Turkey Wake up call: Macro, Political and Equity News, 6th May

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 edged down 0.11% yesterday as the early gains could not be sustained amid continued weakness in lira. BIST100 index opened higher and touched its intraday peak of 99.8k in early trades as the strength in peer markets buoyed Turkish stocks. But the benchmark quickly turned south and slipped 1,000 points until mid-day after when it managed to stage a gradual recovery until the close. Banks were up 0.16% on average with YKBNK and the two state lenders outperforming. Koza Group names, ASELS, KRDMD, AYGAZ, TTKOM, and LOGO topped the day's gainers while cement stocks, PGSUS, ULKER, BIMAS, ENJSA, TTRAK, ad TOASO stood out as the weak spots. Coming to this morning, our local macro agenda is totally muted and BIST is seen to have a sideways open. U.S. futures are up c.0.5% in reversal of most of their 0.6-0.8% overnight losses from when we left and Asian markets are trading mixed. Lira is a tad stronger with USDTRY at 7.0811 now vs 7.0858 at yesterday's closing bell.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 3520... According to the Health Ministry, the number of deaths from coronavirus increased by 59 people yesterday and reached 3520. The total numbers of tested and infected people are 1.20mn and 129,491 in Turkey.
(=) The 8th 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. The Turkish Defense Ministry released a statement, stating that the patrol was successfully completed


Sector and Company News:

(=) According to the latest update by CBRT announced yesterday, the upper limit for banks’ swap transaction amounts increased to 40% of total foreign exchange transactions which was 30% previously. By this decision, CBRT aims to increase the banks’ swap transaction opportunities with CBRT to strengthen its FX reserves.

(=) According to the latest announcement by Turkish banking authority, the Turkish banks’ TL transactions with foreign financial institutions has been limited to 0.5% of their latest calculated legal equities. By this decision, BRSA aims to limit the foreign institutions’ TL outreach to avoid the new elevation in foreign exchange parities.

(=) TKNSA CEO Bulent Gurcan stated that TKNSA is preparing to open its stores considering the health measurements and they projected kick off with 30%-40% traffic (in their best scenario). Regarding the online sales platform teknosa.com, he underlined there was 50% traffic growth in April. Bulent Gurcan underlined that they did not reflect TL’s depreciation on product prices but it will be reflected in mid-May.

(=) SOKM decided to distribute a cash bonus to its top-management because of the strong operational performance of the Company in 2019. However, the top-management has to buy SOKM shares with a price of TL10.61 p/s (arranged transaction outside the market) with this cash to receive their performance bonus. Total number of shares subject to performance bonus is 980k. In addition, we do not see a “restriction on selling these shares in the market at least for a specific time period”. As a result, this may create volatility in SOKM shares if these shares are sold in the market upcoming days/weeks.

(=) BIMAS’ share buy-back program ended on May 5, 2020. Recall that, on April 9, 2020, a new share buy-back program was initiated with the maximum number of shares that can be subject to buy-back within the program was determined as 7mn shares, and the fund to be used for buy-back was maximum TL400mn.

(=) According to Anadolu Agency, THYAO prepared a draft flight plan for June, July and August in post-pandemic period. THYAO plans to kick off domestic flights in June, while international flights will be held gradually. Thus, THYAO plans to utilize its 60% of capacity in June as the flag carrier will fly to 19 countries. In July THYAO will fly to 74 countries then in August THYAO will fly to 98 countries.

(=) AEFES is to announce its 1Q20 results today after market close. We expect TL4,610mn of revenues (+16% YoY), TL307mn of EBITDA (-16% YoY – 2.6pps decline in margin) and TL255mn of net loss (1Q19: TL177mn loss). Consensus’ revenue, EBITDA and net profit expectations are TL4,531mn, TL284mn and TL-171mn, respectively

(-) Foreign investors sold USD789mn worth of equities in April 2020... According to the Borsa Istanbul, the foreign investors sold USD789mn net worth of equities in April 2020. Most sold stocks are GARAN, AKBNK, PGSUS, VAKBN and ISCTR, while most bought ones were ASELS, PETKM, IPEKE, EREGL and THYAO.


Net Outflow USD Net Inflow USD
GARAN -116,654,550 ASELS 29,734,283
AKBNK -72,078,004 PETKM 24,590,046
PGSUS -51,379,583 IPEKE 17,352,135
VAKBN -50,063,973 EREGL 12,158,214
ISCTR -49,899,317 THYAO 9,778,050
SOKM -39,450,647 MGROS 5,285,466
TAVHL -39,058,931 KOZAA 3,571,027
KCHOL -36,623,806 CLEBI 2,869,665
YKBNK -28,944,258 BIZIM 2,418,927
DOCO -27,329,499 FROTO 1,713,487


(+) CCOLA posted TL127mn net income in 1Q20, significantly above the consensus estimate of TL88mn and our expectation of TL67mn net profit. Revenues grew by 21% YoY to TRY2,622mn, in line with the consensus estimate of TL2,582mn and our estimate of TL2,611mn. CCOLA’s EBITDA increased by 21% YoY to TL388mn, slightly above the consensus estimate of TL374mn and our expectation of TL368mn. CCOLA’s EBITDA margin of 14.8% in 1Q20 was higher than the consensus average of 14.5% and our estimate of 14.1%. Better than expected operational profitability among all countries CCOLA operates is mainly attributable to effective supply chain management coming from lower raw material costs coupled higher selling prices with strong volume growth momentum in the first two months of the quarter. However, starting from March, Covid-19 pandemic put pressure on sales volumes of on premise channel and limited strong growth outlook of CCOLA.

In 1Q20, consolidated sales volume increased by 4% YoY to 239mn UC, derived by strong 6% y-o-y growth in Sparkling segment. However, Water category declined by 4% y-o-y. In still segment, we saw slight 1% y-o-y growth.

Domestic volume was flat at 107mn UC. Strong growth momentum (4% y-o-y) in sparkling category with the support of brand investments, pricing initiatives, and in-store executions. However, water category maintained its weak outlook with 6% y-o-y decline in line with the Company’s strategy to focus on value generation rather than volume.

International operations grew by 7% y-o-y to 132mn UC. This mainly stemmed from strong performances in Pakistan and Central Asia operations. Pakistan volume was up by 7% y-o-y in 1Q20. Although the deteriorating macroeconomic environment continues to put pressure on private consumption, Pakistan operation had a strong start to the year, by growing over 30% in the first two months and increasing market share substantially. The shutdown of on-premise locations due to COVID-19 in March, along with curfews, had a negative impact on the strong momentum. Central Asia registered 15% y-oy volume growth led by double-digit growth in Kazakhstan, Azerbaijan and Tajikistan markets. Sales volume growth in Kazakhstan was 15% y-oy thanks to double-digit growth of the sparkling category while water and still category grew by high-single-digit. Azerbaijan, CCOLA’s second-largest market in the region, posted 15% y-o-y growth, driven by the sparkling category thanks to strong consumer activations such as Nowruz promotion. On the other hand, in Turkmenistan, interruptions in production continue due to currency convertibility, therefore, making almost zero contribution to sales volumes in 1Q20. Middle East operations contracted by 7% y-o-y mainly driven by Iraq operations’ volume decline 9% y-oy, reflecting the political unrest in the country and also attributable to the recent collapse of global oil prices and the curfews imposed by the government because of COVID-19. Sales volume in Jordan grew by 3% y-o-y.

Improvement in indebtedness ratio continues as net debt / EBITDA declined to 1.1x at Mar20, from 1.7x at Mar19. Strong cash generation mainly thanks to more profitable volume growth in international markets supported by effective control on NWC and lower capex needs were the main reasons of improving indebtedness ratio.

Last but not least, CCOLA has decided to withdraw their 2020E guidance provided at 2019YE and not to provide any earnings guidance because of the uncertainties derived by Covid-19 pandemic. Recall that the management had provided a guidance of 3-4% consolidated volume growth with a flat domestic operations and a single digit volume growth in international operations. FX adjusted revenue growth had been estimated as 15-18% with a flat/slight decline outlook in EBITDA margin. Management had also a CapEx target of 6-8% of revenues.

Despite we have a very positive view on CCOLA shares in the long-term because of its strong balance sheet driven by its solid growth outlook supported with increasing profitability, Covid-19 pandemic is to put sharp pressure on the Company’s sales volume in 2Q20 as curfews impacted its on-premise channel, negatively. Negative impact mainly on “on premise” channel may continue for the rest of the year if the pandemic continues. Thus, we have a conservative approach on CCOLA shares in the short-mid-term.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 2.622 2.582 2.611 2% 2.174 21% 2.220 18%
EBITDA 388 374 368 4% 320 21% 251 55%
margin 14,8% 14,5% 14,1% 0,3 pps 14,7% 0,1 pps 11,3% 3,5 pps
Net profit 127 88 67 44% -3 -4993% 1 20548%
margin 4,8% 3,4% 2,6% 1,4 pps -0,1% 5 pps 0,0% 4,8 pps
Net Debt/EBITDA (x) 1,1 1,7 -52 bps 1,1 3 bps
EV/EBITDA 5,0 5,7 5,4
P/E 8,3 21,0 10,2
ROE (%) 17% 6% 11 pps 15% 2 pps
Net debt 2.712 3.175 -15% 2.559 6%
Working capital 442 441 0% 300 47%
Δ in WC 142 181 -21% -175 -181%
CapEx 155 179 -13% 112 38%
FCF to firm 31 -107 -129% 300 -90%
Shareholders' Equity 6.543 5.904 11% 6.515 0%


(-) TKFEN posted TL47mn net income in 1Q20, down by 94% YoY. 1Q19 net income included TL450mn one-off net income from claims in some contracting projects. When adjusted, TKFEN’s YoY net income declined by 85%. TKFEN’s net income is also below our TL109mn estimate and TL165mn consensus. The resulrs were lower than expected. TKFEN’s revenues were down by 34% YoY mainly due to 46% YoY lower engineering & contracting revenues, as TKFEN’s contracting backlog retreated to USD1.4bn from USD1.7bn at YE19. TKFEN’s chemical segment (mainly fertilizer business) revenues are down by 5% YoY. TKFEN’s consolidated EBITDA is down by 87% YoY to TL124mn. The dismal EBITDA generation in 1Q20 was mainly due to the contracting segment’s weak performance, as its EBITDA was minus TL46mn in 1Q20 vs. TL809mn in 1Q19. TKFEN’s consolidated net cash declined to UDS511mn at 1Q20-end compared to USD560mn a quarter ago. Following 1Q20 results, TKFEN revised down its 2020E guidance. Accordingly, TKFEN guides TL13.8bn revenues (prev: TL12bn), TL0.97bn EBITDA (prev: TL1.3bn), TL0.6bn net income (prev: TL0.84bn).


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 3,022 2,900 2,682 4% 4,587 -34% 3,307 -9%
EBITDA 124 255 227 -51% 943 -87% 125 -1%
margin 4.1% 8.8% 8.5% -5.4 pps 20.6% -16.5 pps 3.8% 0.3 pps
Net profit 47 165 109 -71% 782 -94% -20 -341%
margin 1.6% 5.7% 4.0% -4.1 pps 17.1% -15.5 pps -0.6% 2.1 pps
Net Debt/EBITDA (x) -2.96 -1.74 -122 bps -1.70 -126 bps
EV/EBITDA 1.9 2.2 2.0
P/E 7.6 4.3 5.0
ROE (%) 12.9% 40.4% -28 pps 26.2% -13 pps
Net debt -3,194 -3,702 -14% -3,259 -2%
Working capital -451 470 -196% 72 -728%
Δ in WC -522 519 -201% -164 219%
CapEx 213 203 5% -123 -273%
FCF to firm 807 432 87% 161 400%
Shareholders' Equity 5,326 4,816 11% 5,429 -2%

Segmental Breakdown 1Q20 1Q19 YoY
Revenues 3,022 4,587 -34%
Engineering & Contracting 1,787 3,325 -46%
Chemical Industry 1,115 1,171 -5%
Agri Production 11 4 175%
Services 98 77 27%
Investment 11 10 10%
EBITDA 124 943 -87%
Engineering & Contracting -46 809 n.a.
Chemical Industry 174 150 16%
Agri Production -8 -3 n.a.
Services 25 14 79%
Investment -22 -27 n.a.
EBITDA Margin 4% 21%
Engineering & Contracting -3% 24%
Chemical Industry 16% 13%
Agri Production -73% -75%
Services 26% 18%
Investment -200% -270%