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BIST 2Q earnings review:  Banks set to post lower earnings, again

We publish equity research from trusted sources without comment to avoid any appareance of conflict of interest. Our 2Q coverage starts with YF Securities report.

BIST 2Q earnings review:  Banks set to post lower earnings, again

Corporates under our coverage to post 5% lower net income y/y in 2Q19

2Q19 earnings season will be kicking off next week with TAVHL, AKBNK and TTKOM (the deadline for consolidated financials is Aug 19th). We estimate the corporates under our coverage to post 5% y/y drop in net earnings. We expect Banks’ earnings to decrease by 36% y/y, while non-financials’ net earnings to increase by 25%.

Banks to report 17% q/q and 36% y/y drop in 2Q19; does it matter?

We expect resilient spreads, higher swap costs, trading losses versus quarterly drop in CoR to be the dominating trends for the quarter, resulting in another lacklustre set of results for the sector. During a period of macro volatility, we would give more importance to capital and liquidity positions, potential for growth (when and if it becomes viable) than quarterly profitability trends.

One exception is the asset quality, where we see significant pipeline risks building in the system, but we do not see an alarming trend in 2Q19 at this front. As such, banks’ short-term trading could be somewhat detached from quarterly results, unless the markets shift to a risk off scenario and sees the results as reason for profit taking.

GARAN and AKBNK valuation premiums relative to peers reflect their position of strength, and 2Q19 results are not likely to bring any significant changes to these well priced in views: both banks trade close to our target prices (TL10.3 and TL7.0). Although we have downgraded our recommendation for YKBNK to Market Perform last week on limited upside to our target price (TL3.10), we still find the valuation discount to peers as unjustified and think that a relative re-rating is likely in case we continue seeing a rally in banks.

In case of a benign, risk on scenario, HALKB might as well be the market’s next favourite, given the Bank’s sharper valuation discount (Target Price: TL9.10) and bigger positive impact of expected fall in TL funding costs on its 2H19 earnings (although a riskier call in case the expected rate cuts do not create the intended results in the mid-term, rendering repeat of  low ROE in 2020 as likely). VAKBN is  another key beneficiary of sharper than expected fall in TL funding costs, but its quarterly drop in 2Q19E net income over the already weak 1Q19 would still imply a risk to full year estimates, yet the Bank may still deliver consensus estimate by releasing general provisions (Target Price: TL6.30).


Non-financials: 8% y/y growth in EBITDA, while NI is up 25% y/y


We expect the non-financials under our coverage universe to report revenue growth of 22% supported by weak TL and high inflation. EBITDA growth is expected to remain at a modest pace of 8%, while net profits of non-financials are seen 25% higher y/y mainly driven by weak base (net losses in same period last year) in 3 stocks (TTKOM, ENKAI, OTKAR).

Among the non-financial companies under our coverage; we expect earnings performance to be strong in PETKM, KOZAL, PGSUS, OTKAR, BIMAS, TTKOM and ENKAI. On the other hand we expect to see weaker y/y earnings performance in TUPRS, EREGL, KRDMD, DOAS and TTRAK.



Y.F. Securities Research


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