Turkey Wake up call: Macro, Political and Equity News, 3rd March

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Wake – up call

BIST climbed 1.24% yesterday in cautious recovery after last week’s hefty losses. Index opened gap higher around the 108.5k mark as the positive sentiment abroad lifted all the boats and climbed further to 109.4k by mid-afternoon. But profit taking in western peers also trimmed the gains in the BIST with the index dipping at 106.5k at 3PM, followed by some ascent into the close. Banking index was up 1.76% driven by gains in YKBNK and VAKBN while GARAN underperformed. SAHOL, ASELS, AEFES, EKGYO, TKFEN, FROTO, SISE, and GUBRF were among the leading non-banks while BIMAS, ARCLK, ENKAI, CCOLA, and TCELL stood out as rare decliners. Today, our local macro agenda highlight will be the February'20 inflation numbers due at 10AM local time. Bloomberg consensus CPI at +0.65%. BIST is off to another positive start given the overnight rally in U.S. indices reaching 4.7-4.9% and lira gaining some ground with USDTRY at 6.1796 vs 6.2272 at yesterday’s closing bell. U.S. futures are down some 0.15% in early trades while Asian markets except for Japanese indices are all trading in the green.
Macro and Political News:
(+) Search for diplomatic solution resumes as Turkey-Syrian regime tension escalates… Turkey strengthened its efforts to come up with a diplomatic solution to the Syrian crisis, enhancing negotiations with regional and international actors, particularly Russia, in a hope to put an end to the escalating tensions. However, developments in the field overshadow diplomatic efforts as the conflict between the Turkish military and the Syrian regime continues nonstop, with the latter resuming its attacks on civilians in the northwestern province of Idlib. In this regards, Defense Minister Hulusi Akar said Monday that a total of 2,557 Syrian regime elements have so far been neutralized as part of Turkey’s ongoing Operation Peace Shield. Akar said talks between Ankara and Moscow were underway, adding that Turkey was not aiming for a face-off with Russia and that its only goal was to stop regime massacres and prevent radicalization and migration.
Apart from talks with Russia, Turkey has also attracted attention from various Western countries amid recent tensions. Bulgarian Prime Minister Boyko Borisov was in Turkey yesterday to hold talks with President Erdogan over the shift in Turkey’s refugee policy. Another visit came from an American delegation accompanied by Kelly Craft, the U.S. ambassador to the U.N., and James Jeffrey, the U.S. special envoy for Syria and former U.S. ambassador to Turkey. According to a media statement released by the U.S. mission to the U.N., the two came to Turkey amid growing alarm over escalating violence in Syria. “Assad-regime forces, backed by Russia and Iran, have unleashed a brutal military campaign in Idlib, killing hundreds of civilians and forcing nearly a million people to flee, constituting the largest number of displaced people since the Syrian war began nine years ago,” the statement read.
During her visit, Craft was expected to stress the urgent need of U.N.-authorized cross-border access for the delivery of critical humanitarian assistance to Syrian communities and the displaced struggling without sup- plies and proper shelter in freezing temperatures. The U.S. delegation was also expected to meet with representatives of the U.N. and non-governmental organizations, who are working to respond to the growing humanitarian crisis. Also note that, Jeffrey will hold talks with Deputy Foreign Minister Sedat Onal on March 3 (today), while Craft will visit Hatay and Gaziantep. These two cities are on the Syrian border and host sizeable Syrian refugee communities. Craft will meet Mr Onal on March 4 in Ankara.
British Foreign Secretary Dominic Raab is also expected to pay a working visit to Ankara today, according to Turkey’s Foreign Ministry. In a statement Monday, the ministry said Raab will hold talks with Turkey’s Foreign Minister Mevlut Cavusoglu during the visit. Meanwhile, France on Monday condemned the attacks on Turkish soldiers by the Assad regime and its allies. According to a statement by the French Foreign Ministry, French top diplomat Jean-Yves Le Drian spoke over the phone with his Greek counterpart Nikos Dendias and EU foreign policy chief Josep Borrell. Le Drian recalled the appeal by 14 foreign ministers from European Union member countries for the immediate cessation of the hostilities by the Syrian regime and its allies in Idlib. He also reiterated in the strongest terms his condemnation of this offensive by the Syrian regime and its – particularly Russian – supporters, and of the attacks on Turkish forces in the area.
(+) Erdogan: Lasting cease-fire in Idlib, Syria is Turkey’s goal… President Erdogan told a gathering of ruling Justice and Development (AK) Party officials in the capital Ankara. Erdogan said that Turkey is hoping and working for a cease-fire in the embattled Syrian province of Idlib, highlighting that his only wish is to end this struggle with victory and prevent further bloodshed with a permanent cease-fire. His remarks came ahead of his meeting Thursday with Russian President Vladimir Putin on the situation in Idlib, northwestern Syria, in the wake of 34 Turkish soldiers being martyred there last week by Assad regime forces, and the launching of a new Turkish operation on Sunday. Turkey has pressed Russia to do more to rein in Assad’s attacks in the region. In this regard, Erdogan said the Turkish Army has destroyed dozens of regime elements, and made them pay a heavy price by destroying their jets and ammunition. Also, Erdogan said Turkey had no particular problem with Iran or Russia in Syria’s Idlib province, but Turkey aimed at solving the humanitarian crisis as refugees continue to flee northern Syria, and making sure that “our territory is safe.”
(=) Erdogan: Turkey won’t close gates to Europe anymore… President Erdogan said Monday that is too late for Turkey to close its borders for migrants to cross into Europe, as he criticized European countries for ignoring Turkey’s calls to respond to the ongoing humanitarian crisis in northwestern Syria. Erdogan noted that calls from European leaders poured in after he announced Turkey would no longer stem the flow of irregular migrants to the bloc. Erdogan underlined that Turkey will not close its border gates for refugees to cross into Europe anymore, adding that Europe too will take its share of the burden. He reiterated once again that Turkey will continue to carry out its determined operation against the Assad regime forces in Idlib, as he praised the Turkish people for their unity, fraternity and solidarity, which he said strengthens the country. Also, Erdogan said he will evaluate recent developments in Idlib with Russian President Vladimir Putin in Moscow on Thursday, reiterating his hope for facilitating a cease-fire and taking other steps to resolve the issue.
(=) Erdogan: Turkey won’t take care of Syrian refugees for another 9 years… President Erdogan warned on Monday that Turkey will not continue to take care of millions of Syrian refugees for another nine years, despite what Europeans may think. President Erdogan said that the Europeans think that Turkey will continue to take care of the refugees for another nine years; such a thing will not happen. He added that the EU has failed to abide by the March 18 declaration and continues to implement double standards. Erdogan reiterated that Turkey has already spent USD40bn for refugees so far; and now its demands the EU take a fair share of the burden.
The latest crisis stems from a Russian-backed Assad regime military campaign to retake Idlib province, which is the last opposition-held stronghold in Syria. The offensive, which began Dec. 1, has triggered the largest single wave of displacement in Syria's nine-year war, sending nearly 950,000 people fleeing to areas near the Turkish border for safety.
(+) Putin: Russia does not want war… Russian President Vladimir Putin has said Russia does not plan to go to war with anyone but wants to dissuade other countries from engaging in conflict with Moscow. Putin made the comments in a Tass interview on Monday in which the Russian news agency began releasing parts of in installments on Feb. 20. Monday’s comments were included in the sixth such installment. The publication of the remarks came amid rising tensions in Syria’s Idlib region where Russia is backing Syrian regime forces against Turkey.
(=) Germany urges EU-Turkey talks on refugee crisis… Germany on Monday called for further talks between the European Union and Turkey to better address the refugee crisis amid escalating tensions in northwestern Syria. Speaking at a news conference in Berlin, Chancellor Angela Merkel’s spokesman Steffen Seibert said they were well aware of criticisms of Ankara on the implementation of the 2016 EU-Turkey refugee agreement –which had promised EUR6bn of aid for 2016-2019 to improve the living conditions of more than 3 million Syrian refugees in Turkey. He said that EU must talk with Turkey on these issues, particularly the burden due to the hundreds of thousands of displaced people in Syria. Also, Seibert argued that despite several problems, the EU-Turkey refugee agreement has been successful so far in controlling irregular migration, countering human smugglers and saving human lives in the Aegean Sea.
(=) Parliament to convene closed session on Idlib… The Turkish Parliament will hold a special meeting on Tuesday to discuss the conflict in northwestern Syria’s Idlib province. During the closed session, Defense Minister Hulusi Akar and Foreign Minister Mevlut Cavusoglu are expected to update members of Parliament on the latest developments in the disputed territory on the Turkish border. The meeting was scheduled upon a motion from the ruling Justice and Development (AK) Party. Representatives from other political parties within the parliament are also expected to participate in the session. Recall, the ruling AK Party, the Nationalist Movement Party (MHP), the main opposition Republican People’s Party (CHP) and Good Party (İP) signed the joint declaration following a special session in Parliament, underscoring that the Turkish army will successfully carry out the tasks assigned to it by the Turkish Grand National Assembly.
(+) February’s manufacturing PMI strongest of the last two years… Purchasing Managers’ Index (PMI) for the manufacturing sector posted the strongest reading of the last two years in February. According to the Istanbul Chamber of Industry PMI Manufacturing Index report, the index rose to 52.4 last month thanks to solid rises in both output and new orders. The February figure indicated the fastest improvement in operating conditions across the Turkish manufacturing sector since February 2018. Employment grew at the strongest rate in the same period, the report said. While the surge in demand led to accelerated production growth, the increase in output required faster hiring and resulted in a solid rise in staff numbers. These positive results suggest that the sector could be starting a sustained period of growth.
(+) Antalya enjoys record January and February with nearly 400,000 tourists… The Mediterranean resort city of Antalya has had its best-ever January and February months in terms of the number of visitors it hosted. The city welcomed some 388,994 tourists in the first two months, a 30% rise compared to the same period a year earlier, according to data compiled by the Antalya Provincial Directorate of Culture and Tourism. Antalya welcomed around 299,176 tourists in January and February last year. Antalya is particularly popular among Russian tourists. Data from the first two months of 2020 showed that nearly 69,000 Russians visited Antalya in January and February last year. This year, the number of Russian tourists in the first two months of the year reached 103,094, marking an almost 50% rise year-on-year. Russian tourists made up 31.4% of the total number of visitors during the time frame. Some 5.5 million Russians arrived in the country last year. Germans ranked second at about 99,625 tourists in the two-month period, marking a 35.4% rise in their numbers as well. However, the city has been attracting more visitors from countries such as the Netherlands, Belgium, France, Denmark, Switzerland, Sweden, Iran, Jordan, Cyprus, Norway, Australia and Azerbaijan. Visitors from the Netherlands totalled 8,201, with Jordan not far behind at 6,126 and Belgium with 5,149 visitors.
(=) CPI (Feb) due today at 10:00am local time… Economists polled by Bloomberg projected Turkey’s inflation rate in February to hit 12.70% YoY (0.65% MoM).

Sector and Company News:

(=) HALKB trial to be held today by the New York Court of Southern District. Recall that HALKB accepted to participate in the hearing this time and the bank’s attorneys will be present at the trial to extend their defense against prosecutor’s allegations regarding breaking the US sanctions against Iran.

(=) PGSUS is to release its 4Q19 earnings on Tuesday.

ENKAI bought 109k lots of its own shares with TRY6.27-6.35 price range per share.

(-) MGROS posted TL290mn net loss, worse than the consensus of TL227mn net loss and our estimate of TL 313mn net loss. Revenues grew by 22% YoY to TL5,997mn 2% above the consensus estimate of TL5,902mn but in-line our estimate of TL6,013mn. MGROS’s EBITDA margin of 7.3% was below our estimate of 9.3% and the consensus of 8.2%. The reason behind the lower than expected EBITDA margin is mainly attributable to YoY weaker gross margin of 24.9% (exc. IFRS16 implementation) which is the lowest since 3Q10. Although we have no further details, we deem that the declining CPI was more visible in 4Q19, which could be the major reason behind the gross margin decline. Following its 4Q19 results, MGROS announced its 2020E guidance. Accordingly, the company expects 16-18% top-line growth (in-line with our estimate) with a 8.0-8.5% of EBITDA margin (below our 9.4% estimate). The company guides 120 new store openings (our estimate: 131) with TL400mn CapEx.

MGROS managed to keep its net debt to EBITDA almost unchanged at 2.4x at YE19. (Excluding IFRS16 implementation à YE19: 1.3x - YE18: 2.3x - YE14: 3.2x ) and management targets to decrease the EUR borrowings below 300mn from EUR430mn at YE19.