Buy - Sell

November Foreign transactions => Net inflow @$426m (Inflow @ $6.1b Outflow @ $5.7b). YTD total net inflow is $3b. Major Inflows: HALKB, THYAO, TUPRS, YKBNK, EKGYO,

Major Outlows: ISCTR, TTKOM, AKBNK, TCELL, GARAN.

 

CEMENT SECTOR > Mustafa Guclu, the president of Turkish Cement Manufacturers’ Association, stated that they expect the current 65m tpa clinker capacity in Turkey to reach 90m tpa in 2015 => a 38% incr. We est that such an incr could drive the capacity utilization rate of the sector to 71% from 80% in 2012. Nevertheless, our sector contacts do not expect some of these investments to be realized and we think that 80m tpa clinker capacity by 2015 (76% CUR) is a more realistic number. We exp 2014 to be particularly challenging for cement producers operating in the east of Mediterranean region (Cimsa, Adana) <= we f/cast 6m tpa new capacity investment to be realized => could decr CUR of the region to ca. 70% in our est.

 

VAKBN (BUY; TP TL5.33) > Obtained additional $400m subordinated debt with 10-yr maturity & cost of 5.5% => in line with YKB’s recent issue & 50bp lower than VAKBN’s first issue it had obtained end-Oct ($500m). Total $900m sub-debts will add 1.6% to its b/s in 4Q12 & contribute c.170bp to CAR (13.7% @ 3Q12), bringing bank's CAR to a comfortable 15.3% (ceteris paribus).

 

TSKB (BUY; TP TL2.42) > Obtained loans totalling $225m, $125m from KfW & $100m from IDB => add 6% to bank's borrowings & 4% to its B/S => both Treasury-guaranteed & will be deployed into renewable energy & energy efficiency investment projects.

 

FROTO (HOLD; TP TL18.80) > According to Haberturk newspaper, Ford Otosan’s request for contract to purchase natural gas from BOTAS (state owned NG importer) in 2013 was declined. We guess the development is driven by the transfer of a portion of BOTAS’ import contracts from Russia to private sector (a portion of demand needs to be supplied by the private sector). For now, we do not expect the development to have a major impact on Ford Otosan’s supply chain.

 

Turkey Market Outlook > We reduce our COE assumption by 50bp to 12.5% => cut our long term risk free rates by 50bp to 8% for TL and to 5% for FX while sticking to the 4.5% equity risk premium => resulting in an avg. 4% upward revision in our TPs. TL bond yields down 120bp m-m => The downtrend gained pace, particularly after the Fitch upgrade to investment grade in early Nov. Both the most liquid 2014 benchmark and the 2022 bond yields are down 120bp m-m => necessitated a downward revision in our COE assumptions. Accordingly => 12% one-year fwd looking upside and 83k index target; we now have 13% upside for banks & 10% for non-financials. Total upside for our coverage is 12%. Rates bottoming out => The benchmark TL bond yield has plunged to its all-time low level, at 5.8%, => well below the 6.64% 12-m fwd looking inflation exp based on the CBT survey. We think that rates have now bottomed out following the vast 5ppt YTD decline and that current rates barely compensate for potential risks from exchange rate swings that may stem from geopolitical issues or global liquidity conditions. To partially account for such risks we prefer to limit the downward revision to our long-term RfR to 50bps, half the m-m slide in bond yields.