led by Vice President Mike Pence to discuss Turkey’s anti-terror operation in northeastern Syria. Jeffrey told a news briefing in January that the Syrian regime and Russian warplanes had hit Idlib with 200 airstrikes mainly against civilians in the past three days.
(+) Turkish and US businesses to meet in Washington in April… A conference between Turkish and U.S. firms will be held in Washington in April. Mehmet Ali Yalcindag, the head of Turkey-U.S. Business Council (TAIK), said Monday that trade volume target of USD100bn set by the two countries' leaders in June 2019 will be top priority during the conference on April 14-16. Yalcindag stressed that the American Turkish Conference, organized by TAIK and the U.S. Chamber of Commerce, will address trade and investment potential in the field of energy, infrastructure and construction, digital economy, tourism and defense industry. He noted that the delegations will seek ways to maximize bilateral trade volume by focusing on targeted sectors during the meeting.
(=) Turkey: Unemployment rate at 13.3% in Nov 2019… The unemployment rate in Turkey was 13.3% in November 2019, up 1 percentage point from the same month of the previous year, the Turkish Statistical Institute (TurkStat) announced Monday. In a statement, TurkStat said the number of jobless aged 15 and over in the country rose to 4.3 million by the end of the month - a rise of 327,000 from November 2018. However, November's figures showed a 0.1-percentage-point fall compared to a month earlier, when unemployment stood at 13.4% in October 2019.The employment rate slipped 0.9 percentage point to 45.6% - almost 28.17 million people - from the same period the previous year.
(=) Turkey sold TRY6.45bn of linkers in switch auctions… The Turkish Treasury sold inflation-linked bonds due June 2028 in four separate switch auctions, according to results published by the CBRT. Bonds switched were Floating-rate bond due March 2020, inflation-linked bond due April 2020, and two zero-coupon notes due May and June 2020.
(+) Istanbul Airport in talks with Chinese banks on USD6bn loans… The operator of Istanbul’s new airport (IGA) is in talks with Chinese and Gulf lenders to refinance EUR5.7bn (USD6.2bn) of existing loans. IGA said in an emailed response to questions that it is seeking to complete a deal in the first half. The company wants to take advantage of its strong cash flows and decreasing construction expenses to lower financing costs.
Recall, the operator raised the original funding to build the airport from TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS, Turkiye Vakiflar Bankasi TAO, Denizbank AS, QNB Finansbank AS and Turkiye Garanti Bankasi AS in 2015 and 2018. Both loans mature in 2031. IGA has to pay a total EUR22.1bn, or EUR1.1bn a year, for the 25-year contract to operate the airport, with annual lease payments of EUR1.1bn starting this year. The company will make an extra payment of EUR22.4mn to the government after proceeds from international passengers exceeded state guarantees during the first nine months of operations in 2019.

Sector and Company News:

(=) TAVHL declared its traffic figures for January 2020 and accordingly total number of passengers in the airports where TAV has presence decreased by 2% to 4.6mn YoY excluding Ataturk Airport numbers. Domestic pax was down by 12% while international pax was up by 14% in the same period. In cumulative terms, last twelve months YoY growth (Feb19-Jan20) was at 6% thanks to the 18% increase in international numbers. On the other hand domestic pax declined by 9% in the same period. Positive momentum in international passenger numbers continues for TAV in January while domestic pax continued to decline in the same period.

(=) According to the data released by General Directorate of State Airports Authority (DHMI), Turkey’s total passenger traffic including direct transits reached 13.9mn for january 2020, slightly down by 0.8% YoY. During this period, domestic passenger numbers contracted by 9.1% YoY, while international pax were up by 12.1% YoY, supporting the ongoing upward trend on international front. In Istanbul Airport where Turkish Airline has strong presence, total pax was at 5.3mn in January; up by 1.3% compared to Istanbul Ataturk Airport’s and Istanbul Airport’s total January 2018 numbers. International pax was up by 7% while domestic pax was down by 13.5% in the same period. In addition, Istanbul Sabiha Gokcen Airport, where Pegasus has strong presence, total pax has increased by 6.4% YoY in January, to 2.9mn, where international pax surged by 24.6%, while domestic pax declined by 3.5%.

EREGL is to release its 4Q19 earnings in 11th of February on Tuesday. Research Turkey consensus: TL 6.409 mn revenues, TL 865 mn EBITDA and TL 422 mn net profit Global Estimate: TL 6.497 mn revenues, TL 866 EBITDA and TL 411 mn net profit.

FROTO is to release its 4Q19 earnings in 11th of February on Tuesday. Research Turkey consensus: TL 11.505 mn revenues, TL 970 mn EBITDA and TL 568 mn net profit. Global Estimate: TL 12.061 mn revenues, TL 1.024 EBITDA and TL 644 mn net profit.

Oyak Group cement companies announced revisions to the conversion ratios based on an updated independent appraisal report for their proposed merger under MRDIN. Accordingly, conversion rates to MRDIN for each ADANA share will be TL2.0811 (from TL1.9383 in previous report), ADBGR TL1.4745 (TL1.3793), ADNAC TL0.2980 (TL0.3323), ASLAN TL6.1655 (TL7.3971), BOLUC TL0.9599 (TL0.9136), UNYEC TL1.0675 (TL1.0049). Previously-announced right to exit prices (based on the arithmetical mean of corrected weighted average prices quoted in the stock exchange within thirty days prior to the date of first disclosure of transaction to public, excluding the date of disclosure) for minority shareholders as revealed by the companies remain valid: ADANA TL6.9919 // ADBGR TL5.1892 // ADNAC TL2.0210 // ASLAN TL35.9648 // BOLUC TL3.2584 // MRDIN TL5.4464 // UNYEC TL3.6945.

(=) EKGYO signed an agreement on Monday with FUZUL&FUZUL Joint Venture for Istanbul Basaksehir Kayabasi Project, 7th Stage after the second session of the tender that was held on Nov 7, 2019 with revenue sharing model. The estimated total sales revenue is TRY800mn however EKGYO’s share will be TRY256mn with 32% share ratio.

(=) TTRAK posted TL68mn net income in 4Q19, which was 55% above our estimate of TL44mn and 17% above the consensus estimate of TL58mn. While its revenues of TL1.08bn came almost in-line with our estimate of TL1.07bn, TTRAK’s EBITDA of TL128mn was 21% below our estimate of TL162mn. Following its 4Q19 results, TTRAK also announced its 2020E guidance. Accordingly, the company expects domestic tractor market sales to hover between 28k-33k in 2020 (26k in 2019) and TTRAK plans to sell 12.5k-15k units to domestic market (11k in 2019) and 14k-15.5k units to export market (15k in 2019) in 2020E. TTRAK management will propose TL1.87 DPS to its AGM, yielding 3% (expected payment date: March 20).


TRYmn 4Q19 Consensus Global Securities Dev. from consensus 4Q18 YoY 3Q19 QoQ
Revenue 1,083 1,056 1,069 3% 908 19% 983 10%
EBITDA 128 129 162 -1% 110 16% 102 24%
margin 11.8% 12.2% 15.1% -0.5 pps 12.1% -0.4 pps 10.4% 1.3 pps
Net profit 68 58 44 17% 74 -8% 22 207%
margin 6.3% 5.5% 4.1% 0.8 pps 8.2% -1.9 pps 2.3% 4 pps
Net Debt/EBITDA (x) 1.74 2.73 -99 bps 2.53 -79 bps
ROE (%) 14.6% 36.8% -22 pps 16.8% -2 pps
Net debt 650 1,360 -52% 899 -28%
Working capital -490 -1,021 -52% -645 -24%
Δ in WC 155 174 -11% 175 -12%
CapEx 41 118 -65% 20 104%
FCF to firm 244 157 55% 256 -5%
Shareholders' Equity 764 652 17% 699 9%