Buy - Sell

·         TREASURY AUCTIONS > Treasury borrowed TRY5.2bn from mkt yesterday through 5y fixed-coupon and 10y CPI-linker bonds. Will issue 10y and 2y fixed coupon bonds today. Aims to borrow TRY 10.1bn from the mkt this month, including 12m bond auction next week. This means that even a limited TRY 3bn sale in the auctions would be enough. CBT’s corridor hike signal seem to have eased further TRY depreciation. As a result, 2y bond yield declined by 18bps to 8.95% and 10y yield by 36bps to 9.0%, with some flattening bias on tightening signals.

·         TURKISH BANKS - 2Q13 EARNINGS PREVIEW > 2Q13 earnings season expected to start July 25. We expect the banks to contract 9% q-q. Key items => 1) rise in general provisioning exp due to strong loan growth of over 10% q-q, 2) melt down in m-t-m gains lowering equity due to rise in rates, 3) pull back in CARs by around 150bp for our coverage due to strong loan growth and decline in m-t-m gains, and 4) some pressure on NIM due to slight deterioration in L/D spread and lower on CPI linkers yield due to seasonality.

·         TKFEN (BUY, TP TL7.7) TO PARTICIPATE IN TOROS TARIM CAPITAL INCREASE > Decided to participate in the paid-in capital increase of its 99.98% subsidiary Toros Agriculture from TL430.5m to TL530.5m and to facilitate resources as advance paid-in capital. Accordingly, there will be TL99.98m cash outflow from TEKFN.   

·         KRDMD (BUY, TP TL1.38) TRAIN WHEEL PRODUCTION AGREEMENT > Signed prelim agreement with foreign firm for 200k-a-year train wheel production project. KRDMD expects final agreement in about two weeks and project is expected to be completed in 32 months. No further details given but GM had reportedly put the cost @ $130m earlier. Comment: First concrete step taken in expanding high margin railway components business. But project’s LT nature and uncertain prospects in terms of capacity utilisation make us wary about contribution to cos’ valuation. Despite significant long-term growth potential in TR’s railway industry and gov’t attempts to liberalize the sector, competition is likely to remain strong given established int’l producers and another TR state-owned co said to be working on 100k train wheel production facility by 2017.

·         EREGL (BUY, TP TL2.53) STRIKE AT ISKENDERUN PLANT> Started yesterday, as co could not agree with the union asking for 51% wages increase for workers at the plant. According to other sources, production at the plant, which accounts for c60% of EREGL’s liquid steel capacity, have stopped at this time. Of c5,500 people working at the plant, c4,000 are said to be union members. Comment: Collective bargaining process at EREGL’s Iskenderun plant has been causing challenges for the co than we had initially expected. Every 10% increase in wages of Iskenderun employees (including those not unionized) in addition to our existing forecasts would cause, a 2% to 3% decline in EBITDA (everything else being equal). The strike, if continued more than a week, could also create downside risks for our 2013 volume forecasts depending on its duration.

teb ytr