Turkish companies outlook: Strong demand and cost cutting reflects on YoY profits

Turkey coverage aggregate Q1 non-bank profit to grow 4x y-o-y, fall 2% q-o-q
We present our Q1 2021 earnings forecasts for the Turkish companies under our
coverage. For our non-bank coverage, our estimates point to y-o-y growth of 29% in
aggregate revenues, 79% in EBITDA and c4x in net profit. We expect a q-o-q decline
of 6% in revenues, 9% in EBITDA and 2% in profit. Despite a weaker TRY, strong
demand (both domestic and exports) along with cost-cutting under the COVID-19
effects are the main reasons for the y-o-y profit strength. One eye-catching exception
is aviation, which continues to be negatively impacted by the pandemics.
Earnings season for TR banks will start with Akbank results on 28 April.

Banks are likely to suffer heavy margin pressure from rising funding costs. We expect private banks’ NII to contract c35% QoQ, while state banks’ NII contract c.80%. In our view, banks are likely to borrow earnings from 2H21 to mitigate present margin pressures.
In that, they are likely to delay provisions to 2H21 and realise MtM gains on their
interest rate swap positions which could turn to losses in 2H21 once rates start to fall.
All in all, we expect private banks earnings to expand 25% QoQ and 21% YoY, while
those of state banks contract 29% QoQ and 67% YoY.

Among non-banks, we expect particularly stronger results from:
Autos (Doas, Ford Otosan, Tofas, Turk Traktor); retailers (BIM, Sok, Migros);
steel (Erdemir, Kardemir) as well as Arcelik, Aefes, CCI, Petkim, Sisecam, and
Tekfen The main drivers would be: strong pricing and demand (both local and
international) and ongoing cost control under the COVID-19 environment.
However, we expect relatively weaker y-o-y results from:

Aviation (Pegasus, TAV, Turkish Airlines) due to weak traffic/demand conditions
under the ongoing pandemics effects. Note that we expect TAV to report a
positive Q1 profit due solely to one-off debt restructuring income without which
the result is a noteworthy loss (detailed figures on the following page).
Earnings season will kick off on 26 April (Arcelik and Turk Traktor are the first of our
coverage to report) and last until 10 May. For banks, the earnings season will kick off
with Akbank on 28 April and last until 20 May.


Source: HSBC Global Research