Market Watch (Şeker Yatırım)

Market Watch - Wednesday, August 16, 2023
Outlook:
The BIST100 Index started Tuesday on a positive trend but followed a selling course thereafter. The Benchmark Index closed the day at 7,690.75, down 0.60%. International credit rating agency Moody's has upgraded the outlook of the Turkish banking sector from negative to 'stable.' The Banking Index diverged positively, up 1.70%, while the Industrial Index lost 0.36%. Since the financial statement period is about to end, there may be some corrections with occasional profit realization in the BIST-100, which has recorded a sharp rise of nearly 70% since the election, without any significant corrections. However, factors such as gradual normalization, the ongoing negative real interest rate policy, and ongoing foreign inflow despite momentum loss continue to support the BIST. For this reason, we think that the rising trend of the BIST100 will be maintained for the medium term by considering sharp pullbacks as a buying opportunity. In major global stock markets the messages of certain Fed members that interest rate hikes might continue increased pressure on risk appetite. The U.S. and European Stock Markets ended Tuesday with decreases, and this morning the U.S. futures are priced slightly positively, while German DAX futures are priced negatively. The VIX is above 16 pointing to increased selling pressure and volatility in the U.S. Stock Markets. In Asia, a selling trend is observed in general under the shadow of China-related concerns. The VIOP30 Index closed the evening session down 0.13%. Locally, we expect the Benchmark Index to start Wednesday with a positive trend. The fluctuating weak course will continue with rises presenting profit-taking opportunities. SUPPORT: 7,615 - 7,550 RESISTANCE: 7,766 - 7,878.
Money Market:
The Lira was negative yesterday, weakening 0.03% compared to the USD to close to 27.0591. In addition, the currency depreciated by 0.06% against the basket composed of $0.50 and €0.50. Meanwhile, the local fixed income markets were negative. The ten-year benchmark bond was traded within a range of 19.10%-19.28%, ending the day at a high of 19.28%, 35 bps above its previous closing.
Headlines:
In July, the central government budget posts a surplus of 48.6 billion TL and the primary balance a surplus of 86.3 billion TL, led by the rise in tax rates. The July cost of KKM to the treasury was 34.5 billion TL: According to the July central government budget data published by the Ministry of Treasury and Finance, budget revenues were 504.4 billion TL and budget expenditures were 455.8 billion TL. In the same period, non-interest budget expenditures were realized at 418.1 billion TL. In light of this data, the budget surplus was 48.6 billion TL, while the primary balance yielded a deficit of 86.3 billion TL. Due to the ongoing seasonal effects, no transfers were made for BOTAŞ in July. The treasury support paid to the KKM accounts transferred to the CBRT with the latest regulations amounted to 34.5 billion TL in July. The depreciation of the Turkish Lira over the past three months has been effective in this development. In the January-July period, the exchange rate difference payment made through the treasury was 59.5 billion TL. We expect negative pressure on the budget balance to continue, although the rest of the year will likely not deteriorate as rapidly as the January-July period. And although the increase in tax rates will recover tax revenues, we expect tight monetary policy to limit domestic VAT and SCT revenues by suppressing demand.
Budget expenditures increased by 74.7% on average compared to the same period of last year. While the highest proportional increase was experienced in capital transfers (455%) and interest expenses (130%), the greatest increase was experienced in personnel expenses (76 billion TL) and current transfers (51.5 billion TL). A sharp rise in personnel expenses, especially after the July hike in public employees' salaries was within expectations. The increase in current transfers shows that the earthquake effect and investments continue. The average annual increase in budget revenues is around 156%. The highest increase was observed in corporate tax (758%) and domestic VAT (438%). The sub-items that contributed most to budget revenues were VAT and SCT on imports (88 billion and 47 billion TL, respectively). Considering the periodic effect in corporate tax, the weak course of the budget performance will continue in the third quarter. We foresee the positive contribution of the rise in tax rates to the budget being limited by personnel expenses and current transfers. We underline here that tight monetary policy and coordinated fiscal policy should continue in order to achieve the fiscal discipline anchor. We anticipate that financial stability levels will be reached by 2025. For our detailed analysis, please click the link;
Sector News:
*** International credit rating agency Moody's has upgraded the outlook of the Turkish banking sector from negative to 'stable.'
It was stated that the steps taken to implement orthodox policies after the elections in May were supportive of the operating environment of Turkish banks.
It was also stated that the profitability level of banks is expected to decline to more normal levels from the peak levels in 2022, but is expected to remain strong despite all the change.
Following the record high profit increase of 364% in 2022, we foresee a normalization in the profitability of the banking sector in 2023 and model a slight increase in profits on an annual basis. We anticipate sector ROAE weakening and declining to 28.8% at the end of 2023 from 44.4% at YE22.
*** The BRSA has authorized the transfer of the 96.68234% stake of Adabank in the Savings Deposit Insurance Fund of Türkiye (SDIF) to AHL Ahlatcı Financial Management.
Company News:
Aksa Energy's (AKSEN.TI; OP) net profit rose 4% YoY to TRY 1,329mn in 2Q23 from TRY 1,283mn in 2Q22, beating the market average expectation of TRY 1,057mn and our TRY 1,142mn net profit estimate. The top line decreased by 59% YoY to TRY 5,214mn in 2Q23 from TRY 12,676mn in 2Q22 due to decreased spot electricity prices and the inefficient operation of the Antalya natural gas power plant. The top-line came in 6% below the market average estimate of TRY 5,521mn, and 7% below our TRY 5,580mn call. EBITDA declined 14% YoY to TRY 1,449mn (Seker: TRY 1,205mn; Cons: TRY 1,244mn). However, AKSEN's quarterly EBITDA margin rose by 14.5 pp YoY to 27.8% in 2Q23 due to decreased COGS. The net financial gain increased to TRY 712mn in 2Q23 from TRY 89mn in 2Q22, positively impacting the bottom-line. The net other gain realized at TRY 22mn in 2Q23 (vs. TRY 74mn in 2Q22). Financial debt printed at TRY 9.5bn in 1H23 (TRY 7.5 billion at YE22) with a net debt/EBITDA ratio of 1.51x. (1.17x in YE22).
Top-line down 59% YoY to TRY 5,214mn in 2Q23 -Spot electricity prices decreased by 56% Ytd to TRY 1.624/MWs. On the other hand, Aksa Energy's total electricity sales volume decreased by 63% YoY to 1,627 Gwh in 2Q23. Thus, net sales revenue declined due to decreased spot prices and electricity sales volume in 2Q23. Domestic sales revenue (incl. the Turkish Republic of Northern Cyprus) decreased by 67% YoY to TRY 3,805mn in 2Q23 from TRY 11,553mn in 2Q22, and foreign (African and Uzbekistan) sales revenue was up by 25% YoY to TRY 1,409mn in 2Q23 (from TRY 1,123mn in 2Q22). Domestic EBITDA declined by 33% to TRY 559mn in 2Q23 (from TRY 829mn in 2Q22), and foreign (African and Uzbekistan) EBITDA declined 20% to TRY 791mn in 2Q23 (TRY 984mn in 2Q22).
Considering the disclosed 2Q23 financials, we maintain "Outperform" with a 12M TP for Aksa Energy shares of TRY 50.00/shr., implying 18% upside potential.
Aselsan's (ASELS.TI; OP) net profit rose 47% YoY to TRY 3.146mn in 2Q23 from TRY 2.140mn in 2Q22, below the average consensus of TRY 4.426mn and our TRY 3.680mn net profit estimate. The top-line rose by 51% YoY to TRY 9.770mn in 2Q23 due to higher project deliveries and a strong dollar (Consensus: TRY 10.249mn, Seker: TRY 9.876mn). On the operational front, quarterly EBITDA was in line with the estimate. The 2Q23 EBITDA of TRY 2.487mn was up by 49% YoY (Cons: TRY 2.489mn, Seker: TRY 2.450mn) due to the increased top-line. The gross margin increased by 0.7pp YoY to 33.2% in 2Q23 on decreased COGS, while the EBITDA margin declined by 0.3pp to 25.5%. On the other hand, the net financial loss increased to TRY 3.023mn in 2Q23 from TRY 556mn in 2Q22, which negatively impacted the bottom-line, while the net other operating gain realized at TRY 4.711mn in 2Q23 (vs. TRY 1.383mn in 2Q22), supporting the bottom-line. The net debt position rose to TRY 13.857mn in 1H23 from TRY 6.394mn in 1Q23. Thus, Net debt/EBITDA slightly rose to 1.2x at 1H23 from 0.6x in 1Q23. Given the disclosed 2Q23 financials, we maintain Outperform and our new TP of TRY 95.00/share, implying 20% upside potential. We note that ASELS shares have risen 27%, also underperforming the BIST-100 index by 8.9% since the start of 2023.
Backlog at USD 8.394mn as of 1H23 (8.16bn in 1Q23). Concerning publicly-disclosed projects, the company undertook around USD 776mn in new projects in 2Q23 (USD 1,159mn in 1H23). The backlogs consist of 94% defense and 6% non-defense. As of 1H23, 45% of contracts in the backlog are denominated in USD, 35% Euro and 20% in TRY.
The Net sales revenue expectation is revised upwards while the EBITDA margin expectation for 2023 is maintained - Aselsan expects net sales revenue growth of >65% in TRY terms (before >40%), and an EBITDA margin at >24% (no change) for YE23. The Company budgets TRY 10.0bn (no change) capex for 2023.
Selcuk Ecza Deposu's (SELEC.TI; MP) net profit rose 2% YoY to TRY 379mn in 2Q23 from TRY 371mn in 2Q22, below the average consensus of TRY 489mn and our estimate of a TRY 520mn net profit. Deviation from the estimates stemmed mainly from a lower than expected top-line and EBITDA. Also, the company recorded a net financial loss of TRY 161mn in 2Q23 (vs. a net financial loss of TRY 16mn in 2Q22) with interest expenses, which negatively impacted the bottom-line. Net sales revenue rose 75% YoY to TRY 17,586mn in 2Q23 on higher drug prices. The top-line came in 4% below the market average estimate of TRY 18.407mn, and 5% below our TRY 18,490mn call. Recall that the EUR/TRY reference rate for drug prices was updated three times in the past year, while Turkish drug prices rose by 123% YoY (25% in July 22 - 37% in Dec 22 and 30.5% in July 23). Pharmaceutical sector growth rose by 90% YoY to TRY 69.4bn in 2Q23 (TRY 138.4bn). Selcuk Ecza's market share in TRY terms fell slightly to 38.54% in 1H23 from 39.07% in 1Q23 (39.17% in YE22). EBITDA came in at TRY 378mn, down 17% YoY (Seker: TRY 620mn, Cons: TRY 572mn) due to increased COGS. Also, the gross margin decreased to 6.2% in 2Q23 from 8.8% in 2Q22 while the EBITDA margin declined to 2.2% in 2Q23 from 4.5% in 2Q22 on higher COGS. The Company generated TRY 216mn from net investment activities (interest gain) in 2Q23 (vs. TRY 36mn in 2Q22) and a net other gain of TRY 69mn 2Q23 (TRY 29mn in 1Q22) positively affecting the bottom-line. We expect the increase in drug prices to have a positive reflection on SELEC's top-line for the rest of year. However, we may see a 'negative' market reaction today, since the 2Q23 bottom-line and EBITDA are below market expectations. Our new target price of TRY 56.50 /shr. offers 6% upside potential. Thus, we change our recommendation to Market Perform from Outperform on the lack of upside potential.


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