Daily Bulletin - Thu, Sep 3, 2015‏

Yesterday was a disappointing day for TRY investors carrying long positions. On a day, when Moody’s stated base case for Turkey is keeping investment grade rating, TRY-denominated assets could not rally.  Moody’s commentary could not even sustain a 5-minute short-covering rally in BIST. BIST closed the day flat, TRY basket and yields were higher.

 

·    Rising geopolitical risks (kidnappings in Baghdad + PKK terrorism), Koza Ipek Holding investigations and overall EM weakness may be perceived as the main reasons.

 

·    Turkey’s risk premium, 5-year CDS rose 8.1% in 2 trading days = worst performance in EM.

 

·    This morning, we expect a slightly higher opening for BIST equities just based on S&P500 close from last night. TRY basket is trading @ 5-day highs at 3.13 and traded above 3.14 yesterday despite positive Moody’s commentary.

 

·     August CPI print will be released at 8:00am London time – consensus = 0.11%. Expect tight range trading until U.S August NFP tomorrow.  

  

·     BIST100 short-term technicals:

• TRY : Support = 72.8k / 72.0k ; Resistance : 74.5k / 75.3k ; Last trade : 73.7k
• USD : Support = $24.8k / $24.5k ; Resistance : $25.2k (10-dma) / $25.9k ; Last trade : $25.0k

 

AL BARAKA TURK - Strong profitability continues: BUY

Profit estimates and target price revised up
We increase our net profit forecast for 2012 by 7% and 2013 by 12%, driven mainly by higher net interest income and lower provision estimates. We also raise our DDM-based target price by 17% to TRY1.82/share from TRY1.56/share, on higher medium-term profitability assumptions.

3Q12 net profit beats estimates on stronger than forecast NII
Al Baraka reported TRY63m net profit in 3Q12, 27% above our TRY50m estimate and 28% higher than CNBC-e consensus, for a 22% ROE. Stronger than expected NII on proceeds from JV projects caused the beat while lower than forecast provisions were partly offset by lower other operating income. Other P&L items were in-line with our estimates.

Reiterate BUY on attractive valuation with healthy upside to TP
The bank is trading at the lowest P/E multiples among our Turkish banks coverage which we think is undeserved. Key downside risk to our call is a substantial contraction in economic activity with increasing unemployment, and particularly problems in the construction sector which would hit the bank harder than peers.

Risks are to the upside on our 17% ROE estimate for FY13
Growth was in line with our expectations as loans and deposits grew 3% and 5%, respectively q-q. Meanwhile, adjusted NIM came in 50bp higher than our expectation at 5.2%, with the deviation primarily stemming from higher-than-expected proceeds from JV projects. We think these could represent continued upside to our net profit estimates for the next couple of years. Slight pick-up in NPL inflows caused a 9bp rise in the NPL ratio to 2.2% where the asset quality deterioration remained below sector averages. Still, due to lower collections net CoR increased to 35bp, just above our 27bp forecast. CAR improved to 12.5% after Basel-II where sukuk investments in 4Q12 could further alleviate the pressure.

Beware of short-term profit taking risk. Prefer ISCTR, TSKB and ALBRK

Beware of short-term profit taking, yet we still see value

Turkish banks have enjoyed a very strong rally that led to 20% nominal gain since May-end. Their PE discount to EM banks were 7% back in May and now they are trading at a premium. The CBT's dovish stance amid fears of global recession, strong foreign inflow in the bond market and less restrictive Basel II implementation were all acted as key triggers. Penciling in lower risk free rate assumptions (down from 9.5% to 8.5% in TL terms) and better loan growth prospects, we increase our price targets for the banking stocks by around 14%. We now see on average 19% return potential for the banks. We expect 7% earnings growth this year and 13% next year.