Turkey Wake up call: Macro, Political and Equity News, 27th April

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 0.60% on Friday that incidentally accounted for all of its cumulative 0.59% weekly gain. After a small positive open on Friday, index briefly slipped into negative territory around 10:30AM, followed by a gradual ascent to 99.5k mark until 4PM. Rest of the day some profit taking and the benchmark ended the week at 98.8k levels. Banks led by AKBNK and ISCTR slightly outperformed the broader market with the 0.82% gain for their sector index. SAHOL, TKFEN, SOKM, ALKIM, ENJSA, DOAS, IPEKE, and insurance stocks were among the better performing non-financials while aviation stocks, EREGL, SISE, TRKCM, ENKAI, and BIZIM topped the decliners for the day. Coming to this morning, our local macro agenda is quite apart from Treasury's reissue of 5-month Treasury notes and 7-year FRNs in its double domestic borrowing auctions. Treasury will hold two more auctions tomorrow, wrapping up this month's heavy borrowing schedule. BIST is off to a positive start thanks to the better mood in global markets and some gains lira (USDTRY at 6.9577 vs 6.9880 at Friday's closing bell). U.S. futures are up 1.2% in early trades on top of the 1.3-1.5% overnight gains in main indices after the hour we left and Asian equities are all trading in the green.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 2805... According to the Health Ministry, the number of deaths from coronavirus increased by 99 people yesterday and reached 2,805. The total numbers of tested and infected people are 889,742 and 110,130 in Turkey.

(-) Consumer confidence index down realized as 54,9... Seasonally adjusted consumer confidence index calculated from the results of the consumer tendency survey decreased by 5.8% in April MoM and 13.7% YoY to 54.9. The financial situation expectation of household index for the next 12 months period realized 72.5 in April, down by 7.7% MoM and 11.8% YoY. The general economic situation expectation index for the next 12 months period was down to 74.8 in April, with 1% MoM and 9.3% YoY contraction. The number of people unemployed expectation index for the next 12 months period realized at 53.8 in April up by 15.3% YoY but down by 6.7% MoM. The probability of saving index for the next 12 months period which was 21.2 in March decreased by 13.1% and became 18.4 in April and it was also down by 29% YoY.

(-) Manufacturing capacity utilization down by 18-pp... According to the data released by the Central Bank of Turkey, the overall manufacturing capacity utilization realized at 61.6% for April 2020, compared to 75.30% in March 2020 and 75% in April 2019. Looking at the sub-sectors, the car manufacturing, textile, furniture, leather industry and durables took the largest hit in April in terms of the decline in their capacity utilization rates, while paper industry, pharmacy, computer and IT-related products manufacturing and food manufacturing were relatively stronger.

(-) Sellable lignite production down by 14%... According to the data released by TURKSTAT, the sellable lignite production was down by 14% YoY in February 2020 to 5mn tons.

Sector and Company News:

(=) SISE released an announcement including a steps taken by Sisecam Group during the Covid-19 pandemic. In this regard, SISE’s production continues at their flat glass facilities, while one production line in Turkey was stopped as of the beginning of April, in line with the upcoming cold repair schedule. Product development and inventory planning efforts are also undertaken to adapt to the circumstances which may emerge after the industry picks up again. In the glass packaging side, no significant negativity is observed in production and sales conditions. In soda ash, Company’s main operation under the chemicals business, weaker demand is expected in Europe, which is an important export market for SISE’s soda ash business. On the other hand, there is a growing demand for soda ash from glass packaging, chemicals and detergent manufacturers. In the glassware business line, which mainly provides input to retail and tourism industries, capacity utilization plans are determined in light of the changing demand. Accordingly, some of SISE’s lines have been stopped. As for chromium chemicals, a decline is observed in leather and metal plating sectors due to the quarantines imposed in many Asian, South American and European countries. Glass fiber operations, launched in 2019, was affected by the negative developments in the construction and automotive industries across export markets, while faring positively in Turkey.

Regarding natural soda investment in the US, applications are being filed for the environmental permit as a prerequisite of the investment, and the process is currently being handled in an uninterrupted manner. Regarding the supply chain management; various steps are taken to keep the additional costs, which may arise during this period, at minimum level. In order to eliminate the current risks, alternative procurement plans are devised and risk-mitigating actions, such as the re-planning of inventory levels, are taken. Also a supplier finance program was deployed. Under this program, SISE is in close collaboration with over 10k suppliers and contractors to support them in establishing business models that will maintain their business continuity.

(=) ARCLK is to announce its 1Q20 results today after market close. We expect TL7,980mn of revenues (16% YoY growth), TL843mn of EBITDA (21% YoY growth - 0.5pp margin growth) and TL259mn of net profit (15% YoY growth).

(+) TTRAK posted TL84mn net income which was 9% above the consensus estimate of TL77mn, in 1Q20. While its revenues of TL1.19bn came almost in-line with consensus estimate of TL1.18bn, TTRAK’s EBITDA of TL145mn was slightly, 2% above consensus estimate of TL142mn. The operational results are in-line with our estimate; nonetheless, bottom-line is quite stronger than our expectation. Following its 1Q20 results, TTRAK also changed its 2020E guidance. Accordingly, the company maintained its domestic tractor market to hover between 28k-33k in 2020 (26k in 2019). In this respect, TTRAK still plans to sell 12.5k-15k units to domestic market (11k in 2019). However, the Company downgraded its export shipments to 10.0k-12.5k units (Previous: 14k-15.5k units) (15k units in 2019) in 2020E. CapEx expectation was also downgraded to TL150-200mn (Previous: TL175-225mn) Recall that TTRAK management paid TL1.87 DPS to its AGM, yielding 4.5%. Last but not least, strong cash generation also supported net debt/EBITDA level, which declined from 1.7x (Dec19) to 0.8x in Mar20.

Note that since the negative impact of Covid-19 pandemic is more visible particularly for the manufacturing / industrial sector mainly driven by the deterioration in supply chains, we are going to face a weaker domestic and export sales units in 2Q20 compared to 1Q20. Recall that realizing a total of 6k units in 2Q19 suggests a quite low base from last year.

On the other hand, even if we do not see a significant decline in tractor demand; TTRAK’s current inventory level -almost zero- is not sufficient to cover 2Q20’s total potential demand. However, TTRAK has a monthly production capacity of +4,500 units in 2 shifts which can easily cover 2Q19’s sales units. We believe that management’s recent decision to re-open its production facilities, the negative impact of Covid-19 pandemic on total sales units may be limited y-o-y in 2Q20. Expectation of increase in tractor prices and a significant level of pent-up demand in the last 2 years also supports sales units of the Company despite Covid-19 pandemic, which affected agricultural sector quite limited compared to other sectors/industries

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 1.191 1.179 1.221 1% 818 46% 1.083 10%
EBITDA 145 142 154 2% 51 185% 128 13%
margin 12,1% 12,0% 12,6% 0,1 pps 6,2% 5,9 pps 11,8% 0,4 pps
Net profit 84 77 64 9% 8 1008% 68 23%
margin 7,1% 6,5% 5,2% 0,5 pps 0,9% 6,1 pps 6,3% 0,8 pps
Net Debt/EBITDA (x) 0,8 3,3 -243 bps 1,7 -90 bps
EV/EBITDA 7,1 6,9 9,7
P/E 15,4 8,6 26,4
ROE (%) 25% 29% -4 pps 15% 11 pps
Net debt 395 1.465 -73% 650 -39%
Working capital 238 1.078 -78% 490 -51%
Δ in WC -252 57 -541% -155 63%
CapEx 26 42 -39% 41 -37%
FCF to firm 373 -46 -914% 244 53%
Shareholders' Equity 747 657 14% 764 -2%

Sales volumes
Domestic (units) 2019 2020 YoY Δ
1Q total 2.324 4.258 83%
January 595 1.243 109%
February 668 1.444 116%
March 1.061 1.571 48%
Export (units) 2019 2020 YoY Δ
1Q total 3.553 3.417 -4%
January 1.072 1.348 26%
February 1.073 1.097 2%
March 1.408 972 -31%
Total (units) 2019 2020 YoY Δ
1Q total 5.877 7.675 31%
January 1.667 2.591 55%
February 1.741 2.541 46%
March 2.469 2.543 3%


(=/-) Foreign investors’ net outflow slightly decelerated… According to the CBRT data released on Thursday, during the week of 10-17 April, non-residents executed net outflow of USD111mn from equities and USD67mn from GDDOs. As of last week, non-residents’ y-t-d net total flow of securities has been USD-2.56bn from equities and USD-5.1bn from GDDOs.


Exhibit: Non-residents’ y-t-d net flow of securities (Weekly)



Source: CBRT weekly securities statistics


(=) CBRT international reserves… According to the latest CBRT data released on Friday, the Central Bank’s gross international reserves declined by 1.13% WoW from USD89.07bn to USD88.06bn. The decline in gross reserves has been 6% by monthly comparison. Net international reserves declined by 1.40% from USD26.3bn to USD25.9bn WoW. However, comparing to last month, the decline in net reserves has been 16% from around USD31.0bn to USD26.0bn.

As of April 17, CBRT gross international reserves declined by 17% and the net reserves declined by 37% y-t-d.



Exhibit : The change in gross and net international reserves of CBRT

CBRT International Reserves (USD,mn) 17/04/2020 10/04/2020 20/03/2020 19/04/2019 03/01/2020 w/w m/m y/y y-t-d
Net Reserves 25,932 26,300 30,738 26,898 40,985 -1.40% -15.63% -3.59% -36.73%
Gross Reserves 88,067 89,071 93,583 96,077 105,561 -1.13% -5.89% -8.34% -16.57%

Source: CBRT analytical balance sheet


Exhibit : The graph for gross and net international reserves of CBRT beginning from Jan-19





Source: CBRT analytical balance sheet


(=) BRSA weekly banking data… According to the BRSA weekly banking data released on Friday, total loans in banking system increased by 2.32% WoW sourced by SME and commercial loans. SME loans elevated by 3.33% and commercial loans increased by almost 3% WoW. FX index loans decreased by 2% weekly while it is -62% YoY terms, in-line with banks’ FX loan growth guidances. Different from previous several weeks, a slight uprise is evident in consumer loans, by 84 bps. While mortgage loans and vehicle loans declined by 19 bps and 54 bps respectively, GPLs rose by 1.62% WoW.

Declining trend in NPL ratio continues. Non-performing loans increased by TRY235mn however, together with the loan growth, a slight decline in NPL ratio has been 5.05% down by 11 bps WoW.

As for total deposits, a similar relative upward movement has been evident, which was 2.96% WoW, mainly sourced by commercial institutions that increased their deposits by 4.53% WoW. Comparing the y-t-d evolution of deposit and loan growth, it is evident that while total loans grew by 13.59%, total deposits grew by 14.67% which provides the banking sector a small buffer for liquidity. According to the latest data, LDR has been 102% which was 103% at the beginning of the year.

Coming to FX deposits of residents, real persons increased their FX deposits by USD731mn that indicates 62 bps WoW while the corporates decreased their FX deposits by USD247mn weekly that indicates 32 bps decline. Overall, it results 25 bps increase in total FX deposit weekly.


(TL, mn) 17/04/2020 10/04/2020 20/03/2020 19/04/2019 03/01/2020 w/w m/m y/y y-t-d
Total Loans 3,006,476 2,938,404 2,853,958 2,535,464 2,646,894 2.32% 5.34% 18.58% 13.59%
Consumer Loans 514,641 510,349 507,999 403,766 467,381 0.84% 1.31% 27.46% 10.11%
Housing 211,083 211,493 210,245 184,632 199,268 -0.19% 0.40% 14.33% 5.93%
Vehicle 7,011 7,050 7,054 6,252 7,051 -0.54% -0.61% 12.14% -0.56%
GPL 296,547 291,806 290,700 212,882 261,062 1.62% 2.01% 39.30% 13.59%
Consumer Credit Cards 105,482 109,541 114,049 101,361 116,791 -3.70% -7.51% 4.07% -9.68%
Commercial and Other Loans 2,386,353 2,318,514 2,231,910 2,030,337 2,062,722 2.93% 6.92% 17.53% 15.69%
Installment Commercial Loans and Corporate Credit Cards 499,835 481,591 465,393 425,650 434,411 3.79% 7.40% 17.43% 15.06%
SME Loans 702,036 679,382 655,646 636,525 611,735 3.33% 7.08% 10.29% 14.76%
Fx Indexed Loans 9,651 9,846 10,136 25,332 11,808 -1.98% -4.79% -61.90% -18.27%

(TL, mn) 17/04/2020 10/04/2020 20/03/2020 19/04/2019 03/01/2020 w/w m/m y/y y-t-d
Non Performing Loans 151,784 151,549 153,578 108,095 150,758 0.15% -1.17% 40.42% 0.68%
Consumer Loans 13,279 13,318 13,764 12,723 13,355 -0.30% -3.52% 4.37% -0.56%
Housing 1,166 1,173 1,207 1,115 1,269 -0.63% -3.43% 4.55% -8.11%
Vehicle 173 174 196 231 201 -0.10% -11.78% -25.12% -13.70%
GPL 11,940 11,971 12,360 11,376 11,885 -0.27% -3.40% 4.96% 0.46%
Consumer Credit Cards 6,290 6,305 6,559 6,681 6,323 -0.23% -4.10% -5.85% -0.51%
Commercial and Other Loans 132,215 131,926 133,254 88,692 131,081 0.22% -0.78% 49.07% 0.86%
NPL Ratio 5.05% 5.16% 5.38% 4.26% 5.70% -2.11% -6.18% 18.42% -11.36%

(TL, mn) 17/04/2020 10/04/2020 20/03/2020 19/04/2019 03/01/2020 w/w m/m y/y y-t-d
Total Deposits 2,944,000 2,859,315 2,762,849 2,248,078 2,567,331 2.96% 6.56% 30.96% 14.67%
Natural Person 1,781,459 1,738,591 1,695,828 1,375,973 1,595,204 2.47% 5.05% 29.47% 11.68%
Demand 480,880 453,437 431,954 276,124 360,147 6.05% 11.33% 74.15% 33.52%
Time 1,300,579 1,285,154 1,263,875 1,099,849 1,235,056 1.20% 2.90% 18.25% 5.31%
Commercial Institutions 971,015 928,941 896,006 737,685 817,594 4.53% 8.37% 31.63% 18.76%
Demand 306,286 280,706 272,427 183,922 220,838 9.11% 12.43% 66.53% 38.69%
Time 664,729 648,235 623,579 553,763 596,757 2.54% 6.60% 20.04% 11.39%
Official and Other Institutions 191,526 191,783 171,015 134,420 154,533 -0.13% 11.99% 42.48% 23.94%
Demand 44,863 42,463 38,594 32,934 33,914 5.65% 16.24% 36.22% 32.28%
Time 146,663 149,320 132,421 101,486 120,619 -1.78% 10.76% 44.52% 21.59%
Deposits Subject to Insurance 766,562 750,116 734,090 527,699 698,978 2.19% 4.42% 45.26% 9.67%




(USD, mn) 17/04/2020 10/04/2020 20/03/2020 19/04/2019 03/01/2020 w/w m/m y/y y-t-d
Total FX Deposits of Residents 195,568 195,084 198,277 181,246 194,377 0.25% -1.37% 7.90% 0.61%
Real Persons 119,495 118,764 121,920 108,377 121,166 0.62% -1.99% 10.26% -1.38%
Corporates 76,073 76,320 76,356 72,869 73,211 -0.32% -0.37% 4.40% 3.91%