Turkey Wake up call: Macro, Political and Equity News, 8th 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 0.18% yesterday in its third consecutive day of minor changes as the afternoon rebound in lira failed to create a strong demand for Turkish stocks. After a flattish open, BIST100 took an 800-point dive in a matter of minutes and quickly rebounded back to where it started. Rest of the day saw the market mostly trading in the positive territory while some closing session sell orders pushed the market to a slight negative close. Banks moved in line with the broader market and lost 0.19% on average with YKBNK and HALKB outperforming and GARAN and AKBNK lagging. SOKM, BIZIM, ULKER, ENKAI, KRDMD, ALKIM, MPARK, TTRAK, and YATAS stood out as top gainers while FROTO, AEFES, BIMAS, TKFEN, and ENJSA were among the weakest names. Today, our local macro agenda showcases the Treasury's cash budget balance for April'20 to be disclosed at 5:30PM local time. BIST is off to a positive start given the upbeat sentiment among global peers and the retreat in USD that also reflects positively on the lira (USDTRY at 7.1152 vs 71565 at yesterday's closing bell). U.S. futures are up c.1.3% in early trades and Asian equities are all trading in the green.
Macro and Political News:
(=/-) Number of deaths from coronavirus reached 3641... According to the Health Ministry, the number of deaths from coronavirus increased by 57 people yesterday and reached 3641. The total numbers of tested and infected people are 1.26mn and 133,721 in Turkey.

(-) EU opened an anti-dumping investigation for HRC imports from Turkey... According to the statement from ArcelorMittal, European Union has opened an anti-dumping investigation for HRC imports from Turkey in April.

Sector and Company News:

(=) MGROS, the change in footnotes of MGROS 1Q20 audit report does not cause a positive or negative impact on the MGROS’ 1Q20 financials. Note that the audit report announced before the updated one had misguided sensitivity analysis of the Company.

(=) VAKBN to release its 1Q20 earnings today after markets close. Consensus estimates TRY1.60bn vs Global estimates TRY1.51bn net income.

(=) ISCTR to release its 1Q20 earnings today after markets close. Consensus estimates TRY1.81bn vs Global estimates TRY2.05bn net income.

(=) ULKER European Bank for Reconstruction and Development (EBRD) is to provide EUR75mn loan to ULKER. The new loan will be used for the payments of older syndication loan, which dues in Apr20, and in the payment of strategic investment projects.

(=/-) TAVHL released April traffic figures. Accordingly, TAVHL’s number of passengers served retreated by 99% YoY in April to 34k, which brought 4M20 number of passengers to 79.7mn with 9% YoY decline. TAVHL’s air traffic movements declined by 97% YoY in April to 1,197.

(+) TAVHL announced that TAVHL and its partner VPE Capital acquired 100% of the shares of Almaty Airport and the associated jet fuel and catering businesses for an Enterprise Value of USD415mn. TAVHL’s share in the consortium will be no less than 75% and the share transfers will take place upon closing with the completion of all legal prerequisites and procedures. TAVHL’s President&CEO Sani Sener commented on the acquisition stating that Almaty Airport is a main transit hub between Asia and Europe, to TAVHL’s portfolio, where Almaty is strategically located on ‘the modern Silk Road’, established from China to Europe and Africa through air transport. He underlined that there’s a significant potential for growth in Almaty Airport.

VAKFN posted TL24mn net income in 1Q20, compared to TL2.7mn net loss in 1Q19.


(-) ARCLK posted TL256mn net income in 1Q20, higher than the consensus expectation of TL232mn but in line with our estimate of TL259mn. Revenues grew by 13% YoY to TL7,768mn in 1Q20 in line with the expectations. International sales were under pressure because of high competition in Europe and Covid-19 pandemic. In this period, ARCLK’s EBITDA declined by 5% YoY to TL657mn significantly below the consensus expectation of TL807mn and our estimate of TL843mn. Lower than expected EBITDA was mainly due to lower CUR, higher than expected OpEx/Net Sales ratio because of sharp sales volume decline in March. In this period, GP margin was also down by 0.6pp y-o-y. Appreciation in USD against EUR, TL, ZAR, PKR and GBP put pressure on gross margin; nonetheless, increase in domestic sales volume and relatively lower input costs limited the negative impact of the appreciation in USD on financials. In addition, OpEx in % of net sales was also 1.0pps higher than compared to the same quarter of previous year. As a result, Arcelik posted 8.5% EBITDA margin in 1Q20, down by 1.6pps YoY and 1.3pps QoQ. The reason of better than expected net profit despite of the weak operational performance, which was significantly lower than expectations, is one-off indemnity income (TL229mn) gathered from CRT suppliers.

On the B/S side, Net debt/EBITDA is at 2.2x in 1Q20 almost unchanged YoY and QoQ. Increase in NWC requirement (YoY) is stemming from the organic growth and we do not see significant change in NWC/Sales ratio compared to 1Q19.

Recall that, ARCLK’s production in China stopped in January and Pakistan, Bangladesh and South Africa productions stopped in April due to Covid-19 pandemic. Now, production in all plants excluding Pakistan and South Africa continues with lower CURs compared to previous run rates. In 1Q20, China and ASEAN sales were c. 30% below the company budget. ARCLK’s international sales volume contracted by c. 20% YoY. However, strong demand continued in Turkey in 1Q20 due to comparatively lower negative effect of Covid-19 pandemic than many other countries. We expect deterioration in sales volume is to deepen in 2Q20 in all region.

Following its 1Q20 results, ARCLK 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 ARCLK had announced its 2020 guidance, expecting 10-15% growth in domestic sales coupled with 2-3% organic and 1% inorganic growth in international revenue based on hard currency. Its EBITDA margin had been targeted at c. 10.5%, while Arcelik had expected a NWC/Sales ratio below 30% and EUR200-250mn of capex.


TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 7.768 7.835 7.980 -1% 6.902 13% 8.366 -7%
EBITDA 657 807 843 -19% 694 -5% 819 -20%
margin 8,5% 10,3% 10,6% -1,8 pps 10,1% -1,6 pps 9,8% -1,3 pps
Net profit 256 232 259 10% 225 13% 240 7%
margin 3,3% 3,0% 3,2% 0,3 pps 3,3% 0 pps 2,9% 0,4 pps
Net Debt/EBITDA (x) 2,5 2,5 -4 bps 2,4 10 bps
EV/EBITDA 5,8 6,5 6,6
P/E 11,2 12,7 15,2
ROE (%) 10% 10% -1 pps 10% 0 pps
Net debt 8.268 7.389 12% 8.018 3%
Working capital 9.400 8.360 12% 9.582 -2%
Δ in WC -182 250 -173% -108 69%
CapEx 303 325 -7% 481 -37%
FCF to firm 487 84 480% 405 20%
Shareholders' Equity 9.826 8.759 12% 9.658 2%


(+) SOKM posted TL5mn net profit in 1Q20, slightly lower than consensus expectation of TL6mn net income and our estimate of TL14mn. Revenues grew by 33% YoY to TL4,688mn in line with the consensus expectation of TL4,686mn and our estimate of TL4,644mn. Strong revenue growth derived by the new store openings and strong LFL growth by huge demand in March following COVID 19 pandemic. EBITDA is slightly higher than consensus expectation of TL446mn and our estimate of TL452mn. SOKM’s EBITDA margin of 9.9% was above consensus estimate of 9.5% and our expectation of 9.7%. The reason behind the higher than expected EBITDA margin is mainly attributable to YoY stronger (+1.9pp) gross margin as a result of favourable product mix coupled by the decline in OpEx/Net Sales ratio due to economies of scale.

In 1Q20 while LfL basket size grew by 23% YoY and we see slight, 5%, decline in LfL daily average customer traffic due to service hours limitation because of Covid-19 pandemic. As a result, LfL daily average sales per store increased by 17% YoY. On the other hand, SOKM’s online platform, Cepte Sok, launched its home delivery service in 1Q20. We believe this will be beneficiary to SOKM, contributing revenue generation in long term, however it may lead to higher opex in the short term in its ramp-up period.

Following its 1Q20 results, SOKM updated its 2020E guidance. Accordingly, the company expects 24% top-line growth (Previous: 21%) with a 9.5% of EBITDA margin (unchanged). The company guides +750 new store openings (unchanged) with TL350mn CapEx (unchanged).

We maintain our positive view on SOKM as the Company maintains its solid organic growth with around 750-1000 store openings per year. We consider that there is a large room for modern retailers to grow in Turkey retail market, in which traditional retailers still have a significant portion of total retail market.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 4.688 4.686 4.644 0% 3.523 33% 4.230 11%
EBITDA 463 446 452 4% 266 74% 370 25%
margin 9,9% 9,5% 9,7% 0,4 pps 7,5% 2,3 pps 8,7% 1,1 pps
Net profit 5 6 14 -4% -97 -106% -148 -104%
margin 0,1% 0,1% 0,3% 0 pps -2,8% 2,9 pps -3,5% 3,6 pps
Net Debt/EBITDA (x) 0,9 1,9 -98 bps 1,1 -19 bps
EV/EBITDA 5,0 8,8 5,6
P/E -34,8 62,3 -22,0
ROE (%) 809% 53% 755 pps 1054% -245 pps
Net debt 1.543 1.539 0% 1.644 -6%
Working capital -2.031 -1.626 25% -1.991 2%
Δ in WC -40 -84 -52% -232 -83%
CapEx 92 105 -13% 103 -11%
FCF to firm 412 268 54% 419 -2%
Shareholders' Equity -24 167 -115% -28 -15%


(-) Significant outflow from equities while GDDOs remained limited… According to the CBRT data released on Thursday, during the week of 24 April- 01 May, non-residents executed net outflow of USD246mn from equities and USD42mn from GDDOs. As of last week, non-residents’ y-t-d net total flow of securities has been USD-2.95bn from equities and USD-5.46bn from GDDOs.


Exhibit: Non-residents’ y-t-d net flow of securities (Weekly)



Source: CBRT weekly securities statistics


(=) According to the latest CBRT data released on Thursday, the Central Bank’s gross international reserves declined by 24 bps WoW from USD86.60bn to USD86.40bn. The decline in gross reserves has been 3.68% by monthly comparison. Net international reserves increased by 10.82% from USD25.23bn to USD27.96bn WoW.

As of April 30, CBRT gross international reserves declined by 18% and the net reserves declined by 31.8% y-t-d.


Exhibit : The change in gross and net international reserves of CBRT

CBRT International Reserves (USD,mn) 30/04/2020 24/04/2020 03/04/2020 03/05/2019 03/01/2020 w/w m/m y/y y-t-d
Net Reserves 27,961 25,230 27,140 25,843 40,985 10.82% 3.02% 8.19% -31.78%
Gross Reserves 86,398 86,602 89,699 93,181 105,561 -0.24% -3.68% -7.28% -18.15%

Source: CBRT analytical balance sheet



Exhibit : The graph for gross and net international reserves of CBRT beginning from Jan-19




Source: CBRT analytical balance sheet


(=) According to the BRSA weekly banking data, in the last week of April, total loans in banking sector increased by 1.38% WoW driven by the elevation in commercial and SME loans which were up by 1.49% and 3.40% respectively. The main reason behind the commercial loans are the support packages of the government due to Covid-19 precautions and to prevent unemployment rate climbing up.

The declining trend continued in NPL ratio in April as well. In April 30, NPL ratio of the banking sector declined by 7 bps from 4.95% to 4.88%.

Total deposits remained flattish, up by only 9 bps. While official institutions increased their deposits by 7%, the declines in naturel persons and corporates deposits by 8 bps and 87 bps respectively, prevent further expansion in total deposits.

On the other hand, total FX deposits of residents declined by 29 bps last week. While real persons increased their FX deposits by USD73mn, USD634mn decline in corporates caused this slight contraction overall.



(TL, mn) 30/04/2020 24/04/2020 03/04/2020 03/05/2019 03/01/2020 w/w m/m y/y y-t-d
Total Loans 3,104,092 3,061,867 2,911,212 2,554,432 2,646,894 1.38% 6.63% 21.52% 17.27%
Consumer Loans 527,505 521,804 510,366 404,230 467,381 1.09% 3.36% 30.50% 12.86%
Housing 210,898 210,879 211,415 184,051 199,268 0.01% -0.24% 14.59% 5.84%
Vehicle 6,999 6,991 7,071 6,213 7,051 0.11% -1.02% 12.65% -0.74%
GPL 309,608 303,933 291,879 213,965 261,062 1.87% 6.07% 44.70% 18.60%
Consumer Credit Cards 106,034 105,896 112,056 104,648 116,791 0.13% -5.37% 1.32% -9.21%
Commercial and Other Loans 2,470,553 2,434,167 2,288,791 2,045,554 2,062,722 1.49% 7.94% 20.78% 19.77%
Installment Commercial Loans and Corporate Credit Cards 542,210 524,364 472,624 425,950 434,411 3.40% 14.72% 27.29% 24.81%
SME Loans 749,954 734,129 665,511 634,710 611,735 2.16% 12.69% 18.16% 22.59%
Fx Indexed Loans 9,375 9,595 9,940 24,349 11,808 -2.30% -5.69% -61.50% -20.61%

(TL, mn) 30/04/2020 24/04/2020 03/04/2020 03/05/2019 03/01/2020 w/w m/m y/y y-t-d
Non Performing Loans 151,527 151,548 151,617 108,653 150,758 -0.01% -0.06% 39.46% 0.51%
Consumer Loans 13,211 13,214 13,361 12,708 13,355 -0.02% -1.13% 3.95% -1.08%
Housing 1,156 1,161 1,179 1,132 1,269 -0.39% -1.97% 2.13% -8.90%
Vehicle 172 172 174 231 201 0.45% -0.92% -25.28% -14.18%
GPL 11,882 11,881 12,008 11,345 11,885 0.01% -1.05% 4.73% -0.02%
Consumer Credit Cards 6,265 6,280 6,317 6,631 6,323 -0.23% -0.82% -5.52% -0.91%
Commercial and Other Loans 132,051 132,054 131,939 89,314 131,081 0.00% 0.09% 47.85% 0.74%
NPL Ratio 4.88% 4.95% 5.21% 4.25% 5.70% -1.37% -6.27% 14.76% -14.29%

(TL, mn) 30/04/2020 24/04/2020 03/04/2020 03/05/2019 03/01/2020 w/w m/m y/y y-t-d
Total Deposits 2,986,708 2,984,037 2,833,837 2,274,936 2,567,331 0.09% 5.39% 31.29% 16.34%
Natural Person 1,789,452 1,790,926 1,731,745 1,402,077 1,595,204 -0.08% 3.33% 27.63% 12.18%
Demand 488,077 487,966 446,308 281,245 360,147 0.02% 9.36% 73.54% 35.52%
Time 1,301,374 1,302,961 1,285,436 1,120,832 1,235,056 -0.12% 1.24% 16.11% 5.37%
Commercial Institutions 1,002,722 1,011,501 909,868 734,513 817,594 -0.87% 10.21% 36.52% 22.64%
Demand 335,499 338,891 271,583 182,467 220,838 -1.00% 23.53% 83.87% 51.92%
Time 667,223 672,610 638,286 552,046 596,757 -0.80% 4.53% 20.86% 11.81%
Official and Other Institutions 194,534 181,609 192,224 138,347 154,533 7.12% 1.20% 40.61% 25.89%
Demand 50,873 40,397 37,261 29,553 33,914 25.93% 36.53% 72.14% 50.01%
Time 143,661 141,212 154,963 108,794 120,619 1.73% -7.29% 32.05% 19.10%
Deposits Subject to Insurance 769,031 773,768 745,070 529,166 698,978 -0.61% 3.22% 45.33% 10.02%


(USD, mn) 30/04/2020 24/04/2020 03/04/2020 03/05/2019 03/01/2020 w/w m/m y/y y-t-d
Total FX Deposits of Residents 194,629 195,190 194,149 179,177 194,377 -0.29% 0.25% 8.62% 0.13%
Real Persons 118,586 118,513 118,347 108,731 121,166 0.06% 0.20% 9.06% -2.13%
Corporates 76,043 76,677 75,802 70,447 73,211 -0.83% 0.32% 7.94% 3.87%