Turkey Wake-up call: Macro, Political and Equity News, 16th December

BIST added another 0.49% yesterday to a new record close. After some wobble in morning hours, BIST100 index found some traction after 12:30PM and climbed to 1,400 level late in the day before paring back some of its gains in the last 45 minutes. Banks gained 0.47% on average, faring in line with the broader market as HALKB and YKBNK outperformed. TUPRS, EKGYO, FROTO, PETKM, AEFES, MPARK, TRGYO, and BRISA led the non-bank gainers while SAHOL, PGSUS, SELEC, HEKTS, and VESTL were among the weak names. Today, our macro agenda highlight will be Central Bank governor Naci Agbal's presentation of the Bank's Monetary and Exchange Rate Policy for 2021 in a videoconference starting at 10:30AM local time. A positive open is in the cards for the BIST given the bullish mood abroad and some strength in lira (USDTRY at 7.8280 levels vs 7.8401 at yesterday's closing bell). U.S. futures are down a few points but holding onto bulk of the 0.7-0.8% overnight gains after we left and Asian markets are almost all trading in the green.

Macro and Political News:
Number of new Covid-19 cases has been 5105... According to the Health Ministry, the number of new Covid-19 cases has been 5105 on Tuesday. The Health Ministry also announced the covid cases including the asymptomatic ones as 32102. The number of deaths from coronavirus increased by 235 people yesterday and reached 16881. The daily recovery has been 29247. The total numbers of tested and infected people are 21.49mn and 1.90mn respectively.

November Budget - Strong tax revenue… The Treasury released November budget. Accordingly, the primary budget surplus was 22.9 billion TL, while the budget had a surplus of 13.4 billion TL.

Expenses increased by 27.5% y/y on both interest and non-interest expenses, while revenues increased by 31.8% y/y, enabling the budget to have a surplus.

Both domestic and import VAT increased by 81.6% and 80.4%, respectively, on an annual basis. Special consumption tax also increased by 51.3% on an annual basis.

In the 11M20, the budget deficit was 132 billion TL, while the primary deficit was 3.0 billion TL.

Comment: It is seen that there is a good budget performance in November. We consider the budget data for November is slightly positive for interest rates.


Sector and Company News:
(+) PETKM: Ethylene-naphtha spread is up by 3.2% WoW to USD571/ton… So far in 4Q, the spread averaged at USD392/ton, compared to USD321/ton in 3Q20 and USD336/ton in 4Q19. On top of that the petrochemical price index is up by 4.5% WoW.

Comment: Since the ethylene-naphtha spread and the petrochemical prices are the key determinants for PETKM’s operational performance, we believe the recent improvement in the spread and prices will boost PETKM’s 4Q20 financials.

(+/=) TKFEN will resume its “Installation Services for Dehydrators & Desalters” project in Iraq (Job owner: BP & Iraqi NV). Recall that the size of the project was USD100mn which was interrupted due to the pandemic. TKFEN had completed 65% of the project at YE19.

Sabanci Holding (SAHOL) Teknosa (TKNSA) share sale… SAHOL sold 275k lots of TKNSA shares with TL12.67-13.06 price range per share on Tuesday. By this transaction, its share on TKNSA declined to %60.03%. Recall, SAHOL recently had applied to Central Securities Depository to register 11.31mn lots of TKNSA shares to trade at BIST. The conglomerate will use the revenue from share sales to participate in TKNSA paid-in capital increase.

ARCLK and Hitachi will team up in home appliance market… ARCLK and Hitachi will team up in home appliance market. Accordingly, Hitachi will establish a home appliance company in Netherlands and put its 12 subsidiaries and its entire home appliance assets (production facilites in Thailand and China as well as 10 home appliance sales company in Asia region) in that company. ARCLK will acquire 60% of that company in return for USD300mn acquisition value. Hitachi’s home appliance unit generated USD1bn revenue with USD70mn EBITDA in 2019.

Comment: We beileve that the new company will help ARCLK to expand its business in promising Asian region, where the competition is stiff, mainly due to low-cost Chinese competitors. By teaming up a local partner, we consider that ARCLK will improve its presence in the region. We deem that news as positive for mid to long term.


Monthly House Sales Statistics (Nov20)… According to the monthly house sales statistics announced by TurkStat:

• In November, the total house sales retreated by 6% MoM from 120k to 112k that indicates a 19% decline YoY.

• Mortgage backed sales decreased by 4% MoM from 26k to 24k and for the yearly comparison, the decline in mortgage sales has been 44%. The share of mortgage sales in total sales have been 22%, remained flattish comparing to previous month.

• First sale houses remained flattish with previous month, down by 90 bps MoM at 37k level and its share in total sales have been 33%.

• Comparing the cumulative sales figures, in Jan-Nov 20 period, total of 1.39mn houses sold that corresponds to 21.5% increase YoY. By the effect of declining interest rates in the first half of the year, mortgage backed sales almost doubled to 558k in 11M20 from 282k in 11M19 that corresponds to 98% increase.