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TURKEY MARKET OUTLOOK - 3Q19 Earnings Preview: Moderation kicks in

Among financials, we expect the state banks to perform better than their private peers on q-q operating profit growth thanks to their unmatched volume growth. However, the state banks should continue to report sub-par ROEs. In our private banks universe, we expect Isbank followed by Yapi Kredi to announce stronger operational performances q-q. We think Isbank will not only record the best q-q improvement in L/D spread on both TRY and FX sides, but also the highest spreads in absolute terms. We believe the banking sector core spread improvement we expect for 3Q19 to linger until 1Q20.

Among non-financials, we expect defence, mining and telecoms to lead in y-y EBITDA evolution while REITs, petrochemicals, steel and cement should lag. We expect Otokar to improve its EBITDA y-y on increased armoured vehicle deliveries. Koza Gold not only benefitted from the 24% y-y increase in gold prices in 3Q19 but also gained from the 28% surge in production y-y. We expect Turkcell and Turk Telekom to log a solid operational performance due to better margins and higher data usage thanks to a tourism sector recovery.