Turkey Wake up call: Macro and Political News, 25th February

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Wake – up call

BIST dropped 1.75% yesterday, but damage was relatively lighter compared to bigger losses in global peers as the coronavirus worries led to a flight from risky assets and commodities to safe havens like gold. Index opened gap lower at around the 115k mark which happened to be the highest point of the day. Increased pressure on European indices as well as U.S. futures pushed the benchmark BIST100 all the way down to 113.5k in early afternoon, followed by a steep recovery that trimmed daily losses in the last hour of trading. Banks were down 2.61% on average with GARAN and the two state lenders underperforming. Koza Group names, AKSA, LOGO, and MPARK were among the rare gainers while THYAO, PGSUS, TAVHL, EREGL, KCHOL, TTKOM, and TCELL topped the non-bank decliners. Today, our local macro agenda is quiet, apart from Treasury’s reissue of 2-year TLREF-indexed bonds, wrapping up this month's heavy borrowing programme. Domestic redemption is only TL0.40bn for the week while the total for the month stands at TL25.53bn vs a domestic borrowing target of TL21.0bn while Treasury has raised TL15.96bn in the five auctions held so far. BIST seems off to a sideways start with a positive bias as lira is gaining some ground with USDTRY at 6.1197 vs 6.1383 at yesterday’s closing bell while global equity markets seems to be taking a breather in the recent sell-off that erased the yearly gains. U.S. futures are up almost 0.9% this morning in recovery of the 0.8-0.9% overnight losses from where we left while Asian markets present a mixed picture.
Macro and Political News:
(+) Russia and Turkey plan new round of talks on Syria… Russia and Turkey are preparing for a new round of talks on Idlib, the de-escalation zone in Syria. Sergey Lavrov, Russia’s foreign minister, said on Monday that they are preparing another series of consultations, which, they hope, will lead an agreement on how to ensure de-escalation zone and that the terrorists do not rule there. Lavrov said that the ongoing contacts between Russian military and the Turkish military, with the participation of diplomats and security services, will end positively.
(=) New Turkish military convoy arrives in Syria’s Idlib… The large Turkish military convoy entered the northwestern Syrian province of Idlib. According to the local news agencies, the 50-vehicle convoy was accompanied by the Syrian National Army (SNA) troops. Sources said Turkey was deploying special forces to the border with Syria to strengthen its troops standing guard.
(=) Russia to conduct surveillance flight over Turkey… The Russian Defense Ministry announced on Monday that the country will conduct a surveillance flight over Turkey on Feb. 25-28 in accordance with the Open Skies Treaty. Russia-based Sputnik news agency quoted the statement that the Russian Federation plans to carry out an observation flight on Russia’s TU-154M-LK-1 observation plane over the territory of the Republic of Turkey under the Open Skies Treaty. The flight is expected to start from Eskisehir Open Skies airfield with a flight range of up to 1,900 kilometres.
(+) Turkey welcomes some 1.8M foreign visitors in January… The number of foreigners visiting Turkey jumped 16.11% on a yearly basis in January. Almost 1.8 million foreign visitors entered the country last month. Istanbul continued to be Turkey’s top tourist draw, attracting nearly 57% of all visitors - around 1 million. Edirne, in northwestern Turkey, which borders both Bulgaria and Greece, saw the second-highest number of foreigners, with 222,494 in the month. The Mediterranean resort city of Antalya followed them with 8.04% or over 143,679 foreign visitors last month. Bulgarians accounted for over 9% or nearly 162,200 of the visitors, followed by Georgians with some 7.4% (132,674 visitors), and Russians with 7.3% (130,608). Last year, more than 45 million foreigners entered the country, up from nearly 39.5 million in 2018.
(=) Mixed picture for sectoral confidence in February… The business confidence index increased from 104.1 in January to 106.9 in February, marking an uninterrupted rise in the confidence for the fifth straight month since September 2019, data from the Central Bank have shown. To remind, the 100-point level on the index separates optimism from pessimism. Six of the business sentiment survey’s eight main sub-indices exhibited month-on-month increases, according to the Central Bank data. The sharpest increase was registered in the sub-index measuring businesses’ expectations for total employment in the next three months. The related index jumped 9% on a monthly basis, suggesting that the participants of the survey anticipate an increase in employment. Survey participants also said that they expect production volume to increase in the next three months while the sub-index measuring expectations for total orders over the same period increased by 1 percent in February from January. The index measuring companies’ assessment of the general business situation declined by 5% in February from January to 103.4, but still remains above the 100-point threshold.
On a seasonally-adjusted basis, the real sector confidence index inched up to 106.7 in the second month of the year from 106.4 in January. That followed the 2% month-on-month decline in the headline confidence index in the first month of 2020. However, separate business data offered a rather mixed picture on a sectoral basis. The Turkish Statistics Institute reported on Feb. 24 that confidence in the country’s key service sectors improved while construction and retail trade fell on a monthly basis in February. The services confidence index rose 3.4% month-on-month to 98.5 in February, thanks to a rise in “demand-turnover” and its expectation, as well as business sentiment. The construction confidence index stood at 74.5 this month, indicating a fall of 5.7% from January.
According to the statement, the index for total employment expectations over the next three months in the construction sector decreased by 5.1% compared to last month to 88.5. Current overall order books index became 60.4 by decreasing 6.5%. The confidence index for retail trade fell 2% to 102.9 during the same period, driven by deterioration in indices of current stock volumes, business activity sales and business activity sales expectations.
(+) Turkey’s manufacturing capacity utilisation up in February… Turkey’s manufacturing industry used 76% of its capacity in February. The capacity utilization rate (CUR) of the sector rose 0.5ppts from last month. The rate figures are based on the responses given to its business tendency survey by local units operating in the manufacturing industry. Among the six main industrial groups, the highest capacity usage was 76.4% for investment goods, while durable consumer goods posted the lowest rate with 70.9%. Among more than 20 sectors, the highest CUR was posted by manufacturers of wearing apparel at 84.9%. February’s lowest capacity usage was seen in manufacturers of beverage at 59%.

Sector and Company News:
(=/+) SAHOL posted TRY881mn net income, 4% above consensus estimate vs. -4% below Global estimate. Net income decreased by 7.55% QoQ and 11% YoY. The main contribution to net income came from banking and energy segments in Q4 which have the largest portion of company’s NAV. Retail segment posted TRY34mn net loss while banking segment contributed the net income by TRY549mn, up by 17% YoY.

TRYmn 4Q19 Consensus Global Securities Dev. from consensus 4Q18 YoY 3Q19 QoQ
Revenue 4,988 0 0 n.a 4,505 11% 4,693 6%
EBITDA 2,494 0 0 n.a 1,439 73% 2,100 19%
margin 50.0% n.a n.a n.a 31.9% 18.1 pps 44.7% 5.3 pps
Net profit 881 845 921 4% 429 105% 953 -8%
margin 17.7% n.a n.a n.a 9.5% 8.1 pps 20.3% -2.6 pps
Net Debt/EBITDA (x) 4.02 4.75 -73 bps 4.30 -28 bps
EV/EBITDA 6.1 6.5 6.6
P/E 5.1 4.0 5.9
ROE (%) 11.4% 13.1% -2 pps 10.5% 1 pps
Net debt 37,622 42,106 -11% 35,725 5%
Working capital 754 1,583 -52% 1,045 -28%
Δ in WC -291 -1,152 -75% -29 914%
CapEx -658 -1,072 -39% -727 -10%
FCF to firm 1,709 1,454 18% 1,031 66%
Shareholders' Equity 33,258 29,290 14% 31,775 5%

(=) PGSUS announced that it has suspended flights from Istanbul to Tehran and Tehran to Istanbul until 11 March due to coronavirus risk.