Turkey Wake up call: Macro, Political and Equity News, 30th 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 0.88% yesterday as the bullish sentiment abroad again supported Turkish stocks. Index had an uptick start around the 101.2k mark and spent the morning hours in slight positive territory except for two short-lived incursions into the red before gaining traction after noontime. Benchmark BIST100 gradually ascended to 101.6k where it managed to close the day. Banks gained 1.05% on average with YKBNK and GARAN leading and the two state lenders lagging behind. EREGL, TUPRS, MGROS, TOASO, ENJSA, DOAS, AKSA, and foodstuff producers topped the gainers while MPARK, BIZIM, SOKM, PGSUS, and Sisecam group names were among the weaker spots. Coming to last day of the month, our macro agenda is packed, starting with the Central Bank governor's presentation of the bank's quarterly inflation assessment report through a webcast at 10:30AM local time. The bank predicted year-end CPI at 8.2% for 2020 and at 5.4% for 2021 in its previous assessment report in January. Separately, March'20 Foreign Trade numbers are due at 10AM. Bloomberg consensus for monthly deficit at USD5.40bn vs preliminary data released earlier by the Ministry of Customs & Trade that are indicating a USD5.40bn (+181.8% yoy) trade gap for the month (Exports USD13.43bn (-17.8% yoy) // Imports USD18.82bn (+3.1% yoy). BRSA will release banking industry aggregates for March'20 at 2PM. Cumulative industry profits stood at TL6.03bn in March'19 and at TL7.21bn in February'20. Lastly, summary minutes of the latest Monetary Policy Council meeting will also be released at 2PM. BIST is off to another positive start given the buoyant mood among global peers on optimism from some U.S. corporate results and hopes of progress in treating the coronavirus. Lira is trading at 6.9550 levels vs greenback, holding onto its gains yesterday. U.S. futures are up 0.6% in early trades and Asian markets are all trading in the green.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 3081... According to the Health Ministry, the number of deaths from coronavirus increased by 89 people yesterday and reached 3,081. The total number of tested and infected people are 991,613 and 117,589 in Turkey.

(=) Schools may be opened in June... According to Anadolu Agency, the National Education Minister Ziya Secluk said that if the normalization process continues as expected, the schools may be opened on June 1.

(=/+) Turkey currently passing over peak of pandemic... According to the Anadolu Agency, the Health Minister Fahrettin Koca said that Turkey is currently passing over the peak of the pandemic however the decline in the cases should be consistent.

(-) Economic confidence index… Economic confidence index declined by 44% monthly to 51.3 in April. The declines in fundamental sectors such as in the economy consumer discretionary, manufacturing and services have driven the substantial downturn due to Covid-19 precautions and quarantine conditions.

(-) Consumer confidence index declined in April... According to the data released by TURKSTAT, the consumer confidence index declined ito 54.9 in April 2020, which is down by 5.8% MoM.


Sector and Company News:

(=) EKGYO obtained a new refinancing loan amounting TRY120.0mn.

(=) VAKBN obtained a new syndicated loan from international markets amounting equivalent of USD950mn in two tranches; USD312mn and EUR589.5mn with 367 days maturity. The cost of the credit is Libor+2.25 and Euribor + 2.00 respectively.

(=) YKBNK is to release its 1Q20 earnings today after markets close. Consensus estimate TRY1.069bn vs Global estimate is TRY1.14bn.

(=) TSKB is to release its 1Q20 earnings today after markets close. Consensus estimate TRY164mn vs Global estimate is TRY168mn.

(=) TOASO posted TL346mn net income, up by 7% YoY, in line with the consensus of TL334mn but slightly lower than our estimate of TL366mn. Revenues increased by 12% YoY to TL4,447mn in line with the consensus estimate of TL4,279mn and our estimate of TL4,517mn. We see slight deterioration in EBITDA, down by 2% YoY to TRY599mn, in line with the consensus expectation of TL572mn and our estimate of TL610mn. TOASO’s total PC+LCV retail sales were down by 4% YoY to 56k units. Exports were down by 11% YoY to 39k units despite the low base in the same quarter of previous year. Domestic wholesale volume was quite strong and stood at 17k units up by 16% YoY. Following the results, TOASO made some changes in its 2020E guidance because of the negative impact of Covid-19 pandemic on automotive sector. Accordingly, the management expects domestic market to stands at 480k-520k units (Previous: 560k - 600k units), and its own domestic volume guidance at 72k-78k units (Previous: 78k - 84k units). Tofas downgraded its export guidance to 110k-150k units from 170k-190k units. Recall that TOASO has take-or-pay contracts with FCA and its financials was not hurt by decline in export volumes. Capex guidance was revised EUR250mn (Previous: EUR200mn). We deem its sharp downward revision of 2020E guidance as “expected”; nonetheless, the market reaction may be negative as the company shares was quite strong relative to XU100 (+17%) in the last one month. Thus, we may face some volatility derived by some profit-takings. On the B/S side, we deem the YoY improvement in net debt to EBITDA level as positive before the new Doblo and Egea investments. On the other hand, we see somewhat worrying NWC requirement of TOASO in this quarter resulted with a weak operating cash-flow. Despite of the fact that we expect to see significant level of volume pressure especially in 2Q20, we maintain our positive stance for TOASO in the long term considering defensive balance sheet covered by ToP contracts and our expectation of recovery in the domestic automotive market driven by pent-up demand.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 4.447 4.279 4.517 4% 3.981 12% 5.468 -19%
EBITDA 599 572 610 5% 609 -2% 665 -10%
margin 13,5% 13,4% 13,5% 0,1 pps 15,3% -1,8 pps 12,2% 1,3 pps
Net profit 346 334 366 4% 325 7% 450 -23%
margin 7,8% 7,8% 8,1% 0 pps 8,2% -0,4 pps 8,2% -0,5 pps
Net Debt/EBITDA (x) 1,2 1,4 -25 bps 0,5 70 bps
EV/EBITDA 5,6 4,7 5,9
P/E 7,4 6,4 9,1
ROE (%) 44% 43% 2 pps 34% 10 pps
Net debt 2.842 3.667 -22% 1.125 153%
Working capital -191 -419 -54% -992 -81%
Δ in WC 801 -299 -368% -955 -184%
CapEx 179 112 60% 304 -41%
FCF to firm -381 799 -148% 1.317 -129%
Shareholders' Equity 3.387 3.128 8% 4.329 -22%

Domestic Δ Export Δ Total Δ
1Q19 1Q20 YoY 1Q19 1Q20 YoY 1Q19 1Q20 YoY
PC 11.770 11.977 1,8% 23.883 23.220 -2,8% 35.653 35.197 -1,3%
LCV 2.806 4.929 75,7% 20.462 16.205 -20,8% 23.268 21.134 -9,2%
Total 14.576 16.906 16,0% 44.345 39.425 -11,1% 58.921 56.331 -4,4%

2020E Guidance Previous New
Domestic Market 560k-600k units 480k-520k units
TOASO volume 78k-84k units 72-78k units
Export shipments 170k-190k units 110k-140k units
Production 240k-265k units 175k-210k units
CapEx EUR250mn EUR200mn

(+) BRISA printed TL76mn net profit in 1Q20, 20% higher than the consensus expectation. While its revenues increase by 26% YoY to TL977mn, EBITDA jumped by 66% YoY to TL213mn. We see significant level of improvement in its EBITDA margin up by 2.9pps YoY to 21.8%.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 977 998 n.a -2% 776 26% 907 8%
EBITDA 213 189 n.a 13% 128 66% 152 41%
margin 21,8% 18,9% n.a 2,9 pps 16,5% 5,3 pps 16,7% 5,1 pps
Net profit 76 64 n.a 20% -3 -2973% 40 92%
margin 7,8% 6,4% n.a 1,4 pps -0,3% 8,1 pps 4,4% 3,4 pps
Net Debt/EBITDA (x) 3,8 4,6 -78 bps 3,9 -12 bps
EV/EBITDA 7,6 8,4 8,7
P/E 13,6 27,0 25,5
ROE (%) 19% 8% 11 pps 13% 7 pps
Net debt 2.632 2.616 1% 2.385 10%
Working capital 551 697 -21% 245 125%
Δ in WC 306 108 184% -310 -199%
CapEx 37 59 -37% 71 -48%
FCF to firm -128 -35 262% 389 -133%
Shareholders' Equity 995 1.013 -2% 897 11%


(=) EREGL posted TL300mn net income in 1Q20, down by 70% YoY. The net income was also 41% below our estimate of TL513mn and 36% below the consensus estimate of TL468mn. Although its revenues and EBITDA came almost in-line with our estimate, EREGL’s higher than expected tax rate (64%) led to lower than expected net income in 1Q20. EREGL’s revenues were down by 11% YoY to TL6.4bn in 1Q20. Its production and sales volumes were down by 8% and 14% YoY respectively. EREGL generated TL1.1bn EBITDA in 1Q20, which was down by 42% YoY. EREGL’s EBITDA was USD95/ton, down by 32% YoY. Despite YoY contraction in operating earnings, EREGL managed to increase its EBITDA by 44% and EBITDA per ton by 42% QoQ. EREGL’s net debt to EBITDA is -1x in 1Q20, compared to -0.53x a quarter ago.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 6,379 6,426 6,119 -1% 7,144 -11% 6,454 -1%
EBITDA 1,006 1,026 1,069 -2% 1,747 -42% 701 44%
margin 15.8% 16.0% 17.5% -0.2 pps 24.5% -8.7 pps 10.9% 4.9 pps
Net profit 300 468 513 -36% 997 -70% 228 32%
margin 4.7% 7.3% 8.4% -2.6 pps 14.0% -9.2 pps 3.5% 1.2 pps
Net Debt/EBITDA (x) -1.00 -0.52 -48 bps -0.53 -47 bps
EV/EBITDA 5.1 3.2 5.3
P/E 10.9 5.8 9.5
ROE (%) 7.8% 20.8% -13 pps 10.9% -3 pps
Net debt -4,717 -4,502 5% -2,889 63%
Working capital 9,774 11,262 -13% 9,737 0%
Δ in WC 37 -94 -139% -595 -106%
CapEx 1,141 718 59% -721 -258%
FCF to firm 1,531 1,896 -19% 277 453%
Shareholders' Equity 33,484 26,553 26% 30,299 11%

1Q20 1Q19 4Q19 YoY QoQ
Production (k tons) 1,978 2,142 2,022 -8% -2%
Hot 1,310 1,424 1,303 -8% 1%
Cold 404 403 449 0% -10%
Long 264 315 270 -16% -2%
Sales (k tons) 1,923 2,224 2,056 -14% -6%
Hot 1,234 1,435 1,326 -14% -7%
Cold 422 453 453 -7% -7%
Long 267 336 277 -21% -4%
EBITDA (USD/t) 95 139 67 -32% 42%


(=) GARAN posted TRY1.63bn net income in 1Q20, increased by 33.36% QoQ and declined by -5.28% YoY. 1Q20 net income of the bank indicated -12.22% deviation from consensus estimates vs. -16% from Global estimate. The main reason behind the deviation has been bank’s decision to increase NPL coverage ratios. In Q1, the bank increased its Stage II coverage by 3.3 ppt to 13.8% and 3.1 ppt to 65.5% for the Stage III loans which led “provisions for expected credit losses segment” very significantly by 75% QoQ from TRY2.78bn to TRY4.86bn.

The bank generated 5.9% non-adjusted NIM, up by 60 bps QoQ sourced from higher CPI-linker income and declined deposit costs by 12% QoQ and 43% YoY.

Despite the fee regulations, GARAN managed to generate increased net fees and commissions income by 4.5% QoQ as well as solid OPEX management has been evident that remained flattish in Q1. The banks cost-to-income ratio declined by almost 4 ppt QoQ to 32.7%.

As for asset quality, the bank’s NPL ratio improved by 40 bps QoQ to 6.5%, driven by NPL collections amounting TRY1.14bn in Q1, limited NPL formation compared to previous quarter and BRSA regulation for forbearance –extension of the term 180 days from 90 days for NPL recognition- indicated 15 bps of positive impact on NPL ratio. On the other hand, the bank’s net CoR increased by 19 bps to 3.17% driven by the bank’s prudential provision policy in Q1 as mentioned in the first part.

In terms of capital adequacy measures, a slight erosion has been evident in capital adequacy ratio which was adversely affected by currency impact in Q1 which led -62 bps, market and credit risks by -70 bps and others by -56 bps. Therefore in Q1 the bank indicated 16.60% of CAR still significantly above the international and domestic criteria.

Despite the short-term headwinds for banking sector as well as GARAN, we maintain our positive stance for GARAN in the long term given its substantial PPOP growth, strong liquidity measures and ability to generate one of the highest ROEs in Turkish banking sector. Together with its prudential NPL coverage + TRY2.5bn of free provisions, GARAN is expected to be leading the post-pandemic term of the economy among Turkish banks.



TRYmn 1Q20 Actual Consensus Dev. from consensus 1Q19 YoY 4Q19 QoQ
Net Income 1,631 1,858 -12.22% 1,722 -5.28% 1,223 33.36%
NIM (non-adjusted) 5.90% 5.20% 0.70% 5.30% 0.60%
Loan Growth 8.10% 6.84% 1.26% 5.90% 2.20%
Securities Growth 2.00% 3.00% -1.00% 2.46% -0.46%
Deposit Growth 6.74% 8.25% -1.51% 7.79% -1.05%
LDR 94% 99.30% -5.30% 94.00% 0.00%
ROE 12.40% 15.00% -2.60% 12.30% 0.10%
ROA 1.50% 2.00% -0.50% 1.60% -0.10%
C/I 32.70% 35.7% -3.00% 36.40% -3.70%
NPL Ratio 6.50% 5.20% 1.30% 6.90% -0.40%
CoR 3.17% 2.78% 0.39% 2.98% 0.19%
Tier 1 Ratio 14.00% 14.70% -0.70% 17.10% -3.10%
CAR 16.60% 17.00% -0.40% 19.60% -3.00%
Net Interest Income 5,644 4,495 25.56% 5223.00 8.06%
Fee Income 1,678 1,431 17.26% 1,606 4.48%
Fee Growth 4.48% 9.23% -4.75% -0.04% 4.52%