Turkish equities had another vibrant day of trading with strong performance in banks, Tupras and index- heavy weight Sasa closing the day limit up. It is earnings season and we like Yapı Kredi, Coca Cola and Sise Cam’s , while Vestel Beyaz, White goods arm of Vestel posted weak results with margins detoriarating. We expect the market to test 4015 today and we will be more constructive if it manages to close this week above 4000.
Yapı Kredi <YKBNK TI> 3Q22 Review: Better than expected results...
Yapi Kredi posted 3Q22 NI of TL16,135mn (+35% q/q), 5% higher than our and 14% higher than consensus estimate. The key points of 3Q22 were 1) 3Q ROTE increased to 63.6% from 56.6% in 2Q and 9M22 ROTE stood at 54.8% vs. 18.6% in 9M21 2) Core revenues were up 34% q/q as CPI linker income increase 56% q/q (higher CPI book plus CPI estimate revision from 50% to 65%), 3) Cumulative NIM improved to 7.55% from 6.42% in 2Q 4) Year-to-date TL loan growth reached 59%, with a visible slowdown in all segments except credit cards in 3Q, while FX loan book continued to shrink( -19% ytd). Lira deposits were up 38% q/q and 109% ytd, while FC deposits were down 17% ytd.
Yapı Kredi shares are up 176% year-to-date vs. 134% for BIST banking index and 114% for BIST-100. 2022 has been an exceptional year for the banking sector in Turkey, mostly driven by the higher inflation impact on CPI linker valuations( 56% of Yapı Kredi’s net income 37% in 9M22 came from CPI linkers vs. 58% for Akbank and 37% for Garanti). FX-protected deposit scheme and lower CBRT fund rate policy have benefited banks asset-liability management and also contributed to the improvement of core NIM. The strong economic activity in 2022(GDP +7.5% y/y in 1H22) have kept cost of risk low( 78 bps for 9M22), hence provisioning costs remained muted and thanks to the resolving of the Turk Telekom issue, there are no more surprise provisioning cost popping up either.
Is the best for the banking sector behind us in terms of earnings momentum? Most probably yes, for a couple of reasons. 1) Headline CPI will come down in 2023 unless there is another FX shock 2) The new regulations on loan pricing caps and obligatory government bond purchases if benchmarks are not met have created an interest rate risk for 2023 and onwards( this week’s 10-year TL g-bond auction yield was 10.57%). Although fix rate securities still make up small portion of banks’ securities portfolio, these low yields might impact ROA negatively over the longer term 3) We still think there is big possibility of higher CBRT funding rates in the future, despite the fact that we will have 9% CBRT funding rate as early as November.
Coca Cola Icecek <CCOLA TI> 3Q22 Review: In line with expectations…
Coca Cola Icecek posted TL1,819mn net income in 3Q22, 7% lower than our estimate of TL1,958mn and 7% lower than consensus estimate of TL1,949mn net income. Higher than expected tax expenses was the main reason behind lower than expected net income in 3Q22.
The company recorded TL3,729mn EBITDA which was 2% lower than our expectation of TL3,814mn and 3% lower than consensus estimate of TL3,834mn. In 3Q22, CCOLA recorded 21.4% EBITDA margin, 79bps lower than our estimate of 22.2%.
Based on our estimates, CCOLA is currently trading at 2023E 3.7x EV/EBITDA, implying 34% discount to its 5-yr average of 5.6x.
Sısecam <SISE TI> 3Q22 Review: Better than expected results...
Sisecam reported TL 4,801mn net income in 3Q22 which was 10% above our estimate of TL 4,384mn and 2% above consensus estimate of TL4,732mn. Higher than expected financial income was the main reason behind stronger than expected net income.
The company’s EBITDA surged by 179% y/y to TL5,730mn in 3Q22, which was 2% higher than our estimate of TL5,631mn. The company generated 22.0% EBITDA margin in 3Q22, 48bps higher than our estimate of 21.5% (Rasyonet Consensus: 21.2%).
Based on 23E estimates, the company currently trades at 5.0x EV/EBITDA and 4.7x P/E multiple, implying 13% and 18% discount to its peer multiples.
Nov 1 : October PMI ( September 46.9)
Nov 3: October CPI (Consensus 3.6% m/m, 85.6%)