Turkey Wake up call: Macro, Political and Equity News, 22nd 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 0.48% yesterday despite the weakness in banks that lost 0.49% on average. After an uptick start, benchmark BIST100 gradually climbed to 103.2k levels by early afternoon. But the 103k resistance proved to be a tough nut to crack and the index took a 1,100-point dive around 2:45PM before stabilising around the 102k mark and rebounding 600 points until the close. Strength in non-financials like BIMAS, EREGL, THYAO, CCOLA, TKFEN, VESTL, GUBRF, ALARK, IPEKE, and KOZAA underpinned the market while GARAN, TUPRS, AYGAZ, FROTO, YATAS, AKSEN, and ALKIM topped the laggards. Coming to this morning, our local macro agenda involves May'20 Manufacturing Capacity Utilization Rate (CUR stood at 61.6% in April'20, the lowest since the global financial crisis in April'09, and was 76.3% back in May'19) and
May'20 Real Sector Confidence index (that was at 66.8 in April'20 in its lowest print since December'08 and had stood at 98.9 back in May'19) both to be released at 10AM local time. Separately, Ministry of Tourism will disclose the tourist arrival numbers for April'20 at 11AM. Foreign tourist arrivals had plunged 67.8% yoy to 0.72mn in March, bringing the cumulative YtD arrivals to 4.24mn visitors, down 22.1% from the corresponding period of 2019. BIST seems off to a negative open given the sour sentiment in global markets on resurfacing Hong Kong tensions while small gains in lira (USDTRY at 6.7933 vs 6.7995 at yesterday's closing bell) may provide some cushion. U.S. futures are down 0.9% in early trades and Asian indices led by Chinese benchmarks are all trading lower.
Macro and Political News:
(=/-) International Investment Position Developments - March 2020... According to the Central Bank of Turkey, external assets of Turkey declined by 7.3% to USD233.8bn liabilities against non-residents recorded USD548.5bn indicating a decrease of 9.2%. Thus, net international investment position of Turkey announced at minus USD314.7bn at the end of March 2020, compared to minus USD351.9bn at YE19.

Sector and Company News:

(=/+) ISCTR announced for a new syndicated loan agreement amounting USD207.5mn and EUR539.0mn with 367 days of maturity. The cost of the credit has been Libor + 2.25% and Euribor + 2.0% respectively.

(=) KCHOL is to release its 1Q20 earnings today. Consensus estimates TL222.0mn net income vs. Global estimate: TL250mn net income.

(=) BRSA announced a new regulation on Gold deposits’ effective date. Accordingly, when a depositor buys over 100 gr. of gold deposit, it will be effective after one day of the transaction. BRSA aims to stabilize the financial markets and contribute to the healthiness of the credit system by this decision.

According to the BRSA monthly banking data, in March, the precious gold deposit accounts grew by 5.9% MoM and 32.8% y-t-d.

(=) TUPRS posted TL2,265mn net loss in 1Q20 compared to TL375mn net loss in 1Q19. TUPRS’ net loss came in line with our estimate of TL2,319mn net loss and the consensus of TL2,273mn net loss. TUPRS’ revenues declined by 18% YoY to TL21bn in 1Q20 and its production and sales volume eased by 10% and 11% YoY respectively. The management underlined that the negative impact of covid-19 starting from mid-March led to the weakness in sales. Recall that diesel, gasoline and jet fuel sales constitute ~60% of TUPRS’ total sales volume. Partial lockdown in April and May, and the halt of flights as well as slowdown in economic activity led to the decline in fuel consumption.

In 1Q20, the net refining margin of TUPRS retreated to USD1.2bbl, from USD3.6 in 1Q19. However it includes USD2.7/bbl inventory losses due to the sharp decline in oil prices and when adjusted TUPRS’s clean net margin improves to USD3.9/bbl.

TUPRS’ net F/X position (including hedge) was USD97mn at 1Q20-end, compared to minus USD30mn in 1Q19.

TUPRS’ net debt to EBITDA increased to 6.6x at 1Q20, from 2.2x a quarter ago, mainly due to the weak operational performance and increase in working capital needs.

TUPRS management did not revise its 2020E guidance as the management expect med-complex refining margin to hover USD1-2bbl, while ural-brent differential widening YoY. Also the management foresees weak outlook for jet fuel and gasoline. For TUPRS’ refining margins, the management guides USD3-4/bbl for 2020E. TUPRS management also expects 24mn tons of production and 25mn tons of sales for 2020E and USD125mn CAPEX. TUPRS’ guidance for 2020E implies a YoY contraction in sales volume as well as operational profitability while YoY lower capex guidance may boost cash flow generation during the course of the year. Although its 1Q20 results came inline with estimates, the weak outlook for refining sector as well as TUPRS may lead to weaker quarters, in terms of sales volumes and refining margins.