Turkey Wake up call: Macro, Political and Equity News, 18th May

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 added 0.58% on Friday, carrying its weekly gains to 1.97%. After an uptick start that marked the lowest point of the day, BIST100 quickly jumped 700 points to 100.4k levels and ascended further up to 100.8k in early going. Rest of the day saw a gradual erosion of day's gains and a close below the 100k mark in profit taking. Banks gained 0.50% on average with HALKB and VAKBN visibly outperforming and ISCTR declining. BIMAS, PGSUS, ENJSA, KOZAA, TOASO, DOAS, BRISA, TATGD, and SELEC topped the gainers among non-financials while PETKM, ASELS, EREGL, GUBRF, ARCLK, and KCHOL stood out as weaker spots. Today, our local macro agenda is muted ahead of tomorrow's national holiday and eyes will be on peers for finding a direction. We predict a positive open for the BIST given the supportive mood abroad and sustained gains in lira (USDTRY at 6.8901 vs 6.9182 at Friday's closing bell). U.S. futures are up c.1.2% in early trades on top of 1.3-1.4% overnight gains after the time left on Friday and Asian indices are almost all trading in the green.
Macro and Political News:
(=) The dividend payout cap for entities... The dividend payout cap for enterprises has been published in the Official Gazette. Accordingly, the enterprises will be allowed to payout upto 25% of distibutable earnings from 2019 and this will be valid until September 30th. And the enterprises will not be allowed to payout advance dividend payments in the same period.

(=) The expectation survey for May 2020... The Central Bank of Turkey announced the expectation survey for May 2020. The consensus for CPI for YE20 is 9.38% and 9.20% for the end of next 12 month. The consensus for USDTRY for YE20 is 6.9573. For GDP, the consensus for 2020E is 1.3% YoY contraction while for 2021E, the consensus is 4.6% YoY growth.

(=/-) Budget Deficit in April 2020... According to the Treasury and Finance Ministry, the budged deficit has been announced at T L43.2bn in April with TL108.4bn budget expenses and TL65.2bn budgeted income.
Sector and Company News:

(=) Oyak cement merger… The Capital Markets Board ratified the merger of Oyak Cement Group Companies under MRDIN on May 15 and the merger is expected to be completed on May 21. Recall that the swap ratios for one MRDIN shares are: 1.07x for UNYEC, 6.17x for ASLAN, 0.96x for BOLUC, 2.08x for ADANA, 1.47x for ADBGR and 0.30x for ADNAC.

SASA announced that the Environmental Impact Assessment Report for its petrochemical facility has been ratified by the Environmental and City Planning Ministry. Recall that SASA is building a petrochemical facility (including the products of PTA, MEG, Polymer, PP, PE, PVC and SAP) in Adana province worth USD11.8bn.

(=) Turkish banking authority, BRSA fined 15 Turkish banks by TRY19.6mn in total upon the claims from some customers that banks do not comply with the regulations.

ALBRK posted TRY12.05mn net income for 1Q20, down by 77% from TRY51.96mn QoQ and 56% YoY from TRY27.15mn.

(=) ISCTR bought 1.025mn lots of ISMEN shares with TRY5.56 price per share. By this transaction, the share of ISCTR on ISMEN reached to 65,74%.

(=) HALKB announced that the postponed General Assembly Meeting will be held on June 12, 2020.

(=/+) YKBNK announced for a new syndicated loan agreement amounting USD780.0mn consists of two tranches; USD198.5mn and EUR534.6mn with 367 days of maturity. The cost of the credit has been Libor + 2.25% for the USD and Euribor + 2.0% for EUR. Until the date of May 27, the amount could be increased as per the accordeon method utilized. Additionally, the bank acquired another loan from EBRD amounting USD100.0mn with 367 days maturity for the purpose of funding working capital needs of SMEs.

(-) According to the monthly house sales statistics released bt Turkstat, total sales declined by 60% MoM from 108k to 43k and 56% YoY. The decline in mortgage sales was 60% MoM and 24% YoY. 35% of the total sales has been first sale houses while the rest is second hand sales. This indicated a much slower decline in total house stock.

Sales to foreigners declined dramatically by 74% MoM from 3k to 790 and by 79% YoY from 3.7k.


Monthly house sales data Apr-20 Mar-20 Apr-19 Jan-20 MoM YoY Y-t-d
Total Sales 42,783 108,670 96,071 113,615 -60.6% -55.5% -62.3%
Mortgage Sales 17,088 43,329 22,461 42,237 -60.6% -23.9% -59.5%
Share of mortgage sales in total sales 39.94% 39.87% 23.38% 37.18% 0.17% 70.84% 7.44%
First Sale 14,848 34,089 37,784 36,040 -56.4% -60.7% -58.8%
Share of first sales in total sales 34.71% 31.37% 39.33% 31.72% 10.63% -11.76% 9.41%
House Sales Numbers to Foreigners 790 3,036 3,720 3,907 -74.0% -78.8% -79.8%
Share of sales to foreigners in total sales 1.85% 2.79% 3.87% 3.44% -33.91% -52.31% -46.30%


(+) According to the announcement by VAKBN on Friday, VAKBN will issue 1.406bn lots shares and sell Turkey Sovereign Wealth Fund (TVF) with TRY4.98 price per share and increase its capital by TRY7.0bn. Recall, the last closing of VAKBN share on Friday was TRY4.59. Thus, TVF will be buying the shares with 8.50% premium. The wholesale transaction is aimed to be completed by May 20, 2020.

The shareholder structure of the bank before-after the transaction is exhibited in table below:

(TL,Mn) Before Transaction After Transaction
Shareholders Share in Capital Ratio in Capital Share in Capital Ratio in Capital
Ministry of Treasury and Finance (Group A) 1,075 43.00% 1,075 27.53%
Vakifbank Pension Fund (Group C) 403 16.10% 403 10.31%
Ministry of Treasury and Finance (Group B) 388 15.51% 388 9.93%
Other Foundations (Group B) 3 0.10% 3 0.07%
Other Real Persons and Corporates (Group C) 2 0.06% 2 0.04%
Free Float (Group D) 631 25.23% 631 16.15%
Turkey Sovereign Wealth Fund (Group D) - - 1,406 35.99%
Total 2,500 100% 3,906 100.00%


(+) According to the announcement by HALKB on Friday, HALKB will issue 1.224bn lots of shares and sell Turkey Sovereign Wealth Fund (TVF) with TRY5.72 price per share and increase its capital by TRY7.0bn. Recall, the last closing of HALKB share on Friday was TRY5.37 thus, TVF will be buying the shares with 6.52% premium. The wholesale transaction is aimed to be completed by May 20, 2020. The shareholder structure of the bank is exhibited in table below:


(TL,Mn) Before Transaction After Transaction
Shareholders Share in Capital Ratio in Capital Share in Capital Ratio in Capital
Turkey Sovereign Wealth Fund 639 51.11% 1,863 75.29%
Free Float 611 48.89% 611 24.70%
Other 0.08 0.01% 0.08 0.003%
Total 1,250 100% 2,474 100.00%



(+) SAHOL posted TRY1.19mn net income in 1Q20, 18% higher than the consensus estimate which was TRY1.008bn vs. in-line Global estimate of TRY1.20bn. The conglomerate’s net income increased by 36% QoQ vs 13% YoY in addition to 4% QoQ EBITDA growth from TRY2.49bn to TRY2.59bn in Q1. The company’s non-bank revenue has been TRY4.55bn in Q1, down by 9% QoQ and up by 6% YoY. The largest contribution to the non-bank revenue came from the retail segment by TRY2.82bn followed by indsutrial segment by TRY1.20bn. The contribution of the banking segment to the conglomerate revenue has been TRY9.13bn, declined by 8% QoQ and 15% YoY.

As for the bottom line, banking segment contributed the net income by TRY634.0mn up by 17% QoQ that corresponds of 54% of the total net income. The energy segment added TRY369.0mn to the net income, significantly increased by 148% QoQ and corresponds to 31.4% of total net income. On the other hand, while retail segment managed to generate substantial amount of revenue by TRY2.82bn, the net loss of this segment has been TRY67.0mn which was TRY2.0mn net income in 4Q19. Cement has been the other segment which had net loss by TRY23.0mn while it generated TRY87.0mn net profit in 4Q19. The declining construction activity in Turkey and global markets led this result in cement segment. The industry segment indicated solid net income increases by 67% QoQ and 107% YoY. The company has the vision for increasing the share of the industrial side’s contribution to the conglomerates’ NAV.

As of Q1, the company has holding-only net cash amounting USD299.0mn, up by 7% QoQ which indicates 6.3% of SAHOL’s NAV.

SAHOL trades at 47% NAV discount, compared to its 5 year average 34%. Taking the diversified portfolio of the conglomerate, from financial services to retail, having energy generation and distribution businesses which mostly operated with feed-in-tariff, focusing high value-added industrial products such as composites and with good corporate governance practices, we consider that SAHOL should trade at better multiples and NAV discount.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 4.553 n.a n.a n.a 4.288 6% 4.988 -9%
EBITDA 2.585 n.a n.a n.a 2.507 3% 2.494 4%
margin 56,8% n.a n.a n.a 58,5% -1,7 pps 50,0% 6,8 pps
Net profit 1.193 1.008 1.200 18% 1.057 13% 881 36%
margin 26,2% n.a n.a n.a 24,6% 1,6 pps 17,7% 8,6 pps
Net Debt/EBITDA (x) 0,47 2,8 -233 bps 1,0 -54 bps
EV/EBITDA 2,2 4,6 3,1
P/E 4,2 4,2 5,1
ROE (%) 12% 13% -1 pps 11% 1 pps
Net debt 4.420 24.711 -82% 9.412 -53%
Working capital 1.218 1.574 -23% 754 61%
Δ in WC 463 -9 -5339% -291 -259%
CapEx 404 263 53% 658 -39%
FCF to firm 1.240 1.808 -31% 1.709 -27%
Shareholders' Equity 32.815 29.387 12% 33.258 -1%



SAHOL Segmental Financials
Segment Breakdown (TL,mn) 1Q20 1Q19 4Q19 QoQ YoY
Revenues 13,629 14,951 14,875 -8% -9%
Banking 9,129 10,698 9,935 -8% -15%
Industry 1,199 1,706 1,353 -11% -30%
Cement 412 336 2,996 -86% 22%
Retail 2,818 2,217 438 543% 27%
Others 148 81 237 -38% 82%
Combined Total 13,705 15,038 14,960 -8% -9%
Eliminations (-) 77 87 84 -9% -12%

Net Income (exc. one-off) 1,172 1,028 856 37% 14%
Banking 634 616 541 17% 3%
Industry 103 50 62 67% 107%
Cement -23 0.15 87 -126% -15367%
Retail -67 -92 2 -2977% -27.7%
Energy 369 321 149 148% 15%
Insurance 47 50 -46 -202% -6%
Others 109 85 61 79% 29%
Combined Total 1,172 1,028 856 37% 14%

Stand-Alone Net Cash 1,776 1,717 1,533 17% -34%
(USD299mn) (USD289mn) (USD258mn)



ECILC posted TL87mn net income in 1Q20 compared to TL9mn net loss a year ago. The higher net income is mainly driven by its YoY stronger operational performance coupled by higher net financial expense and positive contribution from its affiliates (TL75mn loss from participations a year ago). Its health segment revenues advanced by 35% YoY to TL245mn and EBIT climbed by 39% YoY to TL76mn, while the real estate segment’s revenues and EBIT stayed almost flat YoY at TL27mn and TL18mn, respectively.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 269 n.a n.a n.a 208 29% 266 1%
EBITDA 50 n.a n.a n.a 39 28% 49 3%
margin 18.8% n.a n.a n.a 18.9% -0.2 pps 18.3% 0.4 pps
Net profit 87 n.a n.a n.a -9 -1120% 60 45%
margin 32.4% n.a n.a n.a -4.1% 36.5 pps 22.7% 9.8 pps
Net Debt/EBITDA (x) -4.08 -7.55 347 bps -3.91 -17 bps
EV/EBITDA 20.9 18.1 13.4
P/E 15.3 10.3 15.6
ROE (%) 5.9% 4.5% 1 pps 3.8% 2 pps
Net debt -644 -545 18% -575 12%
Working capital 99 93 6% 91 9%
Δ in WC 8 13 -39% -9 -190%
CapEx 3 8 -60% -2 -269%
FCF to firm 27 23 18% 39 -31%
Shareholders' Equity 4,364 3,989 9% 4,277 2%


NETAS posted TL3mn net loss in 1Q20, compared to TL32mn net loss in 1Q19. The company’s revenues advanced by 39% YoY to TL304mn and Enterprise, telecom and technology segments contributed to the increase in sales revenue. NETAS booked TL6mn EBITDA in 1Q20, compared to TL15mn negative EBITDA in 1Q19.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 304 n.a n.a n.a 219 39% 495 -38%
EBITDA 6 n.a n.a n.a -15 -140% 35 -83%
margin 1.9% n.a n.a n.a -6.7% 8.6 pps 7.1% -5.2 pps
Net profit -3 n.a n.a n.a -32 -91% -38 -92%
margin -1.0% n.a n.a n.a -14.8% 13.8 pps -7.7% 6.7 pps
Net Debt/EBITDA (x) 6.91 -27.69 3460 bps 15.91 -900 bps
EV/EBITDA 24.4 -71.1 44.9
P/E -7.3 -4.6 -5.7
ROE (%) -21.8% -13.3% -8 pps -27.7% 6 pps
Net debt 344 338 2% 465 -26%
Working capital 313 627 -50% 483 -35%
Δ in WC -170 44 -488% -274 -38%
CapEx 7 9 -21% 46 -85%
FCF to firm 204 -42 -581% 369 -45%
Shareholders' Equity 547 854 -36% 536 2%