Morning Note /
Turkey

Turkey: Can't hide from the storm

  • Turkish equities managed to close in positive territory while the whole world was in red

  • The low level of foreign investors( lowest in history) prevent more outflows in days like this

  • Sise Cam results prove that it’s an ongoing positive transformation story

Batuhan Ozsahin
ATA Invest
6 May 2022
Published by

Turkish equities managed to close in positive territory while the whole world was in red. The low level of foreign investors( lowest in history) prevent more outflows in days like this. Good 1Q results have been supportive but after they are over with only local participation, how much further fuel do we have to push the index? TL depreciation, high inflation against deep negative interest rates have supported the case for equities for local investors but the erosion by inflation will be more visible in 2Q results, except for those who can export, banks and food retailers. Sise Cam results prove that it’s an ongoing positive transformation story and we continue to be believers in this stock in the long-term. Until we break 2400 on the downside, we prefer to be long in the market.

Macro News:

April CPI increased by 7.25% m/m, while annual inflation rose to 69.97% from 61.14%. Core inflation was up 5.58% m/m(57.2% annually), while annual food inflation approached 90%. PPI increased by 7.67% m/m and 121.82% y/y. The big gap between CPI & PPI is the most important risk before a significant and permanent decrease in CPI in the short term. With the Inflation Report published in April’22, Central Bank of Turkey increased its 2022 inflation target to 42.8% from 23.2%. We are revising our year end 2022 CPI estimate to 57.6% from 46.8%.

PETKM  announced that the company decide temporary production halt in the Chlorine Alkali and VCM plants, after studies in line with completeness and reliability criteria of its operational continuity management, process safety and HSE necessities. (slightly negative) The company plan to to carry out intermittent PVC production with imported VCM feedstock procurement in its PVC plant. The effect on production and sales are planned to be mitigated in PVC plant through imported VCM feedstock and trading activities. The company plans no termination of employment due to the temporary production halt. According to the company’s announcement, the company’s production will continue in other units while production in Chlorine Alkali and VCM plants are affected. Chlorine Alkali and VCM are not an end product and are used for a PVC production. Please note that PVC sales volume and revenue constituted 4% and 7% of the company’s total sales volume and revenues in 2021, respectively. We consider that prodution halt in the Chlorine Alkali and VCM plants of the company will be slightly negative.

SISE TI 1Q22 Review:Better than expected operating results and bottom-line... Sisecam reported TL 3,576mn net income in 1Q22 which was 35% above our estimate of TL 2,650mn and 37% above consensus estimate of TL2,688mn. Despite TL414mn higher than expected Net Sales, TL 442mn higher than expected EBIT, TL606mn higher than expected Tax expense led to TL925,8mn higher than expected net income. The company’s EBITDA surged by 234% y/y to TL4,456mn in 1Q22, which was 10% higher than our estimate of TL4,051mn and 9% higher than consensus estimate of TL4,097mn. The company generated 26.3% EBITDA margin in 1Q22, 179bps higher than our estimate of 24.5% (Rasyonet Consensus: 24.6%). Based on 22E estimates, the company currently trades at 4.2x EV/EBITDA and 5.3x P/E multiple.

SISE bought back 1.58mn shares at an average price of TL18.36 on 5 May 2022. Since February, 26 2021, the total number of shares bought back reached 66.9mn at an average price of TL12.18.

SAHOL bought back 280K shares at an average price of TL20.24 on 05 May 2022. Since 09 Nov 2021, the total number of shares bought back reached 43.6mn at an average price of TL15.91.