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Year-end earnings nothing to write home about

Corporates under our coverage to post 21% lower net income y/y in 4Q19 4Q19 earnings season will be kicking off…

Year-end earnings nothing to write home about

Corporates under our coverage to post 21% lower net income y/y in 4Q19

4Q19 earnings season will be kicking off this week with GARAN and AKBNK (the deadline for consolidated financials is March 10). We estimate the corporates under our coverage to post 21% y/y decrease in net earnings. We expect Banks’ earnings to decrease by 2% y/y, while non-financials’ net earnings are expected to be down by 28% y/y.

4Q19 results not a catalyst for Turkish banks -except HALKB and VAKBN

Although we expect 30% average q/q net income increase from the low base in 3Q19, this is driven by HALKB (149%) and VAKBN (96%), which underpin the higher positive impact of lower TL funding costs and the more favourable base effect for the state banks. Private bank earnings would drop by 30%, led by the sharp drop in YKBNK (-87%) due to hefty provision expenses that reflect a clean-up of the Bank’s NPL pipeline. Average ROE would be 9%, suggesting the market focus remains on the profitability improvement outlook this year on the back of positive NIM progression and lower cost of risk.

We expect a 48% net income growth this year, 7% below the consensus, due to more conservative NIM (risks around inflation and policy rate in 2H20) and NPL estimates (risks around potential spill over from restructured loans in 2018-2019). Instead of the quarterly earnings, we maintain that further re-rating of the Banks depends on stronger market conviction on the benign macro scenario for this year: outlined by 8.5% year-end inflation, 9.0% policy rate and USD/TRY of 6.4.

Non-financials: 3% y/y contraction in EBITDA, while NI is down 28% y/y

We estimate the non-financials under our coverage universe to report mild revenue growth rate of 5% y/y (mainly due to weak top line figures in commodity related stocks like EREGL and TUPRS). EBITDA growth is also expected to be similarly weak at -3%, while net profits of non-financials are seen 28% lower y/y due to FX losses this quarter (as opposed to strong FX gains in same period last year).

Among the companies under our coverage; we expect earnings performance to be strong in KOZAL, TAVHL, OZKGY, PGSUS, DOAS, MPARK. On the other hand we expect to see weak earnings performance in TUPRS, EREGL, KRDMD and MGROS.

 

By Yatirim Finansman investment house

 

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