Turkey Wake up call: Macro and Political News, 6th February

This analysis by GLOBAL Securities is presented to you by Raiffeisen Centrobank AG. Raiffeisen Centrobank AG acts solely as a distributor of this analysis and has not introduced any material changes to the content of this analysis or any recommendation included herein.

Wake – up call

BIST inched up 0.15% yesterday. GARAN, SASA, KCHOL, AKBNK and THYAO topped the list of gainers while BIMAS, HALKB, ISCTR, SISE and ASELS were decliners for yesterday. Coming to this morning, our local macro agenda is muted and we foresee a positive start for the BIST.
Macro and Political News:
(=) Erdogan warns Syria’s Assad to withdraw behind Idlib de-escalation zone by end of month… President Erdogan on Wednesday warned the Bashar Assad regime to withdraw behind Turkish observation post lines by the end of February or face repercussions. Speaking at the ruling Justice and Development (AK) Party’s parliamentary group meeting, Erdogan said Turkey will take action if the regime does not withdraw its forces to the designated areas. The president said that Turkey’s air and land forces will move freely in all operation areas in Syria and in Idlib, and they will conduct operations if necessary, adding that the country will retaliate against all attacks on its soldiers or its allies’ forces, regardless of the source, while noting that Turkey does not intend to confront any of its allies. Erdogan said the agreements in Syria’s Idlib and east of Euphrates are not functioning. He added that Turkey aims to protect the lives and property of innocent civilians in its operations. Erdogan warned that nothing will be the same after the Assad regime attack in Idlib which killed Turkish soldiers. He also noted that Turkey expects Russia to understand Ankara’s sensitivities in the area.
(+) Russia may buy Turkish food products replacing China’s… Russia may import fruit, vegetable, and seafood products from Turkey or Morocco, replacing imports from China amid coronavirus outbreak. Dmitry Vostrikov, head of Russia’s Food Products Manufacturers and Suppliers Association, said that vegetables, fruits and seafood make up the basis of Chinese food exports to Russia. He said, the falling volumes of food products can easily be replaced by supplies from other countries, such as Morocco and Turkey. According to Vostrikov, a total of 453,000 tons of vegetables worth USD370mn were imported from China in the first 11 months of 2019. Israel ranks second in this area with 139,000 tons worth USD135mn of imports. He noted that Turkey is in third place with 136,000 tons worth USD148mn.
(+) Turkish FM: Time to open new page in EU accession… Foreign Minister Mevlut Cavusoglu on Feb. 5 warned against deepening distrust between Turkey and the European Union and said ties are passing through a very critical period. The minister called on the EU to open a new page in accession talks which has been stalled for the past few years. He said at a meeting with the ambassadors of EU countries that it is time to open a new page in the accession process, adding that the Council of the European Union should review its decision to suspend Partnership Council meetings and the meetings of high levels of contact and dialogue. The minister urged the EU to not restrict the cooperation of dialogue between Ankara and Brussels on the topics of non-accession issues. He said the EU’s decisions for sanctions over Turkey’s hydrocarbon activities in eastern Mediterranean, Turkey’s Operation Peace Spring in Syria and the country’s bilateral deals with Libya have strained relations between Ankara and Brussels.
(=) Turkey slams European Parliament over PKK event… Turkey condemned the European Parliament on Wednesday for holding an event attended by some of the ringleaders of the PKK terror group and its supporters. The Turkish Foreign Ministry said in a statement that Turkey strongly condemned the unofficial event, which also ignores the principle of fighting terrorist organizations without discrimination. The statement added that allowing some of the terrorist organization’s ringleaders - who are also on the European Union’s list of terrorist organizations - to participate in an event in the European Parliament and spread terrorist propaganda means openly supporting terrorism. Meanwhile, Turkey's presidential spokesman said early Thursday on Twitter that it is an embarrassing scandal that a blind eye was turned to the open spreading of terrorist propaganda and Turkey and President Erdogan were insulted at a conference organized by the European Parliament.

Sector and Company News:

(=) UniCredit sold 12% Stake in Yapi Kredi at 4% discount over Wednesday’s close amid divestment plan… UniCredit SpA started to sell a stake of about 12% in Yapi ve Kredi Bankasi AS as part of its strategy to divest non-strategic assets and improve its use of capital. UniCredit SpA launched a placement of part of its holding in the Turkish lender to some institutional investors through an accelerated bookbuilding. Citigroup Inc., JPMorgan & Chase Co., Morgan Stanley and UniCredit are acting as joint bookrunners. The stake is worth about EUR460mn (USD506mn) based on Wednesday’s closing price of TRY3.00. Based on market talks, Yapi Kredi ABB books were covered at TRY2.88 per share, indicating 4% discount which looks comfortably digestible in UniCredit’s 12% stake sale deal. The sale follows the completion of the deal signed with Koc Holding AS last year to unwind their joint venture that owned the Turkish bank, clearing the way for UniCredit to sell its stake. As part of the agreement, UniCredit sold a direct stake of 9% in Yapi Kredi to Koc and became a direct owner of the remaining 31.9% stake.

(-) PGSUS plane veered off the runway at Istanbul Sabiha Gokcen airport yesterday evening and Minister of Health Fahrettin Koca declared that there are 3 people passed away due to the incident and 179 people get wounded. We will be closely monitoring the developments about the incident yet believe that initial reaction will be negative for the share price

(=) ENKAI bought 850k lots of its own shares with TRY6.92-6.97 price range per share.

(=) VAKBN announced that the bank issued dollar denominated global medium term notes for international qualified institutional investors amounting USD750mn on 30th Jan 2020 with 5 years term to maturity and 5.25% coupon rate to be paid semi-annually. Accordingly, the aforementioned amount of money has been transferred to banks’ accounts as of 5th Feb.

(=) OTKAR posted TL54mn net profit in 4Q19, with 78% YoY contraction. OTKAR’s revenues and EBITDA tumbled by 36% and 75% YoY respectively in 4Q19, due to high base effect. Recall that there were bus deliveries to Bucharest, Romania and Amman in 4Q18.

TRYmn 4Q19 Consensus Global Securities Dev. from consensus 4Q18 YoY 3Q19 QoQ
Revenue 553 n.a n.a n.a 870 -36% 593 -7%
EBITDA 57 n.a n.a n.a 232 -75% 141 -59%
margin 10,4% n.a n.a n.a 26,7% -16,3 pps 23,7% -13,3 pps
Net profit 54 n.a n.a n.a 250 -78% 102 -47%
margin 9,8% n.a n.a n.a 28,8% -19 pps 17,2% -7,4 pps
Net Debt/EBITDA (x) 1,34 2,36 -102 bps 1,51 -16 bps
ROE (%) 55,1% 42,2% 13 pps 92,7% -38 pps
Net debt 579 535 8% 913 -37%
Working capital -1.409 -1.291 9% -1.834 -23%
Δ in WC 425 -318 -234% 75 468%
CapEx 47 52 -10% 46 0%
FCF to firm 438 -104 -520% 167 163%
Shareholders' Equity 638 390 64% 591 8%