Turkey Wake up call: Macro, Political and Equity News, 7th 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 lost 0.17% yesterday after a day of ups & downs in 1,000-point index range. BIST100 opened on an uptick followed by a quick slide to dip at 98.2k in early trades. The benchmark climbed to 99.2k by 2:30PM, only to reverse its gains until the close as the weakness in lira continued to weigh on the sentiment. Banking sector index was down 0.28% with YKBNK catching a bid vs some pressure on GARAN. Steelmakers KRDMD and EREGL, Koza Group stocks, PETKM, and MGROS stood out as top gainers of non-banks while TKFEN, ULKER, PGSUS, automakers, ENKAI, TUPRS, and KCHOL led the decliners. Today, our local macro agenda is muted and eyes will be on the currency and peer markets for a sense of direction. We accordingly anticipate a slight negative open for the BIST given the ongoing slide in lira (USDTRY at 7.2089 vs 7.1932 at yesterday's closing bell) and the overnight 0.9-1.0% losses in U.S. indices after the time we left. S&P futures, however, are up 0.7% in early trades while Asian equities are mostly trading in the red.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 3584... According to the Health Ministry, the number of deaths from coronavirus increased by 64 people yesterday and reached 3584. The total numbers of tested and infected people are 1.23mn and 131,744 in Turkey.

(=) Main takeaways from Treasury Minister’s conference call... According to Anadolu Agency, the Treasury Minister Berat Albayrak hold a conference call with international investors yesterday, discussing possible swap agreements, CBT’s reserves, global supply chain and Turkish economy. The Minister said that the negotiations for possible swap agreements with a number of counties continue, particularly with G-20 countries and Turkey’s trade partners. Since the negotiations continue, the Treasury Minister refrained from making further comments on swap agreements. He also stated that there is no capital control in Turkey and will not and Turkey has a floating exchange regime. Berat Albayrak underlined that the existing reserves of the Central Bank of Turkey is adequate and the CBT aims to improve its reserves. Regarding Turkish economy, the Treasury minister stated that there will be rapid recovery in Turkish economy after pandemic and Turkish economy is expected to close the year of 2020 with growth.

(-) Fitch expects 3.4% contraction in Turkish economy in 2020... Fitch released its 2020E expectations for Turkey, expecting a mild recovery in 2021 after 3.4% GDP contraction expected for 2020E. Also, Fitch said that they do not expect any crisis for balance of payments. Turkey will be benefiting from declining commodity prices this year and Fitch expects USD8-10bn saving for Turkey, in-line with declining energy prices

(+) Raw steel production improved vt 4.1% to 3.1mn tons... According to the data released for March, the raw steel production improved by 4.1% YoY to 3.1mn tons. March data brought the 1Q20 production to 9mn tons with 9.6% YoY improvement. The steel consumption improved by 34.9% YoY to 2.7mn tons in March and 42.3% YoY to 7.7mn tons in 1Q20.

Sector and Company News:

(=) BRSA published a new ordinance against the manipulative and misleading actions in financial markets. Accordingly, the points summarized below are defined as manipulation;

1. The transactions which may mislead the investors about supply, demand and the market price of a financial instruments are accepted as manipulation.
2. In the extraordinary times of financial markets, having transactions with taking advantage of the current situation which may lead unstability in the markets on the prices, interest rates and CDS levels.
3. For the banks, taking indirect actions in swap and derivative markets with international financial institutions against the BRSA regulations
4. Fictive actions against the foreign exchange levels
5. Publishing misleading informatipn regarding a financial instrument in social media
6. Spreading fake informations and rumours that may cause instability and inconfidence for financial system

(=) DOAS The administrative fine imposed by the Competition Board against Dogus Otomotiv (TL37mn) was approved by the Council of State for Administrative Cases. The fine had already been paid by the Company in 2011.

GUSGR posted TL147.8mn net income in 1Q20 compared to TL21mn net loss in 1Q19.

LOGO posted TL20.7mn net income in 1Q20 compared to TL15mn net income in 1Q19.

CIMSA posted TL8.2mn net loss in 1Q20 compared to TL18mn net income in 1Q19.

(+) MGROS sold one of its Atasehir properties with an amount of TL206mn+VAT. We deem such disposals as positive as the Company deleverage itself with these cash-ins.

(=) SOKM is to announce its 1Q20 results today after market close. We expect TL4,644mn of revenues (+33% YoY), TL452mn of EBITDA (+70% YoY – 2.2pps increase in margin) and TL14mn of net profit(1Q19: TL97mn loss). Consensus’ revenue, EBITDA and net profit expectations are TL4,686mn, TL446mn and TL6mn, respectively

(=) ARCLK is to announce its 1Q20 results today after market close. We expect TL7,980mn of revenues (+16% YoY), TL843mn of EBITDA (+21% YoY – 0.5pps increase in margin) and TL259mn of net profit (+15% YoY). Consensus’ revenue, EBITDA and net profit expectations are TL7,828mn, TL805mn and TL238mn, respectively.

(+) MGROS posted TL130mn net loss, better than the consensus expectation of TL166mn net loss and our estimate of TL192mn net loss. Revenues grew by 31% YoY to TL6,433mn slightly better than the consensus estimate of TL6,178mn and our estimate of TL5,991mn. EBITDA is slightly lower than both consensus and our estimate of TL541mn. MGROS’s EBITDA margin of 7.9% was below consensus estimate of 8.8% and out expectation of 9.0%. The reason behind the lower than expected EBITDA margin is mainly attributable to YoY weaker (-0.7pp) gross margin of 26.8% and increase in operating expenses because of the recruitments and several additional costs for its online operations. Thanks to its strong growth momentum in online platforms; sales and inventory turnover tend to increase resulted with a strong cash generation. In its physical stores, despite of the increase in basket size, Covid-19 pandemic put pressure on customer traffics because of the service hours limitations. In addition, its online platform (Sanal Market) showed a solid growth after Covid-19 pandemic. According to the company information, online orders of Sanal Market and Migros Hemen grew by 4x YoY and 2x YoY, respectively. Online platforms’ customer base also increased by 90% YoY.

Following its 1Q20 results, MGROS updated its 2020E guidance. Accordingly, the company expects 19-21% top-line growth (Previous: 16-18%) with a 8.0-8.5% of EBITDA margin (unchanged). The company guides 120 new store openings (unchanged) with TL400mn CapEx (unchanged).

Improvement in indebtedness ratio continues as net debt / EBITDA declined to 2.3x at Mar20, from 4.2x at Mar19. (ratios are different in company presentation because of the cash and debt definitions) According to the company presentation, net debt/EBITDA ratio declined to 2.1x at Mar20, from 3.0x at Mar19. Without IFRS16 implementations net debt/EBITDA ratio is 1.2x at Mar20, which was 2.4x at Mar19. Strong cash generation derived by solid operations coupled with effective control on NWC were the main reasons of improving indebtedness ratio. Disposal of assets also supports net debt/EBITDA level, positively. Management targets to decrease the EUR borrowings below 250mn (Previous target: below EUR300mn) at YE20 from EUR430mn at YE19.

We maintain our positive view on MGROS as the Company continues to deleverage its operations thanks its solid operations supported with its organic growth.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 6.433 6.178 5.991 4% 4.923 31% 5.997 7%
EBITDA 511 541 541 -6% 451 13% 435 17%
margin 7,9% 8,8% 9,0% -0,8 pps 9,2% -1,2 pps 7,3% 0,7 pps
Net profit -136 -166 -192 -18% -231 -41% -290 -53%
margin -2,1% -2,7% -3,2% 0,6 pps -4,7% 2,6 pps -4,8% 2,7 pps
Net Debt/EBITDA (x) 2,3 4,2 -195 bps 2,4 -16 bps
EV/EBITDA 4,7 6,0 4,5
P/E -13,4 -3,0 -8,9
ROE (%) -249% -201% -48 pps -153% -95 pps
Net debt 4.969 5.976 -17% 5.173 -4%
Working capital -2.871 -2.235 28% -2.951 -3%
Δ in WC 80 262 -69% -60 -233%
CapEx 61 42 44% 133 -54%
FCF to firm 379 139 173% 369 3%
Shareholders' Equity 160 410 -61% 321 -50%


ASUZU printed a net loss of TL18mn in 1Q20. While its revenues declined by 23% YoY to TL209mn, its EBITDA contracted by 53% YoY to TL11mn. We observe that decline in sales volumes put pressure on operational profitability and NWC requirements and resulted with a negative cash generation in this quarter.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 209 n.a n.a n.a 273 -23% 605 -65%
EBITDA 11 n.a n.a n.a 23 -53% 63 -83%
margin 5,1% n.a n.a n.a 8,4% -3,2 pps 10,4% -5,3 pps
Net profit -18 -166 n.a -89% -14 23% 40 -145%
margin -8,5% n.a n.a n.a -5,3% -3,2 pps 6,6% -15 pps
Net Debt/EBITDA (x) 3,7 5,8 -207 bps 2,5 115 bps
EV/EBITDA 11,4 12,4 9,8
P/E 53,5 -7,5 46,9
ROE (%) 3% -15% 18 pps 4% 0 pps
Net debt 477 512 -7% 359 33%
Working capital 315 351 -10% 240 32%
Δ in WC 76 -51 -247% -125 -161%
CapEx 20 14 47% 26 -24%
FCF to firm -80 66 -221% 168 -147%
Shareholders' Equity 546 530 3% 564 -3%


(=/-) According to Automotive Distributors’ Association (ODD) data, auto market contracted by 14% YoY to 26,457 units in Apr20. (Apr19: 30,971) The contraction in passenger cars were 11% YoY, and LCV sales sharply declined by 29% YoY. (-) TOASO showed a weak performance with 48% YoY decline in PC sales because of the its high base in Apr19. However, its LCV sales grew strongly by 52% YoY. In total, TOASO’s retail sales declined by 27% YoY. (-) FROTO’s total results declined by 28% YoY with a strong 21% growth in PC sales but 46% YoY decline in LCV volumes. (=/+) DOAS showed a better performance than other players in PC segment, declined by 6% YoY in PC and 24% YoY in its LCV segment. After flat outlook in Mar20 results, thanks to the quite strong automotive market in the first two months, in 3M20, we started to see negative impacts of Covid-19 pandemic in automotive sector. As a result, in 4M20 auto market grew by 26% YoY to 151k units. PC market showed a strong growth by 30% YoY growth to 121k units and LCV market printed a 12% YoY improvement to 29k units.

Recall that a total of 479K vehicles sold in 2019, carrying 12M19 contraction to 23% YoY, with 20% and 32% respective contraction in PC and LCV. In 2019 year-end, due to consumer orientation towards lower-priced models in recent months, (+) TOASO showed a solid 34% YoY growth in PC sales so much above the market, but we saw a 33% decline in its LCV volumes which was parallel to market (-) FROTO’s PC retail sales declined by 34% and LCV sales deteriorated by 25% YoY growth, which was 28% YoY decline in total, below the market; (-) DOAS, on the other hand, showed a weak performance, falling by 26% YoY and 43% YoY in PC and LCV, below the market.

Despite of the fact that the positive signals for auto domestic sector had started from Jun19 and it was supported by public banks’ loan agreement with brands that manufacture passenger and/or commercial vehicles in Turkey continued the recovery with support of low interest rate environment; Covid-19 pandemic put another pressure on the sector volume. After macroeconomic conjuncture has changed with the pandemic, the stabilization in EUR/TRY rate has also ended. Accordingly, sector players started to downgrade their 2020 automotive market expectations. In the beginning of 2020, market players’ expectations for auto market growth hover in a wide range between 10%-30%. Recall that, the companies’ were running out of stock for almost last eight months until Mar20. However, due to the negative impact of Covid-19 pandemic on supply chain and customer behaviours, we observe that positive trend has ended as of Mar20. Thus, we expect the downturn in the domestic automotive market starting from Apr20 to continue at least one quarter more. Also note that, despite of the weak Apr20 results compared to Apr19, Turkey auto market stood much stronger than many European countries’ automotive market because of the pent-up demand coming from 2018 and 2019.

According to the media sources in the first two months, the government does not consider a SCT and Scrap (end of life vehicle) incentive since the outlook of the automotive market is better than previously expected. After the latest developments caused by Covid-19, if the government goes for an incentive for automotive sector, the sector may revive again coupled with the low interest rate environment. Recall that biggest players also face a significant demand pressure in the export shipments, too.


Apr-19 Apr-20 YoY Δ
Portfolios Auto LCV Total Auto LCV Total Auto LCV Total
TOASO 4.16 1.088 5.248 2.151 1.652 3.803 -48% 52% -28%
Fiat 3.994 1.088 5.082 2.11 1.652 3.762 -47% 52% -26%
Alfa-Romeo 23 0 23 0 0 0 -100% n/a -100%
Ferrari 3 0 3 0 0 0 -100% n/a -100%
Maserati 2 0 2 1 0 1 -50% n/a -50%
Jeep 138 0 138 40 0 40 -71% n/a -71%
FROTO 909 2.321 3.23 1.096 1.243 2.339 21% -46% -28%
Ford 909 2.321 3.23 1.096 1.243 2.339 21% -46% -28%
DOAS 3.831 633 4.464 3.587 479 4.066 -6% -24% -9%
Audi 515 0 515 613 0 613 19% n/a 19%
Bentley 1 0 1 3 0 3 200% n/a 200%
Lamborghini 1 0 1 1 0 1 0% n/a 0%
Porsche 29 0 29 17 0 17 -41% n/a -41%
Seat 269 0 269 532 0 532 98% n/a 98%
Skoda* 687 0 687 313 0 313 -54% n/a -54%
Volkswagen 2.329 633 2.962 2.108 479 2.587 -9% -24% -13%

Market 24.416 6.555 30.971 21.825 4.632 26.457 -11% -29% -15%
TOASO share 17,0% 16,6% 16,9% 9,9% 35,7% 14,4% -7,2 19,1 -2,6
FROTO share 3,7% 35,4% 10,4% 5,0% 26,8% 8,8% 1,3 -8,6 -1,6
DOAS share 15,7% 9,7% 14,4% 16,4% 10,3% 15,4% 0,7 0,7 1,0




4M19 4M20 YoY Δ
Portfolios Auto LCV Total Auto LCV Total Auto LCV Total
TOASO 15.353 4.381 19.734 13.867 6.958 20.825 -10% 59% 6%
Fiat 14.632 4.381 19.013 12.781 6.958 19.739 -13% 59% 4%
Alfa-Romeo 79 0 79 7 0 7 -91% n/a -91%
Ferrari 7 0 7 6 0 6 -14% n/a -14%
Maserati 10 0 10 3 0 3 -70% n/a -70%
Jeep 625 0 625 1.07 0 1.07 71% n/a 71%
FROTO 3.373 9.978 13.351 4.887 10.444 15.331 45% 5% 15%
Ford 3.373 9.978 13.351 4.887 10.444 15.331 45% 5% 15%
DOAS 15.781 2.607 18.388 24.341 3.441 27.782 54% 32% 51%
Audi 2.246 0 2.246 2.802 0 2.802 25% n/a 25%
Bentley 3 0 3 4 0 4 33% n/a 33%
Lamborghini 2 0 2 4 0 4 100% n/a 100%
Porsche 100 0 100 83 0 83 -17% n/a -17%
Seat 1.212 0 1.212 3.345 0 3.345 176% n/a 176%
Skoda* 2.933 0 2.933 4.07 0 4.07 39% n/a 39%
Volkswagen 9.285 2.607 11.892 14.033 3.441 17.474 51% 32% 47%

Market 93.228 26.212 119.44 121.455 29.405 150.86 30% 12% 26%
TOASO share 16,5% 16,7% 16,5% 11,4% 23,7% 13,8% -5,1 6,9 -2,7
FROTO share 3,6% 38,1% 11,2% 4,0% 35,5% 10,2% 0,4 -2,5 -1,0
DOAS share 16,9% 9,9% 15,4% 20,0% 11,7% 18,4% 3,1 1,8 3,0