Turkey Wake up call: Macro, Political and Equity News, 26th March

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 down 0.25% yesterday in profit taking after Tuesday's surge. Index opened gap higher in the morning and climbed to its daily peak of around 92k in early going. Softening of the increase in U.S. futures also evaporated the gains in Turkish stocks, especially after 1PM and the benchmark closed the day slightly in the red. Banks underperformed the broader market with the 1.64% drop in their sector index amid pressure on AKBNK. Aviation stocks, Koza Group names, MAVI, MPARK, CCOLA, and AEFES stood out as better gainers of non-financials while retailers, TCELL, TTKOM, ULKER, and EREGL were among the weakest spots. Today, our local macro agenda is muted and eyes will again be on global peers for a sense of direction. We anticipate a slight negative open for the BIST given some slide in lira (USDTRY now at 6.4643 vs 6.4512 at yesterday's closing bell. U.S. futures are also down 1.2% in early trades while Asian equities present a mixed picture.
Macro and Political News:
(+) Turkey launches support to protect employment… Finance Minister Berat Albayrak said Wednesday that Turkey has launched an employment support scheme for all businesses and sectors to minimize the coronavirus outbreak's negative impact on the economy, The scheme is part of the government's larger Economic Stability Shield Package, announced earlier. In a statement on Twitter, Minister Albayrak said that Within the scope of the Economic Stability Shield Package, the government is now initiating “Support to Continue Working” for all our sectors and companies under the scope of cooperation with public and participation banks and our financial institutions. He said the conditions for the Treasury-backed Credit Guarantee Fund (CGF) will be the protection of the current employment rate by the businesses. The move was taken to meet the business capital needs of all corporate and commercial sale companies, the small and medium-sized enterprises (SME) being the first affected by the pandemic. The issue was discussed during the Financial Stability and Development Committee meeting, according to statements by the finance minister.
The applications will be accepted as of March 26. The move is in line with the relief package announced by President Erdogan last week to limit the economic fallout from the coronavirus. Under the TRY100bn (USD15.4bn) package, the country postponed debt payments and reduced the tax burden on some sectors.
(+) Turkey announces support for SMEs… The Turkish Industry and Technology Ministry on March 25 announced support for the country's small and medium enterprises (SMEs) against the effects of coronavirus pandemic. The ministry said in a statement that the SMEs Development Organization of Turkey (KOSGEB) loans were postponed for three months, and it gave an additional four months for their projects. The ministry also said SMEs, which produce medical protective goods, will be given additional support. Mustafa Varank, the industry and technology minister, said that enterprises which manufacture products such as disinfectants, protective clothing, glasses, masks and gloves with domestic sources, will be able to benefit from KOSGEB’s TEKNOYATIRIM [technologic investment] Support Program. In this regard, KOSGEB will provide support up to TRY6mn (some USD940,000) for these projects. TRY4.2mn (USD657,000) of this amount will be loans. Varank said with its supports, the ministry will contribute to manufacturing these products, of which demand rose after the COVID-19 outbreak.
The minister also said firms in Turkey’s technoparks (technology development zones) will not pay rent for two months. Some 5,682 firms, which employ 58,241 personnel, are active in technoparks. To remind, Turkish state-owned lenders Ziraat, Halkbank and Vakıfbank on March 23 unveiled packages to ease access to loans and to provide flexibility for customers who need additional loans due to a provisional disruption in their balances. Many private banks, notably Isbank, followed suit. The Turkish Treasury and Finance Ministry on March 24 announced some 1.9 million taxpayers will be benefiting from force majeure provisions for tax deferral.
(=) Turkey halts tariffs on medical supply imports, extends support for local production… Ruhsar Pekcan, the trade minister, said Wednesday that Turkey removed import tariffs on ethyl alcohol, disposable medical mask and medical ventilators amid the coronavirus pandemic. Ruhsar Pekcan said on Twitter that decisions announced in the Official Gazette will meet the potential need that may arise and ensure the security of supply. The tariff relief of 10% on bulk ethyl alcohol imports aims to support the production of disinfectant and cologne, the traditional ethanol-based scented disinfectant used in Turkey. The additional customs tax of 20% on disposable medical masks and 13% on medical ventilators are lifted, Pekcan elaborated. Recall, on March 13, Turkey temporarily stopped requiring ethanol in gasoline to help boost disinfectant production. Suspending ethanol's use in gasoline will provide an additional 20,000 cubic meters for the production of disinfectants and colognes in the country, according to Turkey’s Energy Market Regulatory Authority (EMRA).
(=/-) Turkey’s manufacturing capacity use down 0.7% in March… Turkey’s manufacturing industry used 75.3% of its capacity in March. The sector’s capacity utilization rate (CUR) fell 0.7% points from last month, the bank survey showed. The figures are based on responses given to its business tendency survey by local units operating in the manufacturing industry. Nearly 1,800 companies responded to the survey this month. Among the six main industrial groups, the highest capacity usage was 76.5% for investment goods, while food and beverage goods posted the lowest rate, with 70.9%.
(=/-) Sectoral confidence down in March… Confidence in Turkey’s services and retail trade sectors weakened while the construction sector improved in March compared to last month. Amid concerns over coronavirus, the services confidence index was 92.5 points this month, down 6% from February, the Turkish Statistical Institute (TurkStat) reported, as all sub-indexes saw slides. The retail trade sector index fell 1.2% to 101.7 in March from 102.9 last month, driven by drops in the business activity-sales expectation and business activity-sales indices during the same period. Turkey's construction sector confidence index saw a rise of 3.7% month-on-month to 77.2 in March. Total employment expectation over the next three months sub-index increased by 5.4% to 93.4. Current overall order books sub-index became 61.1, increasing 1.2%.

Sector and Company News:

ENKAI bought 553k lots of its own shares with TL5.95-6.05 price range per share.

(-) ASUZU will halt production at its plants for 9 days starting from March 30, 2020 due to negative impacts of Covid-19 on supply chain and deliveries.

(-) VESTL will halt production at its plants for a week starting from March 30, 2020 due to negative impacts of Covid-19 on customer orders.

(=/-) ARCLK At its General Assembly Meeting, it was decided to cancel the dividend payment to be made in 2020. Recall that, the Company would submit an offer to the General Assembly to pay 0.74TL of dividend per share. The mentioned dividend indicated 5.6% dividend yield as of the last closing price and the expected total dividend amount corresponded to TL 500mn. Also, the expected dividend date was April 1, 2020. Note that ARCLK had not paid dividend only after the 2008 global crisis and in 2018 local crisis in the last 15 years.

(=) AEFES recently reached an agreement with the trade union, which decided to strike.

The SCT rate, which was 25% in coke and soda water, was increased to 35% with the new amendment. In addition SCT rate of some tobacco products was increased to 80% from 40%. We do not expect the amendment to create a significant negative demand impact on (=) CCOLA’s products as these type of products are accepted as inferior goods.