Turkey Wake up call: Macro, Political and Equity News, 6th 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 climbed 0.93% yesterday amid optimism about a truce in Syria although the pressure in global peers in afternoon session capped the gains. After opening gap higher, BIST100 spent most of the day in a tight range between 112.4-113.0k but selling after 3:30PM trimmed some of the gains until the close. Banks fell behind this time and lost 0.43% on average. Some non-financial heavyweights like BIMAS, EREGL, TTKOM, TCELL, ASELS, ULKER as well as GUBRF, AGHOL, MPARK, and AKSEN stood out as top gainers while PGSUS, TAVHL, TUPRS, ARCLK, and TOASO were among the weaker plays. Today, our local macro agenda involves Treasury's cash budget balance for February'20 to be disclosed at 5:30PM local time today. Despite positive news that Turkey and Russia agreed a new ceasefire deal effective from last midnight in Syria’s Idlib region, BIST is off to a negative open as the risk-off mood in global markets is weighing on equities across the board while lira is flattish (USDTRY now at 6.1036 vs 6.1039 at yesterday’s closing bell). U.S. futures are down about 1.2% in early trades on top of some 0.5-0.6% overnight losses from the hour we left and Asian equity benchmarks are all trading deeply in the red.
Macro and Political News:
(+) Turkey and Russia reach agreement for cease-fire in Syria’s Idlib province… President Erdogan and his Russian counterpart Vladimir Putin said on March 5 that they have reached agreements that could end fighting in northwest Syria. At the start of the talks, in his opening remarks in Kremlin, President Vladimir Putin thanked Erdogan for accepting his invitation for talks on the recent escalation and offered Erdogan condolences for fallen Turkish soldiers in Idlib. Putin stated that neither Damascus nor Moscow was aware of the presence of Turkey’s soldiers in the area where the airstrike killed Turkish troops. Direct and personal talks are needed with Turkey to address the aggravated situation in Idlib, Putin said. After the meeting, the two presidents chaired delegation talks, which included the countries’ foreign and defense ministers and representatives of the intelligence services. March 5’s meeting was the third face-to-face encounter between Erdogan and Putin since early January to find a lasting ceasefire in Syria’s Idlib province where regime forces backed by Russia have intensified military operations.
Erdogan, standing alongside Putin after six hours of talks in Moscow, said the cease-fire has come into force in Idlib at midnight. Underlining that Turkey’s military reserves the right to retaliate against any attacks by Syrian regime forces in the region, Erdogan said that both Ankara and Moscow will work to ensure that aid reaches Syrians in need. After the leaders’ press conference, Turkish Foreign Minister Mevlut Cavusoglu and his Russian counterpart Sergei Lavrov elaborated on the details of the agreement. The foreign ministers said that the agreement involves a cease-fire that must be enforced starting at midnight along the existing battle lines.
Turkey and Russia agreed to establish a secure corridor 6 kilometres north and 6 kilometres south from the M4 highway in Idlib, the ministers said. The countries’ defense ministers will agree on the parameters of the security corridor within seven days. According to the agreement, Turkish and Russian forces will begin patrols along the M4 highway on March 15. The patrolling will take place from the Trumba settlement, some 2 kilometres to the west of Saraqib, to the Ain-Al-Havr settlement.
(=) Assad regime violates Idlib cease-fire immediately after it comes into effect… Syrian regime forces violated the cease-fire only half an hour after it came into effect early Friday, according to Qatari news outlet Al Jazeera. Al Jazeera said in a tweet that Regime forces continue bombardments in the south of Idlib and west of Aleppo in violation of the cease-fire deal.
(=) Pompeo: Turkey has right to self-defense in Idlib… U.S. Secretary of State Mike Pompeo voiced unwavering support for Turkey in Syria on Thursday as Ankara seeks to thwart a Bashar Assad regime offensive in the country's northwest. Pompeo told reporters in Washington that Turkey has the full right to defend itself against the risk that's being created by what Assad, the Russians and the Iranians are doing inside of Syria. Pompeo said that the Turkish government has asked US for a handful of things and added that they are evaluating all of those requests.
(=) Turkey-Russia agreement not to change refugee policy… Turkish presidential sources said Thursday that Turkey and Russia’s agreement on a ceasefire in Syria’s Idlib province does not require Ankara to change its refugee policy. The sources highlighted that the Russia-Turkey agreement does not require the rollback of changes made to Turkey's refugee policy and does not change the fact of the European Union’s non-compliance with its promises as part of the 2016 refugee deal.

Sector and Company News:

(+) EREGL Board decided to propose a cash dividend corresponding to TL1.2 gross, TL1.0673909 net DPS to be distributed on April 24, 2020, to the approval of the General Assembly. The proposed dividend amount indicates a 13.7% dividend yield.

On a separate note, EREGL also decided to initiate a share buyback programme after the approval of General Assembly. The duration of the buyback programme is 3 years after the approval in General Assembly. Total amount purchased cannot exceed 10% of the issued capital (350mn). The lower price limit of the buyback is 1 Kurus and upper limit will be 25% more of the share book value in the most recently disclosed financial statement (calculated at TL10.8 according to the 2019 financials). We believe both high dividend distribution and share buyback programme will increase the positive sentiment on the share price.

(=) PETKM Board decided to propose a dividend of TL422mn as bonus share, corresponding to 20% of the issued capital, to the General Assembly.

(=) ULKER Board decided to propose a cash dividend of TL114.75mn which corresponds to TL0.3947 gross, TL0.3355 net DPS to be distributed on June 30, 2020, to the approval of the General Assembly. The proposed dividend amount indicates a 1.78% dividend yield.

(=) KCHOL Board decided to propose a cash dividend of TL679mn which corresponds to TL0.4120 gross, TL0.3502 net DPS to be distributed on April 8, 2020, to the approval of the General Assembly. The proposed dividend amount indicates a 2.30% dividend yield.

(=) TTKOM announced that according to the agreement between the company and Galatasaray, the company will pay TL30mn to Galatasaray with the purpose of marketing, advertisement and promotion activities that will cover 2020-2021 season.

(+) ULKER posted TL165mn net income in 4Q19, 28% above our estimate of TL128mn and 36% above the consensus of TL121mn. The better than expected net income is mostly due to its better operating performance, as its revenues and EBITDA came in 3% and 14% above our estimates. ULKER’s consolidated revenues increased by 19% YoY to TL2.1bn and its total production advanced by 4% YoY to 152k tons. Furthermore, ULKER’s EBITDA improved by 22% YoY to TL340mn with 15.8% EBITDA margin, compared to 15.5% a year ago. ULKER’s per ton EBITDA improved by 17% YoY to TL2,230. ULKER’s net debt / EBITDA improved to 0.66x from 1.61x a quarter ago, thanks to solid improvement in its working capital needs. All in all, we consider that ULKER’s 4Q19 results were better than estimates both on operating performance as well as cash generation.

(-) SOKM posted TL148mn net loss in 4Q19, worse than the consensus net loss of TL23mn and our net income estimate of TL26mn. The worse net income than our estimate net income is mostly attributalbe to lower than expected revenues as well as EBITDA generation. Although its operating metrics did not meet the expectations, SOKM managed to improve its revenues by 26% YoY to TL4.2bn. SOKM’s like-for-like growth was 18% YoY in 4Q19, with a combination of 4.6% YoY traffic growth and 12.8% YoY average basket size growth. SOKM’s EBITDA came in at TL370mn in 4Q19 with 8.7% EBITDA margin (but excl. IFRS-16 its EBITDA was TL198mn in 4Q19 with 4.7% EBITDA margin lower than 5.2% in 4Q18.) SOKM’s net debt / EBITDA improved to 1.12x in 4Q19 from 1.26x a quarter ago. On the other hand, SOKM announced its 2020E guidance. Accordingly, the company plans to open 750 new stores in 2020E (2019: 851) and targets 21% revenue growth (2019: 33.1%) with 9.5% EBITDA margin (excl. IFRS-16,: 5.5%& EBITDA margin). SOKM plans to spend TL350mn CAPEX in 2020E. All in all, SOKM’s 4Q19 results were weaker than estimates in 4Q19.

MPARK posted TL83mn net income in 4Q19, above the consensus net loss of TL18mn. Although its revenues and EBITDA came almost in-line with the consensus, the company booked TL128mn income from investing activities, as a result of goodwill from its Ozel Mehmet Toprak Hopital. Recall that MPARK acquired that hospital in December 2019. MPARK announced its 2020E guidance. Accordingly, the company targets 18% YoY revenue growth with 25% EBITDA growth in 2020E. MPARK management also aims to keep net debt / EBITDA multiple below 2x.

(=/+) THYAO posted TL1,948mn net income in 4Q19, higher than the consensus estimate of TL1,021mn and our estimate of TL712mn. However, revenues are inline with estimates where EBITDA of TL4,880mn is higher than the consensus estimate of TL2,863mn and our estimate of TL3,052mn. The company posted TL18,967mn net sales (consensus TL18,893mn, Global TL18,819mn) in 4Q19, indicating 15% YoY improvement, while down by 16% QoQ. Turkish Airline’s EBITDA of TL4,880mn in 4Q19 is much higher than the TL1,571mn in 4Q18, thanks to the higher pax, especially on the international front and higher load factor in 4Q19 compared to 4Q18. EBITDA margin came in at 25.7% in 4Q19, much higher than the 9.5% in 4Q18. The company’s domestic pax declined by 7% YoY to 7.6mn, while international pax increased by 8% YoY to 10mn in 4Q19, indicating a 2% YoY improvement in total pax. The company didn’t change its previous guidance yet, which is at 78-80mn passengers with 23-25% EBITDAR margin. The company will hold a conference call at 5 pm.

According to the weekly banking data, total loans increased by 4.6% y-t-d to TRY2,768bn. The largest growth has been evident in consumer growth segment which has been the main trend since the beginning of the year. Consumer loans grew by 6.38%, the largest component of the consumer loans has been the GPL and compared to beginning of the year, vehicle loans showed a slight contraction by 53 bps while commercial loans and SME loans became in-line with the total loan growth that indicates a slight expansion in this field, up by 3.5% and 2.83% m/m respectively. FX indexed loans’ downward trend continued by almost 10% y-t-d.

NPL ratio of the sector improved by 19 bps y-t-d. Although NPL amount increased slightly by 1.21%, the sector effort continue to improve its NPL structure is evident.

On the deposits front, total deposits increased by 4.58% y-t-d. An important note, last week has been the first observation of higher y-t-d loan growth than total deposit growth in 2020 so far. The trend in total loan growth is to be followed up next weeks and months closely. While real persons’ deposits increased by 4.20%, the largest upward movement has been evident in official and other institutions segment by 11.79% from TRY154.53bn to TRY172bn. Total FX deposits of residents inched up by 15 bps w/w both corporates and real persons contributed almost equally, 22 bps and 19 bps respectively.