Morning Note /
Global

Turkey: We expect a flattish opening

  • Turkish equities continued to trend positively

  • The best news of the day is seeing Brent below USD100/bbl

  • Aviation stocks could benefit from lower Brent

ATA Invest
15 March 2022
Published byATA Invest

Turkish equities continued to trend positively and finally broke the important 2060 level that it had unsuccessfully tried a couple of time since the beginning of the year. However, the best news of the day is seeing Brent below USD100/bbl, as energy prices are the single most important driver of the trade deficit.

We have been seeing dangerous signs of the trade deficit getting out of control since December, but Brent at 130 is definitely very toxic for Turkish economy. We have been seeing signs of stress increasing on the Turkish Lira recently and with much bigger than CA deficit coming our way for 2022 and a big contingent liability of the FX protected deposit scheme, which we do not know how will end, creates a risk for the Lira and further runaway inflation.

We should see some more profit-taking in commodity-linked names as they were big outperformers over the past couple of weeks, but as prices remain high fundamentals should not change. Aviation stocks could benefit from lower Brent.

Company news:

*MAVI TI> 4Q21 Results: Mavi recorded TL117mn net income in 4Q21, beating the consensus estimate of TL57mn. (Positive) The company board proposed to pay TL2.43 per share cash dividend from 2021 net income, implying 3.74% dividend yield. This cash dividend implies TL120mn cash outflow and 30.1% dividend payout ratio. Mavi Board aims to distribute cash dividend on 18 Aug’22, pending for the approval at the General Assembly meeting.

*Autos - February 2022: Exports declined by 10% y/y to 79K units…On a segmental basis, passenger car (PC) exports increased by 1% y/y to 51K units in February 2022, whereas LCV exports declined by 26% y/y to 27K units during the same period. HCV exports were down by 2% y/y to 1.6K units in February 2022. Tofas’ export volume declined by 36% y/y to 9K units in February 2022. Ford Otosan’s export sales volume declined by 33% y/y to 20K units during the same period. Between 2015-2021, Tofas 2M export units were on average 18.1% of its full year exports. If we make an estimate based on the assumption that 2M exports constitute 18% of total exports in 2022E, we calculate 107K export sales units for Tofas which is 15-24% lower than its export guidance (ATA Est.: 146K). Between 2015-2021, Ford Otosan 2M export units were on average 16.9% of its total year export sales units. If we assume the same trend for 2022E, we calculate 270K units export volume which is 23-25% lower than its export guidance (ATA Est.: 316K). Tofas announced its export sales volume expectations for 2022E. The company expects 125K-140K export sales volume, implying 11-24% y/y increase in 2022E (ATA Est: 146K). Ford Otosan announced its export sales volume expectations for 2022E. The company expects 350K-360K export sales volume, implying 21-25% y/y increase in 2022E (ATA Est: 316K). Motor vehicle production in Turkey declined by 9% y/y to 102K in February 2022 driven by 10% y/y decrease in PC production to 62K units and 9% y/y decrease in LCV production to 41K units. HCV production were down by 2% y/y to 3.5K units in February 2022, respectively. Domestic HCV sales declined by 13% y/y to 2.4K units in February 2022. 

*KCHOL TI> announced that the company signed non-binding MoU with Ford Motor Company ("Ford") and S. Korean SK On Co., Ltd. ("SKO") for setting up joint venture for battery production in Ankara. According to the company’s announcement, if the agreement is finalized, the company aims to start battery production in 2025, with a total annual capacity of 30-45 Gigawatt hours.According to the company's announcement, the company plans to sell batteries within the scope of the project to Ford Otosan for producing of next-generation Transit vehicles. For the time-being, no details are available regarding investments amounts.

*FROTO TI> announced that the company signed agreement of purchase of Ford Romania SA shares for EUR575mn. (positive) As an initial reaction the Ford Romania acquisition looks “value-enhancing” for Ford Otosan. We believe that this acqusition and investment plans will enhance the long-term outlook of the company. According to the agreement, Ford Otosan will pay EUR575mn for the purchase of all shares between 2022-2028 and a conditional amount of EUR140mn in 2028 subject to Romania plant capacity utilization rate during 2028-2034. Ford Romania owns vehicle and engine manufacturing facilities in Craiova, Romania. Craiova facilities have 250K vehicle and 365K engine installed production capacity.

The company aims to finalize this deal in 3Q22. With this acquisitions, the company’s motor vehicle production capacity will increase to 900K from 650K. Also the company’s labor force will increase to more than 20K employees with this share purchase agreement. According to the valuation report regarding Ford Romania S.A., Deloitte projected the company to realize US$101mn EBITDA in 2022E and Deloitte projects 19.9% y/y CAGR for consolidated EBITDA in US$ terms in between 2022E-28E. Based on the US$575mn deal price & US$101mn and US$301mn EBITDA in 2022E and 2028E, assuming no net debt, Ford Romania S.A. deal multiples stand at 6.3x and 2.1x EV/EBITDA, respectively, compared to Ford Otosan 2022E and 2028E EV/EBITDA multiple of 7.0x and 4.8x EV/EBITDA multiple, respectively. At first glance, the Ford Romania acquisition looks “value-enhancing” for Ford Otosan. We believe that this acqusition and investment plans will enhance the long-term outlook of the company.

Weekly Agenda:

March 15: February Home Sales( January 88.3K units)

March 15: February Central Government Balance

March 15: CBRT One-Week Repo Rate( Current 14%, Consensus 14%)