Peel the Onion, without Boiling the Ocean, and without Bringing Tears to the Eye!
As we announced on our Twitter account last week, as a result of your feedback and our analysis of the data, we decided to separate our macro and markets posts. This is our first separate markets post, and welcome again. Those who follow the markets closely are familiar with the fact that the participants are exposed to “the heavy bombardment” of the flow of data and news every week. Here, our aim is to take a step back and give some valuable insights about the Turkish sectors and companies that deserve further attention (positively, or negatively). Sometimes, we will give info about the latest data releases with further insights about them. Sometimes, we will analyze the company by diving into its financials deeply. Those who work as analysts professionally know very well that you cannot always create a very good story/argument on every subject and company, but you can show the outlook and direction in a structured manner. It is helpful. Our motto is to peel the onion, without boiling the ocean, and without bringing tears to the eye (as in the actual onion peeling process). Enough metaphors. Let’s get started.
Chemicals Overtook in 2022
Turkish Exporters Assembly (TİM) has published the export data for September. We organized this data to see the evolution of exports in key sectors. In September, the sectors of fruit and vegetable products, chemicals, and leather products increased their exports in dollar terms strongly.
1) Fruit and Vegetable Products: Canned products contributed to headline growth the most (+58% YoY) in that category. We think that the data is a positive leading indicator for the tomato paste exporters such as TATGD and TUKAS.
2) Chemicals: While the largest sectors have experienced a significant contraction this year, chemicals have posted strong growth. Compared to the first nine monthsa of 2021, the share of chemicals in total export increased by 224 bps YoY to 13.6% this year, and it obtained the highest sectoral share. In 9M22, the share of the large categories such as textile, ready-to-wear, electronics, steel, and automotive industries declined YoY. The products are too diversified in the chemicals sector. In September, the sub-sector showing the strongest YoY growth became mineral oils (+104%). One example of mineral oil is paraffin. Mercan Kimya (MERCN) is one of the largest producers of paraffin. It is impossible to break down the mineral oil exports into different products with the current data. So, we do not know the share of paraffin in the total. Therefore, do not jump to the conclusion for Mercan Kimya but be aware of that info.
3) Leather and Leather Products: The increase in the sub-category of leather shoes caused a considerable upside in the headline figure. Again, be aware that DESA is one of the largest producers of leather products.
Steel exports drastically declined amid rising production costs and weak demand. In addition, the textile and ready-to-wear industries are struggling. Electronics seem to be moving toward the danger zone. In the province of Manisa, electronics exports decreased by 6.2% YoY in dollar terms. This data is the leading indicator for Vestel Beyaz Esya (VESBE), one of the largest white goods producers in the country (the company’s export constitutes around half of the city’s total electronics export). The declining disposable income situation in Turkey poses a threat to durable goods in general, at least until the end of the year when the expected minimum (and otherwise) wage hikes will undoubtedly help.
Telco Seems Promising
The Central Bank of the Republic of Turkey publishes the debit card and credit card expenditure data weekly. This data provides important insights and clues about the sectoral dynamics. We can see the consumption patterns on a weekly basis. Superb!
We can either calculate inflation-adjusted changes or look at things in dollar terms, and we choose the latter.
Disclaimer: The debit card and credit card penetration rates were quite lower in the pre-pandemic period, compared to today and cash usage was considerably higher. The pandemic, however, changed everything and caused an explosion in cashless payments, we think that the data in 2021 and 2022 are reliable in terms of the correlation between this and the overall economic activity.
As you can see easily, the telecommunications sector is getting stronger recently. Its positive momentum is obvious. The strong annual change in the last 4 weeks signals that something positive can happen in the sector. Petrol stations, accommodation, and insurance have also posted strong growth. The fuel price hikes affected the expenditure on petrol stations. Accommodation is clearly powered by positive tourism dynamics. Insurance expenditures probably increased due to the surging demand for health insurance policies in the post-pandemic period. Our focus will be on telecommunications today.
The price hikes in the telecommunications sector are lagging because of long-term contract-based pricing. Evidently, the communication sub-category is at the bottom end of the CPI basket YoY. However, it increased strongly last month. After the expiration of current contracts of telecom companies with their clients, it is no doubt that the prices will increase further. We presume that the credit card and debit card data show this happening. The last increase will further reinforce the positive sectoral outlook. We expect the average revenue per user (ARPU) to rise in the next quarters. We should note that long-term contract-based pricing is likely to be beneficial for the companies for the rest of the year because even if the CPI decreases with the base effect, cumulative inflation that is not reflected now will give room for telecom companies. This can bring above-inflation ARPU growth in 2023.
The data overall seems positive for telecom companies (TCELL, and TTKOM).
Export Data Favors YUNSA again
The table above shows the total woolen woven fabric export of Turkey, announced by the Istanbul Textile and Raw Materials Exporters' Association (İTHİB) every month. Accordingly, Turkey’s woolen woven fabric export increased by 62% in dollar terms on an annual basis in September. This is a positive signal for YUNSA. The company makes a significant part of this export.
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