2Q17 Earnings preview

Transcription

1 COVERAGE EARNINGS PREVIEW Turkey All Coverage 24 July Q17 Earnings preview Turkish stocks completed Q2 with a 12.9% gain on top of the 13.8% increase in Q1 owing to global rally, compression of risk premia and strong domestic sentiment spurred by generous incentive packages and loosening measures for credit market. BIST outperformed MSCI EM by 7.3% in H1 in terms of 12M fwd P/E albeit with a c.30% relative discount by end of June. Risk/reward carry trades have been basically important element starting to Q3. While investors continue to favour Turkish stocks thanks to strong GDP and stable TRY, it s hard to ignore unappetising menu such as policy induced demand conditions, sticky inflation, currency pressures, higher cost of financing, deteriorating budget balance and unpriced geopolitics. Against this backdrop, our theme of tug-of-war between headwinds and tailwinds continues to evolve which leaves us to make our stock recommendations on the basis of fundamentals. Banking sector overview Turkish banks had an increased focus on the Treasury-sponsored credit guarantee facility (CGF) in Q2. Particularly, the CGF scheme provided great potential to boost the overall loan book whereas Turkish lenders maintained asset quality through an optimized RWA density, improved CAR, eased CoR, and manageable NPLs. As a result of enriched core business, TRY loan growth significantly outpaced TRY deposit growth, bringing TRY loan-to-deposit (LDR) ratio excluding loans to financial sector to 113.3% in Q2 from 112.3% in Q1. Given the CBRT s tight liquidity measures, this has resulted in increased crosscurrency swap utilisation to fund some part of loan expansion. Also, blended core spreads are expected to contract by an average 22bps for Tier1 banks under our coverage as loan yield expansion seems to have remained insufficient to offset deposit cost increase. Hence, Tier1 banks NIM is expected to somewhat deteriorate in Q2 despite decent CPI linker income of TRY2.5bn (-1.5% QoQ) for those banks under our coverage. All told, strong core activity, loan yield increase, and bulky CPI linker portfolio were the positives of the second quarter while the funding side of the loan generation under the CGF facility should have some negative implications on NI figures through heavy swap costs. Q3 won t be very much different from what we saw in Q2. Against this backdrop, we stick to our revised estimate for earnings growth of 25% with a slight NIM widening (+6bps YoY) for FY2017, while elevated swap costs, core spread compression, inflation driven OPEX rises and hefty LLP burden prove to be the main headwinds. The Q2 earnings season in financial sector will kick-off with AKBNK on July 26. Among Tier1 banks, we expect AKBNK to post the best QoQ earnings performance for Q2 owing to strong CPI linker income, sustained lending business, and reversals from provisioning book, followed by GARAN albeit with c.4% QoQ earnings contraction. YKBNK and HALKB are expected to show relatively bigger earnings contraction on QoQ basis while VAKBN and ISCTR seem to be the laggard in Q2 financials. Considering non-tier1 banks, TSKB and ALBRK should stand out as the best positioned names in terms of NIM evolution, ROAE performance and asset quality evolution. Non-Financial sectors overview We anticipate oil & gas and petrochemical sectors should come top of the list as their financials should significantly benefit from the strong dollar and favourable product spreads in the quarter. Fertiliser sector should post disappointing results in terms of operating performance. In addition to these names, PETKM might be among the ones to surprise with its 2Q results on the back of favourable product spreads and strong ethylene demand. TUPRS would benefit from strong refining margins and solid crack spreads. We might also observe above consensus figures from TKFEN owing to positive contribution from its agriculture segment and robust operational activity from contracting business. We expect that the glass companies, SISE and TRKCM, could also post positive results mainly thanks to increasing product prices and sustainable margins. Last but not the least, EREGL could again come up with strong results on the back of strong spreads with rising product prices and stable volumes. Additionally, we believe TTKOM and TCELL continue to post strong operational performance, while aviation sector to enjoy strong cost control and relatively stronger passenger numbers. Relatively weak European markets may have slight negative impact on exporters. AEFES and CCOLA may post weaker operational profitability, as margins are under pressure due to lack of demand in Turkish beer market, as well as high demand in relatively less profitable products and SKUs. Finally, operational performance of BIZIM might be hurt by the change in business plans and DOAS may continue to suffer from weak Turkish auto market. The deadlines are 09 August for non-consolidated and 21 August for consolidated financial results. Relatively STRONG bank results expected AKBNK BUY % ALBRK HOLD % GARAN BUY % TSKB BUY % Relatively WEAK bank results expected ISCTR HOLD % VAKBN HOLD % YKBNK HOLD % Relatively STRONG non-bank results expected EREGL BUY % MGROS BUY % PETKM BUY % SISE HOLD % THYAO HOLD % TKFEN BUY % TRKCM HOLD % TTKOM BUY % TUPRS BUY % Relatively WEAK non-bank results expected BAGFS SELL % BIZIM BUY % DOAS HOLD % EKGYO HOLD % GUBRF REDUCE % 190, , , , , ,000 75,000 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 All share price data as at close on 21-Jul Source:, Company Data Performance (XU100) 1M 3M 6M 12M Absolute 7% 16% 29% 49% Relative $ 7% 16% 29% 49% Research Director Sertan Kargin sertank@global.com.tr Analyst Kerem Mimaroglu keremm@global.com.tr Utku Uygur, Ph. D utkuu@global.com.tr Evren Gezer evreng@global.com.tr XBANK & XUSIN Price Performance XBANK (LHS) Research contact for general inquiry research@global.com.tr Yesilce Mah. Eski Buyukdere Cad. No: 65 Kat: Istanbul Turkey Global Menkul Degerler XUSIN (RHS) 120, ,000 90,000

2 Table 1 QoQ Bank net earnings forecast (TLmn) Sector Company name Ticker 2Q17E 2Q16 YoY 1Q17 QoQ Comment Banking Akbank AKBNK Net earnings 1,487 1,332 12% 1,405 6% Banking Albaraka Turk ALBRK Net earnings % % Banking Garanti Bank GARAN Net earnings 1,460 1,540-5% 1,526-4% Banking Halkbank HALKB Net earnings 1, % 1,219-13% Increased CPI linker contribution owing to CPI revision coupled with loan yield expansion should lead to c.20bps QoQ NIM improvement Strong NII and eased provisioning burden should compensate for bulky trading loss and lead to c.6% NI growth Sustained participation yield and increased JVP contribution should lift NIM by c.27bps QoQ despite rising participation cost Strong NPI performance, trading gains, eased OPEX and improved other income should result in c.33% YoY NI improvement Increased CPI linker contribution with CPI revision coupled with loan yield expansion should lead to c.15bps QoQ NIM improvement Despite improved provisions cost and strong NII, doubling swap costs should lead to c.4% QoQ NI contraction in Q2 c.20% QoQ decline in CPI linker income and c.60bps QoQ contraction in core spreads should result in c.70bps QoQ NIM worsening in Q2 Smaller contribution from NII and elevated OPEX figures should lead to c.13% QoQ NI contraction Banking Isbank ISCTR Net earnings 1,263 1,318-4% 1,642-23% Banking TSKB TSKB Net earnings % 141 8% Banking Vakifbank VAKBN Net earnings % 1,225-27% Sharp rise in deposit costs should lead to compressed core spreads, resulting in c.19bps QoQ decline in NIM Eased provisioning costs couldn t compensate for the hike in swap costs and elevated OPEX figures, and thereby should lead to c.23% QoQ NI contraction Moderate increase in funding costs should be easily digested with expansion in loan yields, NIM should remain flattish in QoQ terms in Q2 Strong NII, eased provisions and seasonal dividend income should result in c.8% QoQ NI growth despite increased swap costs Hike in deposit costs and c.23% QoQ decline on CPI linker income should lead to NII contraction resulting in c.65bps QoQ NIM worsening Eased provisioning figures couldn t compensate for the weaker NII and trading loss in Q2. Hence, NI should contract by c.27% QoQ in Q2 Banking Yapi Kredi Bank YKBNK Net earnings % 1,001-17% Contraction in core spreads led by increased deposits cost should result in c.10bps QoQ NIM worsening Source:, Company Data Flattish NII coupled with more than doubling swap cost and decreased other income should lead to c.18% QoQ NI contraction in Q2 Table 2 QoQ Non-Bank financials forecast (TLmn) Sector Company name Ticker 2Q17E 2Q16 YoY 1Q17 QoQ Comment Beverage Anadolu Efes AEFES Revenues 3,669 3,089 19% 2,426 51% Robust volume growth in international markets & weak TL vs. local currencies EBITDA % % Margins under pressure in major markets (TR - lower volumes, RUS - higher share of modern channel) Net earnings % -85 n.m. Growth in earnings with relatively stable FX rates Durables Arcelik ARCLK Revenues 4,858 3,960 23% 4,634 5% Relatively weaker growth vs. 1Q, w/ slower domestic and export markets EBITDA % 459 8% Margins close to long term averages Net earnings % % Fertilisers Bagfas BAGFS Revenues % % Declining product prices puts pressure on revenue generation EBITDA % 48-79% Margin contraction affects the operational profitability negatively Net earnings 3-3 n.m. 7-60% Retail Bim Magazalar BIMAS Revenues 5,941 4,971 20% 5,707 4% Ahead of guidance growth w/ high CPI EBITDA % 304-2% EBITDA margin in line w/ guidance Net earnings % 198-1% Retail Bizim Magazalar BIZIM Revenues % % Revenues continued to be under pressure w/ shift in strategy EBITDA 0 21 n.m % Margins to decline with lack of operational leverage Net earnings n.m % Beverage Coca Cola Icecek CCOLA Revenues 2,469 2,129 16% 1,556 59% Robust revenues w/ weaker TL vs. last year and high NRTD tea volume EBITDA % % Domestic margins under pressure w/ NRTD tea's relatively higher share in volume Net earnings % -86 n.m. Auto Dogus Otomotiv DOAS Revenues 3,137 3,107 1% 2,085 50% Contracting volumes with shrinking Turkey auto market EBITDA % 80 31% Lower revenues hurt margins Net earnings % 28 24% REIT Emlak Konut REIT EKGYO Revenues 512 1,140-55% % We expect a poor quarter with lower revenue generation despite the latest campaigns EBITDA % % The stock is trading at 44% discount compared to 3yr average of %40. Net earnings % % Construction Enka Insaat ENKAI Revenues 2,747 2,716 1% 2,445 12% Positive contribution mostly from the energy segment EBITDA % 589 4% EBITDA margin increase supported mainly by energy and real estate segments. Net earnings % % Steel Eregli Demir Celik EREGL Revenues 4,556 2,669 71% 4,191 9% Increasing product spreads and steady volumes supporting operational profitability EBITDA 1, % 1,313-13% Favourable hard-currency cash position of the company Net earnings % 902-3% Source:, Company Data Page 2 of 6

3 Table 3 QoQ Non-Banks financials forecast (TLmn) Sector Company name Ticker 2Q17E 2Q16 YoY 1Q17 QoQ Comment Auto Ford Otosan FROTO Revenues 6,146 4,614 33% 5,395 14% Enjoying higher international shipments EBITDA % % Margins still under pressure Net earnings % % Fertilisers Gubre Fabrik. GUBRF Revenues % 1,116-49% Declining product prices puts pressure on revenue generation Conglo. Koc Holding KCHOL EBITDA % 34-16% We expect a poor sales performance from domestic operations due to lower product prices compared to previous quarter Net earnings n.m. 11 5% Iranian operations once again might disappoint in terms of revenue and EBITDA generation TUPRS (weaker TRY and high refining margins) and AYGAZ (weaker TRY) provide support for energy segment profitability. Net earnings 1, % 1,125 6% Auto segment also could drive the earnings with higher exports Retail Migros Ticaret MGROS Revenues 3,700 2,668 39% 3,114 19% Positive contribution of Kipa revenues mitigate relatively slower YoY revenue growth EBITDA % % Kipa's EBITDA contribution will be dilutive Net earnings % 907 n.m. Aviation Pegasus PGSUS Revenues 1, % % Robust revenue growth with weak TRY & pax growth EBITDA % % Margins still under pressure Net earnings n.m n.m. Petro Chem. Petkim PETKM Revenues 1,599 1,176 36% 1,766-9% Solid operating volume with high capacity utilisation EBITDA % 436-6% Favourable product spreads supporting the operational profitability Net earnings % 366-8% Conglo. Sabancı Holding SAHOL Net earnings % % Industrials and insurance segments might bring some additional contribution Glass Sise Cam SISE Revenues 2,581 2,128 21% 2,568 1% Flat glass segment could make a positive surprise increasing the overall operational performance EBITDA % % Chemicals and glass packaging segments also resumed their steady performance Net earnings % % Chemicals Soda Sanayii SODA Revenues % 559-5% The recent capacity increase by CINER puts pressure on the soda ash prices EBITDA % % We anticipate lower profitability due to the contraction in margins compared to previous quarter Net earnings % % Aviation TAV Airports TAVHL Revenues % % Financials announced on ( mn) EBITDA % 55 90% Net earnings % % Conglo. Tekfen Holding TKFEN Revenues 1,794 1,065 68% 1,637 10% Contracting business continues to increase its profitability with record high contracting backlog EBITDA % 209-3% Real estate operations could finally start to provide some positive contribution Net earnings % 162 0% Telecom Turkcell TCELL Revenues 4,135 3,329 24% 3,937 5% Positive contribution of finance arm as well as higher voice revenues EBITDA 1,385 1,021 36% 1,393-1% Margins still robust, yet below last quarter's strong performance Net earnings % % Aviation Turkish Airlines THYAO Revenues 2,607 2,444 7% 1,980 32% Pax numbers relatively better vs. 1Q ($ mn) EBITDA % % Cost control continued in the quarter Net earnings % % Depreciation of USD vs. EUR and JPY may weigh on bottom line Auto Tofas Oto. Fab. TOASO Revenues 4,490 3,652 23% 4,098 10% Strong domestic sales but international shipments were relatively weak EBITDA % 432-3% Margins are slightly lower with increasing raw material costs as well as higher share of exports Net earnings % 262 2% REIT Torunlar GYO TRGYO Revenues % 135-4% Steady rent income support the top-line growth EBITDA % 89 1% The residence sales seem to show improvement backing up the revenue generation Net earnings % -33 n.m. Glass Trakya Cam TRKCM Revenues 1, % 956 6% Price increases in both domestic and international markets EBITDA % 204 2% High capacity utilization with steady sales performance supporting the volume growth Net earnings % 115 1% Decline in soda ash prices lowering the costs and improving the margins Telecom Turk Telekom TTKOM Revenues 4,336 3,940 10% 4,307 1% Growth trend in broadband continues, supported by ARPU growth in mobile EBITDA 1,493 1,299 15% 1,508-1% Strong bottom-line with relatively stronger TRY Net earnings % % Auto Turk Traktor TTRAK Revenues 1, % % Relatively stronger volumes vs 1Q17 EBITDA % % Slightly better EBITDA margin yet still below 2Q16 Net earnings % 55 28% 2Q16 net income was w/ inflated with tax incentives Oil & Gas Tupras TUPRS Revenues 12,702 8,453 50% 12,370 3% Rising product cracks and stable volume with high CUR supporting the operational performance EBITDA 1, % 1,511-8% Continuing stable trends in med refining margins Net earnings 1, % % Confect. Ulker Biskuvi ULKER Revenues 1, % 1,232-11% Relatively slower revenue growth vs. 1Q w/ lower contribution from international markets EBITDA % % Lower raw material prices help margins Net earnings % 99-27% Source:, Company Data Page 3 of 6

4 Date of completion of this report: :40 UTC+3 Date of -distribution of this report: :45 UTC+3 Explanation of Rating System 12-MONTH RATING DEFINITION BUY: Buy stocks are expected to have a total return of at least 15% and are the most attractive stocks in our coverage universe on a 12- month horizon. HOLD: Hold stocks are expected to deliver a positive total return of up to 15% within a 12-month period. REDUCE: Reduce stocks are expected to achieve a negative total return up to -10% within a 12-month period. SELL: Sell stocks are expected to post a negative total return of more than -10% within a 12-month period. ANALYST CERTIFICATION We, Sertan Kargin, Kerem Mimaroglu, Evren Gezer and Utku Uygur, hereby certify that the views expressed in this research report accurately reflect our personal views about the market and, in conjunction with the named analysts, the subject securities and issuers. We also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. IMPORTANT DISCLOSURE INFORMATION This material was produced by Global Menkul Değerler A.Ş. ( GMD ) or its Affiliates, solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the world by GMD or an authorised affiliate of GMD (such entities and any other entity, directly or indirectly, controlled by GMD, the Affiliates ). This document does not constitute an offer of, or an invitation by or on behalf of GMD or its Affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources which GMD or its Affiliates consider to be reliable. None of GMD or its Affiliates accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. GMD or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report; GMD or its affiliates have not managed or co-managed a public offering of these securities, or received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. However, one or more of GMD or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon either on their own account or on behalf of their clients. GMD or its Affiliates may, to the extent permitted by law, act upon or use the above material or the conclusions stated above or the research or analysis on which they are based before the material is published to recipients and from time to time provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report. Page 4 of 6

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