25 Nisan 2013 Perşembe

Buy - Sell

·         HALKB (HOLD; TP TL20.00) 1Q > TL713m bank-only net profit (+31% y-y, -4% q-q) vs our TL681m est and TRY678m consensus on trading gains. We revise up our FY13 and FY14 earnings est by 2% on avg due to sl improvement in NII. Opex +39% y-y in 1Q13. Although the bank guides for 20% y-y growth in FY13, we remain cautious given the 19% y-y rise in per head HR costs in 1Q13 and high mkt exp rel to the new credit card. Growth in lucrative loan segments (GPLs/housing) might result in better L/D spread in coming quarters. TP revised upward a bit to TRY20.00. Reiterate HOLD due to limited upside. We forecast a slight earnings contraction in FY13, which curtails the relatively attractive price multiples of Halkbank.(Detailed note to follow).
·         AKBNK (HOLD; TP TL10.20) 1Q > TL868m bank-only net profit (+56% y-y, -20% q-q), below our TL904m est and TL884m consensus on higher provisioning and low dividend income. Security portfolio contracted 12% q-q in 1Q13 bringing down the security portfolio to assets ratio 370bp q-q to 25.9%, which might enable Akbank to shift to higher yielding loans faster than initially expected. Although strong NFI growth rate should normalize, we expect 24% y-y NFI growth in FY13. Potential trading income might surprise on the upside given the recent decline in interest rates and the bank’s TRY1.1b m-t-m gains booked under equity. HOLD reiterated. Main upside risks to our HOLD recommendation is a further drop in cost-of-funding and higher trading income. Whereas the main downside risk is the NPL threat especially from the sharp growth in the credit card segment.

·         GARAN (HOLD, TP TL10.70)  1Q13 RESULTS TODAY >  TEB-BNPP NI TL963m, Cons TL931m. Results expected after 1st session close at 10.30 AM London. Conference call @ 18:30 TR time. Dial-in: +902124783010. Meeting ID: 250413. Webcast link: https://garantiinvestorrelations.webex.com/garantiinvestorrelations/onstage/g.php?t=a&d=950863538
·         REPORTED MACRO PRUDENTIAL MEASURES TO BOOST CORP LENDING > The BRSA has been working on two different initiatives to reduce interest rates on corporate and commercial loans, according to newswire reports. One plan is to reduce RRRs on liabilities funding corporate and commercial loans. The second is to pay interest on portion of RRs financing corporate and commercial loans. Comment > In both cases the interest rates on corporate and commercial loans might come down. Although it’s hard to make any concrete comment at this stage, we expect banks with higher exposure to corporate & commercial loans to benefit, especially HALBK and ISCTR. Differentiating RRRs might be also be helpful for the CAD. Recall that this news follows statements by Deputy PM Babacan this week that the gov’t wants to boost corporate and export lending while keep CAD-unfriendly consumer loans in check.
·         KOZAL (BUY; TP: TL 40.9) SELL OFF A UNIQUE OPP > 15% yoy drop in spot prices & incr’d gold production costs with CAGR of 12% in last decade (incr’g energy, labour costs, declining grades, incr’g share of high cost underground mining, shortening mine life & incr’g regulatory, royalty & environmental costs) => removed premium over 90 percentile cost lvl ($1229/ounce for 2013E, $1350 for 2014E & $1500 for 2015E) => created a floor to decline in gold prices during last 12yrs. During last decade, (excluding 2010-12 where premium was 35-40%), avg spot gold prices hovered c.5-6% premium to 90 percentile industry cost avg. Below that lvl many marginal gold miners would have to cut their production permanently, helping supply to align with demand. For KOZAL we see 18% ups despite 13% cut in our gold prices est to $1400 for 2013 & future => attractive multiples @ 10.2x PE’ 13 & 8.9x PE’14. Sharp ascending avg prod cost curve supports our strong investment case for KOZAL, which has relatively stable & much lower costs ($620 vs industry avg @$980).
·         KRDMD TI (BUY, TP TRY2.01) LIKELY BENEFICIARY OF RAILROAD LIBERALISATION > Parliament has approved bill for liberalisation of railways in TK => allows private co’s to operate their own cars on rails owned by the state-owned railway company (TCDD) or install their own rails. TCDD is foreseen to be separated into two parts (1. owning & maintaining railway system & one owning and 2. operating rolling stock, i.e. rail cars).  Comment: Good news for KRDMR => only domestic producer of rails in TK (c60% to 70% market share). It has also been working on building new capacities in order to produce various railway components such as railway freight cars AND steel tires for railway cars. It also started a JV in 2010 (Vademsas) with TCDD & Austrian steel company Voestalpine in order to produce (high speed) train switches. KRDMD also lowered sales price by a bit for most of its finished products (debars, rounds & sections) effective April 24. Comment: Roughly parallel to those of indicative spot prices for similar products => reflection of slightly lower prices for scrap steel. Scrap steel is widely used in long steel production, especially by mini-mills (little used by KRDMD). It’s weighted avg list price for steel stands c.1% lower ytd after this decrease.
·         THYAO (BUY, TP TL8.47) LABOUR UNION NEGOTIATIONS > The high court reportedly approved a lower court’s decision to reinstate 15 laid-off THYOA employees. These employees were part of the 305 employees laid off last year following protest against the govt’s plans to ban strikes in the aviation sector. The gov’t briefly banned strikes in the sector thereafter, but retracted the ban in face of domestic and int’l pressure. Comment > This is good news because it is likely to make it easier for THYAO mgmt and the union to agree on the latest round of collective bargaining negotiations. The return of these employees to work was a major sticking point. The union recently announced that it might strike soon if no agreement were reached. We continue to expect the two sides will come to an agreement eventually and avert a strike.
·         FROTO (HOLD; TP TL23.9) SIGNED AGREEMENT WITH JMC > signed a license agreement with China based JMC Heavy Duty Vehicles for its Ecotorq engines used in heavy commercial vehicles. IP rights of Ecotorq engines belongs to Ford Otosan => will receive €150-190 per engine produced by JMC Heavy => exp’d to start prod’n in 2016 & the agreement will be valid for 12-yrs after the start of prod’n (to be renewed every 3-yrs). Ford Otosan has not shared guidance on vol. The size of Chinese heavy truck market is 0.6-1.0m units pa. JMC has a 3.3 % shr in commercial vehicle market as of 2012. Assuming a  mkt shr of 3%-5% in heavy truck mkt, and a mkt size of 1.0m, normalized vols of JMC would be 30k-50k units. For 2016, the impact of the deal on our EPS estimate for FROTO would be 0.5%-1% (on 15k units assumption). JMC Heavy Duty Vehicles is a subsidiary of China based Jiangling Motors Corporation. FMC owns 31.5% stake in JMC, which produces commercial vehicles. JMC plans to build engine prod’n capacity of 50k units for heavy trucks. Our view: The value add per unit is quite high & the potential EPS contribution decent. The deal highlights the importance of engineering capability built by Ford Otosan. Moreover, the deal supports our view that new export mandates for FROTO remain upside risks for the mid-term.
·         EKGYO (NR) 1Q13 RESULTS > Sales TL375m (+18% q-q, nm y-y), EBITDA TL260m (+37% q-q, nm y-y), NI TL271m (+3% q-q, nm y-y). NAV TL8.1bn (up 2.5% in 1Q13). Current mkt cap implies 8.9% discount to NAV. SPO price will be set according to 1Q13 NAV. Recall that there was 11% discount to NAV in the IPO. Also bought 2 piece of land in Istanbul. Kazlicesme :128k sqm, TL635m; Kartal: 63k sqm, TL112m. Total cost TL 747m. Positive.
·         TCELL (BUY; TP TL13.75), TTKOM (NR) Regulatory change in fiber infrastructure > Slightly +VE/-VE for TCELL /TTKOM.  Telecom Regulator i) decided that fiber infrastructure owners should start sharing their fiber pipes (not the cables themselves) as of Sep 1, 2013 and ii) asked them to announce their sharing prices till July 1st, 2013. TTKOM is the owner of the largest pipe map in Turkey => TCELL’s Superonline could seemingly benefit from this regulation, however, only if TTKOM offers an appropriate price. Recall that, neither naked ADSL (started in 2011) nor wholesale line rental (started in 2012) was able to attract interest due to unattractive pricing. Additionally, establishing the connection between the cabinet and home, which requires the permissions of the local authorities, is a bigger challange. Turkcell officials also state that this could possibly decrease future investments for Superonline depending on the price; nevertheless, they do not expect a major impact on the Co’s business plan. 

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