Turkey Wake up call: Macro, Political and Equity News, 29th 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 lost 0.55% yesterday, snapping its three-day winning streak. After an uptick open followed by a dip at 100.7k levels, benchmark BIST100 staged a recovery and spent most of the day in the positive territory. But a wave of selling in the last 45 minutes pushed the market to a close near its intraday bottom. Banks lost 1.21% on average with AKBNK coming under pressure. SAHOL, ENKAI, SISE, SODA, TAVHL, EREGL, and AYGAZ stood out as the weakest non-financials while PGSUS, ARCLK, VESTL, MPARK, ANACM, and TOASO were among the rare gainers for the day. Coming to this morning, our local macro agenda showcases TurkStat's April’20 Economic Confidence Index at 10AM local time. The index had dropped 5.9% on a sequential basis to a 6-month low of 91.8 in March. We foresee a slight positive open for the BIST given better sentiment among global peers and some limited gains in lira (USDTRY at 6.9875 now vs 6.9970 at yesterday's closing bell). U.S. futures are up 0.8% and Asian equity indices are almost all trading in the green.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 2992... According to the Health Ministry, the number of deaths from coronavirus increased by 92 people yesterday and reached 2,992. The total number of tested and infected people are 948,115 and 114,653 in Turkey.
(=) The 6th Turkish-Russian joint patrol launched along Idlib’s M4 highway… Joint Turkish-Russian patrols in the province of Idlib in northwestern Syria held yesterday as part of a recent cease-fire deal between the two guarantor countries working toward maintaining peace in the key border region have been completed. Following the initial reports on the joint patrol, the Turkish Defense Ministry released a statement on Sunday, stating that the patrol was successfully completed.
(=) Turkey Sends Medical Supplies to U.S.… According to Bloomberg, Turkey sends medical supplies to United States, as a Turkish military cargo plane carrying medical supplies left for the U.S. to boost its fight against the coronavirus pandemic, in a gesture of solidarity with a NATO ally after years of fractious relations. The donation ordered by President Recep Tayyip Erdogan, including 500,000 surgical masks, 40,000 protective overalls, disinfectants, goggles and face shields, is expected to arrive at the Andrews Air Force Base near Washington on Tuesday.

(=) Treasury sold ~TL15bn worth of SUKUK yesterday... According to the statement, Treasury sells 9.46b liras Oct. 2023 CPI-indexed sukuk to Lenders. Treasury also sells 5.71b liras Oct. 2020 fixed yield Islamic debt to Lenders.

(-) CUR in Auto sector was 20% in April... Transport Vehicles Supply Industry Association Vice Chairman Kemal Yazici interviewed in daily Hurriyet stating that Turkey will produce between 250,000 and 300,000 fewer vehicles this year because domestic and foreign demand has fallen drastically. The revenue loss will be ~USD5bn in 2020 in Turkish auto sector, he added. Auto producers are planning to resume production in the week starting May 4, while the capacity utilization rate was around 20 percent in April. He also cited that expecting the capacity utilization rate to gradually increase from 60 percent to 85 percent between May and September


Sector and Company News:

(=) EKGYO obtained a new loan amounting TRY400.0mn.

(=) GARAN will release its 1Q20 earnings today after markets close. The consensus estimate is TRY1.86bn vs Global estimate is TRY1.95bn net income.

(=/-) THYAO extended the halt of domestic and international flights until May 28.

(=) TOASO is to announce its 1Q20 results today after market close. We expect TL4,517mn of revenues (14% YoY growth), TL610mn of EBITDA (0% YoY growth – 1.8pps decline in margin) and TL366mn of net profit (13% YoY growth). Consensus’ revenue, EBITDA and net profit expectations are TL4,279mn, TL572mn and TL334mn, respectively.

Socar Turkiye plans to increase the oil storage capacity of Star Refinery by 50% from 3mn bbl to 4.5mn bbl.

(=/-) AEFES The profit distribution proposal of the Board of Directors was rejected at the Ordinary General Assembly Meeting and it was decided not to distribute any profit. Recall that the Company had decided to distribute TL1.77 p/s, yielding around 10% according to the last closing price. We consider that recent dividend legislation of the regulator and weak outlook of AEFES operations because of Covid-19 pandemic are the main reason behind this decision.

(-) BIZIM posted 3.8mn net income in 1Q20, lower than the consensus estimate of TL4.6mn and in line with our estimate of TL3.9mn. BIZIM’s EBITDA declined by 11% YoY to TL52mn much below than both consensus estimate of TL61mn and our estimate of TL66mn. Revenues grew by 15% YoY and 2% QoQ. While we see a strong growth in main category (28% YoY), quite weak performance of tobacco sales (-10% YoY) put pressure on the top-line. Sugar sales maintained its weak outlook in this quarter. Product mix improvement derived by the change in customer mix is the main reason behind main category improvement. Despite management indicated that lower gross and EBITDA margin are stemming from IFRS15 rules, we also observe slight deterioration in gross margin derived by high level of discounts which may put pressure on main category gross margin. In addition, we also see some loosening in OpEx control mechanism which resulted with several extraordinary increase in several OpEx items such as logistics expenses and maintenance expenses. Increase in one-off consultancy (SAP program etc.) expenses also harmed operational profitability. Increase in NWC requirements coupled with lower operational profit deteriorated free cash flow in this quarter.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 1.178 1.197 1.164 -2% 1.024 15% 1.156 2%
EBITDA 52 61 66 -16% 58 -11% 62 -16%
margin 4,4% 5,1% 5,7% -0,7 pps 5,7% -1,3 pps 5,3% -0,9 pps
Net profit 3,8 4,6 3,9 -16% 3,8 0% 11,3 -66%
margin 0,3% 0,4% 0,3% -0,1 pps 0,4% 0 pps 1,0% -0,7 pps
Net Debt/EBITDA (x) -0,9 0,1 -93 bps -0,9 2 bps
EV/EBITDA 2,4 2,5 1,7
P/E 24,9 18,1 20,3
ROE (%) 23% 21% 2 pps 23% 0 pps
Net debt -219 11 -2110% -230 -5%
Working capital -378 -345 10% -393 -4%
Δ in WC 15 -25 -160% 13 19%
CapEx 8 8 1% 38 -78%
FCF to firm 26 73 -64% 9 188%
Shareholders' Equity 144 116 24% 141 2%


(=/+) Turkcell posted TL873mn net earnings in 1Q20, down by 29% YoY. However, net income in 1Q19 included the one-off disposal income of the affiliate sale. When adjusted, Turkcell’s YoY net income growth was 93%. Recall that Turkcell sold its shares in Fintur to Sonera Holding B.V. in 1Q19. The final value of the transaction was EUR352.9 million and Turkcell booked TL772mn profit generated from the transaction. Turkcell’s net income in 1Q20 was also 4% above our estimate and 7% above the consensus. Turkcell’s revenues advanced by 20% YoY to TL6.4bn in 1Q20. Its total subscribers was down by 2% YoY to 47.3mn. Turkcell posted TL2.9bn EBITDA in 1Q20 with 45.4% EBITDA margin, compared to our estimate of TL2.8bn EBITDA with 41.7% EBITDA margin. Turkcell’s net debt stayed almost flat QoQ at TL10.3bn with 0.91x net debt / EBITDA in 1Q20.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 6,439 6,650 6,676 -3% 5,380 20% 6,406 1%
EBITDA 2,922 2,765 2,785 6% 2,345 25% 2,869 2%
margin 45.4% 41.6% 41.7% 3.8 pps 43.6% 1.8 pps 44.8% 0.6 pps
Net profit 873 815 840 7% 1,224 -29% 756 15%
margin 13.6% 12.3% 12.6% 1.3 pps 22.8% -9.2 pps 11.8% 1.8 pps
Net Debt/EBITDA (x) 0.91 1.50 -59 bps 0.94 -3 bps
EV/EBITDA 3.6 4.3 3.8
P/E 10.6 9.7 9.4
ROE (%) 15.5% 16.2% -1 pps 18.0% -2 pps
Net debt 10,288 13,979 -26% 10,067 2%
Working capital 1,053 610 73% 364 190%
Δ in WC 690 664 4% -637 -208%
CapEx 4,769 4,103 16% -2,156 -321%
FCF to firm 6,756 5,624 20% 1,116 506%
Shareholders' Equity 18,673 16,951 10% 18,046 3%


# of subscribers 1Q20 1Q19 4Q19 YoY QoQ
Mobile Postpaid (mn) 21.0 18.7 20.4 12% 3%
Mobile Prepaid (mn) 12.2 15.0 12.4 -19% -2%
Fiber (mn) 1.5 1.4 1.5 8% 3%
ADSL (mn) 0.7 0.9 0.7 -19% -3%
Superbox (mn) 0.4 0.1 0.3 613% 24%
Cable (mn) 0.1 0.0 0.0 505% 19%
IPTV (mn) 0.7 0.6 0.7 18% 4%
Turkcell Turkey Total 36.3 36.6 35.7 -1% 2%
lifecell (Ukraine) 8.9 9.4 8.9 -5% 0%
BeST (Belarus) 1.5 1.6 1.5 -6% 0%
Kuzey Kibris Turkcell 0.5 0.6 0.5 -17% 0%
lifecell Europe 0.2 0.2 0.2 0% 0%
Turkcell Group Subscribers (mn) 47.3 48.4 46.7 -2% 1%


(=/-) AKBNK posted TRY1.31bn net income in 1Q20, 2.09% below consensus estimate vs. 5.8% below Global estimates. The reason behind the deviation is higher than expected “other provision expenses” segment which was TRY1.12bn, significantly up by 302% QoQ and by 127% YoY corresponds to the marked to market adjustment of TRY871mn the LYY (TTKOM) due to the depreciation of lira and TRY250mn amount of free provisions. This segment also has been one of the reasons that put pressure on the bottom line of the bank. The main drivers of the net income are : i) decline in interest expenses, which was down by 11.2% QoQ and 42% YoY and ii) provisions for expected credit losses which declined by 41% QoQ from TRY2.43bn to TRY1.44bn in 1Q20. However, 15% quarterly OPEX growth and 120% increase in commercial losses and the LYY provisions mentioned above have been the main points that undermine the net income in Q1.

Regarding the margins, swap adjusted NIM evolution of the bank improved both QoQ and YoY comparison, by 109 bps and 73 bps respectively and has been 4.83% in Q1. The decline in deposit costs and higher contribution of CPI-linkers have been the two main factors behind this improvement. CPI-linker income increased by 61% QoQ from TRY403.0mn to TRY647.0mn.

Net fees and commissions income has been TRY1.126bn, remained flattish in Q1 YoY and down by 8% quarterly.

As for asset quality, a slight 10 bps of increase in NPL ratio has been evident, 6.70% in Q1 sourced by a file from tourism sector. It is clearly evident that in Q1, new NPL formation slowed down substantially, down from TRY4.29bn to TRY1.28bn however, together with the payment holidays that have been executed against Covid-19, it is expected to show their effects starting from the third quarter. Sluggish NPL formation provided the bank confidence with the CoR term. Net CoR improved by 81 bps, down from 281 bps in 4Q19 to 201 bps in 1Q20, the LYY mark-to market provision of TRY871mn excluded.

Akbank remained prudential in terms of loan growth in Q1 which provided a strong buffer for liquidity. LDR narrowed down 7 ppt QoQ from 91% to 84%.

While CAR declined slightly by 90 bps QoQ from 19.70% to 18.80%, the bank still continues to be one of the strongest banks with capital formation. The capital formation eroded slightly due to the impact of currency on risk weighted assets, securities’ marked to market impact and the operational risk that is updated yearly in Q1.

TRYmn 1Q20 Actual Consensus Dev. from Consensus Estimate Dev. from Global Estimate 1Q19 YoY 4Q19 QoQ
Net Income 1,310 1,338 -2.09% -5.80% 1,413 -7.29% 1,329 -1.43%
NIM (swap-adjusted) 4.83% 3.74% 1.09% 4.10% 0.73%
Loan Growth 2.00% 4.7% -2.70% 5.90% -3.90%
Securities Growth 7.00% 12.00% -5.00% 13.00% -6.00%
Deposit Growth 11.00% 9.30% 1.70% 4.19% 6.81%
LDR 84% 95.00% -11.00% 91% -7.00%
ROE 9.60% 12.30% -2.70% 10.90% -1.30%
ROA 1.30% 1.50% -0.20% 1.40% -0.10%
C/I 33.80% 33.4% 0.40% 32.90% 0.90%
NPL Ratio 6.70% 4.10% 2.60% 6.60% 0.10%
CoR 2.01% 1.97% 0.04% 2.81% -0.80%
Tier 1 Ratio 16.00% 13.80% 2.20% 16.90% -0.90%
CAR 18.80% 16.20% 2.60% 19.70% -0.90%
Fee Income 1,264 1,193 5.95% 1,228 2.93%
Fee Growth -5.00% 47.20% -52.20% 33.40% -38.40%
Net Interest Income 5,421 3,666 47.87% 4,627 17.16%