Turkey Wake up call: Macro, Political and Equity News, 12th 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 inched down 0.05% yesterday, extending its losing streak to the seventh day in a row. Index indeed opened higher and climbed to 98.6k in early trades. Gains started to fizzle out after 11AM, but the benchmark BIST100 spent the entire day in positive territory, only to succumb to sell orders at the closing session. Banks lost 0.25% on average with the two state lenders giving back some of their gains from Friday and with continued pressure on GARAN while YKBNK visibly outperformed peers on MSCI inclusion hopes. Pharma/healthcare/sanitary products stocks, TTKOM, MGROS, PETKM, TMSN, MAVI, ALKIM, and EKGYO topped the non-bank gainers while EREGL, KOZAL, KRDMD, TOASO, CCOLA, ARCLK, and ANACM were among the weakest. Coming to this morning, our local macro agenda is quiet, apart from Treasury's reissues of 3-year TLREF-indexed bonds and 8-year CPI-linkers in its double domestic borrowing auctions. Domestic redemption is TL10.65bn for the week while Treasury has already raised TL6.13bn in its auction held yesterday. BIST seems off to a flattish open given some further gains in lira (USDTRY at 7.0559 vs 7.0750 at yesterday's closing bell) vs a softer sentiment in global equity markets. U.S: futures are down 0.35% in early trades in full reversal of their 0.3-0.4% overnight gains after we left and Asian equity indices are mostly trading in the red.
Macro and Political News:
(=) Unemployment rate 13.6% in February... According to the data released by TURKSTAT, the unemployment rate in February was announced at 13.6% down by 1.1-pp YoY but up by 0.2-pp MoM. The number of unemployed persons aged 15+ decreased by 0.5mn YoY to 4.2mn people in February 2020. The unemployment rate occurred as 13.6% with 1.1 percentage point decrease. Non-agricultural unemployment rate was 15.4% in February down by 1.5-pp. Labour force participation rate was also down by 2.6-pp YoY to 49.9% in February.

(=/-) Construction cost index increased by 6.92% in March... In March 2020, construction cost index increased by 6.92% YoY but remained flattish MoM. Looking at its components, the material index increased by 0.08% and labour index decreased by 0.17% MoM. Also material index increased by 2.95% and labour index increased by 15.57% YoY.

(=) Treasury sold TL1.4bn floating bonds... The Treasury sold TL1.4bn floating bonds (to be matured on May 5, 2027), with the bid to cover ratio of 3.62x.

(=) Additional custom tax to be imposed for certain goods... According to the Official Gazette, there has been imposed an additional custom tax (upto 30%) for certain goods by the end of September 2020. Those goods include gold and jewellery, refrigerator and deep-freezer, dish-washer, washing machine, air conditioner, cooker and furnace, water filters, turbo compressors, engine parts, golfcart, textile machines, hand tools and agriculture tools, cables and ropes, floor covering, duct tape, rubber plate, time controlling device, musical instrument, playground items, skiing and sport equipments, lock and hinges, scissors and brushes, zipper and lighter, hygiene products and tripods. We believe that the additional custom tax will be supportive for the local producers of white goods, air conditioners, textiles.


Sector and Company News:

(+) VAKBN and HALKB announced the paid-in capital increase amounting TRY7.0bn for each bank. The new capital will be provided by the Turkey Sovereign Wealth Fund (TVF) by cash as for having additional shares in these banks. Currently, TVF is the 51.11% shareholder of HALKB and has no direct shares in VAKBN. By this transaction, while the current equity of VAKBN is TRY33.47bn, it will increase by 21% to TRY40.47bn and for the HALKB, its current equity which is TRY32.2bn will increase by 22% to TRY39.2bn after the capital increase.

To remind, the exact date for the operation has not yet been announced, only the first procedural step was taken on Monday for permissions. The banks also added that they will utilize this new capital to strengthen their balance sheets, having solid precautions against Covid-19 instability and to support the national economy.

(=/+) VAKBN bought 24mn lots of VKGYO shares with TRY1.85 price per share. After this transaction, the share of VAKBN in VKGYO increased to 45.71%.

(+) MAVI announced that the Company is to open its physical stores gradually starting from May 12, 2020. All domestic stores will be open again as of June 1, 2020. Management has not announced expected opening date of its Canada and Russia stores. Recall that franchise and own stores in Turkey and all of its retail shops in Germany and Canada has been closed on March 19, 2020. E-commerce channel (only Turkey) and Russia stores had also been closed on March 29,2020. Then MAVI reopened its online shopping (Turkey) site April 17, 2020.

AKSA’s CEO Kazak has interviewed with BloombergHT saying that they expect to reach TL500mn revenues in 2020E, which will be down by 25% YoY. Kazak added that they are revising their production planning regularly and they expect a pick up in demand by September 2020. He also underlined that they do not face any collection problem and any procurement issue for the raw materials.

(=) BIMAS – SOKM – MGROS President Erdogan stated that businesses such as grocery, market, butcher, greengrocer, bakery, and dessert shops will be allowed to stay open between May 18-19, and that it is possible to shop between 10: 00-16: 00.

(=/-) PGSUS posted TL402mn net loss in 1Q20 cmpared to TL214mn net loss a year ago. PGSUS’s net loss in 1Q20 was also worse than our estimate of TL289mn net loss and the consensus of TL302mn. However, PGSUS booked EUR13mn exceptional charge in 1Q20 related to April and May 2020 fuel hedge contracts, since Fuel hedges in place for April May 2020 were defined as ‘ on grounds that the flight operations were taken on hold with the restrictions brought on inter city and inter country travel. When adjusted, PGSUS’s net income came in almost in-line with our estimates. PGSUS’s revenues edged down by 1% YoY to EUR287mn, mainly boosted by 8% YoY improvement in ancilliary revenues, despite 5% YoY contraction in scheduled revenues. Recall that PGSUS’s number of passengers declined by 10% YoY to 6.3mn, while total load factor eased to 86.6% in 1Q20 from 88.4% in 1Q19. PGSUS’s EBITDA declined by 2% YoY to EUR41mn in 1Q20. Following its 1Q20 results, PGSUS management has withdrawn the existing guidance for 2020E and the manahement announced that they will not be sharing any guidance for the time being due to uncertainty on its traffic and operational performance as a result of coronavirus pandemic.

PGSUS management will hold a conference call today at 5.00pm Istanbul time in order to discuss its 1Q20 results and Outlook.

TRYmn 1Q20 Consensus Global Securities Dev. from consensus 1Q19 YoY 4Q19 QoQ
Revenue 1,878 1,882 1,858 0% 1,766 6% 2,512 -25%
EBITDA 210 228 227 -8% 244 -14% 560 -62%
margin 11.2% 12.1% 12.2% -0.9 pps 13.8% -2.7 pps 22.3% -11.1 pps
Net profit -402 -302 -289 33% -214 88% 23 -1859%
margin -21.4% -16.0% -15.5% -5.3 pps -12.1% -9.3 pps 0.9% -22.3 pps
Net Debt/EBITDA (x) 2.47 3.94 -147 bps 1.81 66 bps
ROE (%) 23.2% 11.6% 12 pps 25.0% -2 pps
Net debt 8,885 6,504 37% 6,568 35%
Shareholders' Equity 4,946 3,511 41% 5,342 -7%



2020 Q1 2019 Q1 2019 Q4 YoY QoQ
REVENUES, EURmn 287 290 396 -1% -28%
Scheduled flights 183 193 268 -5% -32%
Domestic scheduled flights 59 62 78 -5% -24%
International scheduled flights 124 131 190 -6% -35%
Ancillary revenue 100 93 116 8% -14%
Charter flights 1 1 6 3% -80%
Other revenue 3 3 6 -4% -51%

COSTS, EURmn 380 306 367 24% 4%
Jet fuel expenses 100 104 122 -4% -18%
Personnel expenses 50 50 56 -1% -10%
Operating lease expenses 0 0 0 n.m. n.m.
Maintenance expenses 15 14 28 5% -48%
Handling fees 23 23 29 -2% -20%
Navigation expenses 19 19 23 -1% -17%
Depreciation and amortisation 64 58 64 9% -1%
Landing expenses 9 10 12 -8% -22%
Passenger service and catering expenses 3 3 4 -10% -24%
Advertising expenses 2 3 3 -16% -20%
Other 95 21 26 363% 268%

EBITDA (EURmn) 41 42 93 -2% -56%
EBITDA margin 14.4% 14.5% 23.5%

PAX 6,234,841 6,901,121 7,635,029 -10% -18%
Scheduled Domestic 3,568,429 3,985,472 4,084,188 -10% -13%
Scheduled Int'l 2,655,748 2,900,718 3,486,461 -8% -24%
Charter 10,664 14,931 64,380 -29% -83%

Load Factor 86.6% 86.9% 88.4%
Scheduled Domestic 88.4% 91.0% 90.8%
Scheduled Int'l 84.3% 81.7% 85.6%

Fuel consumption, ton 159,188 174,305 193,997 -9% -18%

KEY FINANCIAL METRICS
Domestic Pax Yield (TL) 109.7 94.9 122.0 16% -10%
Int'l Pax Yield (EUR) 46.5 45.2 54.4 3% -14%
Ancillary Revenue Per Pax (EUR) 16.0 13.4 15.2 19% 5%

RASK Domestic (TL) 12.8 11.6 15.0 10% -15%
RASK Int'l (EUR) 2.15 2.12 2.54 1% -15%
RASK TOTAL REVENUE (EUR) 3.25 3.07 3.62 6% -10%

CASK (EUR) 3.50 3.24 3.36 8% 4%
Non-fuel CASK (EUR) 2.37 2.14 2.24 11% 6%