Morning Note /
Global

Turkey: There is still very little to no foreign participation

  • The relentless rally in Turkish equities fuelled by banks continued yesterday

  • In the past two weeks local investors became more convinced on the blockbuster 1Q results of the banks

  • Surging inflation is also inflating the income from CPI linkers on banks balance sheets

Batuhan Ozsahin
ATA Invest
12 April 2022
Published by

The relentless rally in Turkish equities fuelled by banks continued yesterday, as in the past two weeks local investors became more convinced on the blockbuster 1Q results of the banks.

Surging inflation is also inflating the income from CPI linkers on banks balance sheets. Most banks use Oct-Oct inflation to value their CPI linker portfolio but use their estimation for the year to roll expected earnings throughout the year, but any difference is corrected in 4Q anyway. Oct-Oct inflation in 2022 will be above 60%, from an initial estimate of 30% used by most banks, but there will be a gradual increase in upping the estimates, hence most banks will report much higher than consensus estimates for 2022, bringing them to 2-2.5x FY22 earnings.

There is still very little to no foreign participation, in fact foreign investors are still selling in large stocks, hence it is a rally driven mostly by locals as deep negative real yields bring more cash to equities. Higher than expected March US CPI could finally bring some healthy profit taking.

Macro news:

Current account (C/A) deficit realised as US$5.15bn in Feb’22. (Bloomberg Cons: US$5.30bn) In Feb’22, there was a net outflow of US$0.77bn to portfolio investments (Jan’22: -US$0.77bn). 12M Trailing Current Account Deficit realised as US$21.8bn in Feb’22. 12M Trailing Current Account Deficit/GDP ratio realised as 2.7% in Feb’22. We expect Current Account Deficit (C/A) and CAD/GDP to be US$48bn and 7.4%, respectively in 2022.

Company news:

*ARCLK TI> bought back 145K shares at an average price of TL63.18 on 11 April 2022. Since 02 July 2021, the total number of shares bought back reached 58.9mn at an average price of TL41.04.

*AUTOS: March 2022: Exports declined by 17.5% y/y to 79K units… On a segmental basis, passenger car (PC) exports declined by 32% y/y to 39K units in March 2022, whereas LCV exports increased by 1% y/y to 36K units during the same period. HCV exports were up by 62% y/y to 3.6K units in March 2022. Tofas’ export volume declined by 11% y/y to 8.5K units in March 2022. Ford Otosan’s export sales volume declined by 3% y/y to 31K units during the same period. Between 2015-2021, Tofas 1Q export units were on average 27% of its full year exports. If we make an estimate based on the assumption that 1Q exports consititute 27% of total exports in 2022E, we calculate 103K export sales units for Tofas which is 18-27% lower than its export guidance (ATA Est.: 146K). Between 2015-2021, Ford Otosan 1Q export units were on average 26.3% of its total year export sales units. If we assume the same trend for 2022E, we calculate 291K units export volume which is 17-19% lower than its export guidance (ATA Est.: 316K). Tofas expects 125K-140K export sales volume, implying 11-24% y/y increase in 2022E (ATA Est: 146K). Ford Otosan expects 350K-360K export sales volume, implying 21-25% y/y increase in 2022E (ATA Est: 316K).Total motor vehicle production in Turkey declined by 14% y/y to 106.6K in March 2022 driven by 24% y/y decrease in PC production to 57K units and 4% y/y decrease in LCV production to 43K units. HCV production were up by 62% y/y to 6.9K units in March 2022, respectively. Domestic HCV sales increased by 10% y/y to 4.0K units in March 2022.

*Aviation > Total PAX in Turkish airports increased to 10.9mn in March, 75% of its 2019 level... <Slightly Positive for THYAO, PGSUS and TAVHL> Domestic PAX in Turkey increased to 5.7mn in March which is 68% of its 2019 level. Considering domestic PAX in Turkey was 5.2mn in February which was 68% of its 2019 level, there is a m/m increase in domestic PAX trend. International PAX increased to 5.2mn in March which is 85% of its 2019 level. Considering international PAX in Turkey was 4.1mn in February which was 81% of its 2019 level, there is a m/m rise in international PAX trend in Turkey. Istanbul Airport’s, main hub of Turkish Airlines, total PAX increased by 97% y/y to 4.3mn in March. Considering 97% y/y increase in total PAX vs. 67% y/y increase in ATM per day in the same period, THYAO’s load factor is likely to increase y/y in March. Total PAX in Sabiha Gokcen, main hub of Pegasus, increased by 39% y/y to 2.2mn in March which is 80% of its 2019 level. Domestic PAX decreased by 3% y/y to 1.1mn which is 65% of its 2019 level whereas, international PAX was up by 151% y/y to 1.1mn in January which is 105% of its 2019 level. Considering domestic PAX was 1.08mn and international PAX was 1.01mn in February which were 69% and 111% of their 2019 levels respectively, there is a m/m rise in total PAX trend in Sabiha Gokcen. Also, considering 40% y/y more passenger vs. 23% y/y more ATM per day in the same period, PGSUS’ load factor is likely to increase y/y in March. 

Weekly Agenda:

12 April: February Industrial Production (Consensus 2.7% m/m, 7.5% y/y)

14 April: CBRT MPC policy rate decision (Consensus 14%- No Change)