Yatirim Finans Daily : MAVI 3Q results beats estimates

On the Market

MSCI Turkey outperformed the MSCI EM by 1.6% yesterday. BIST-100 gained 3.2%, closing at the level of 1,325 with a trading volume 3% lower than the last 5 days’ average. Banking index gained 4.3% and industrials index gained 2.8%. Interest rate on 2-year benchmark bond rate inched up to 14.50% (up 10bps) while 10-year bond rate inched up to 12.33% (up 7bps). TRY vs USD remained unchanged at 7.82 yesterday, while trading around the same level this morning. In terms of local dataflow, FX Assets and Liabilities of Non-Financial Companies (September) would be watched today. We expect slightly positive opening for Turkish equities.

Macro/Sector News

-Manufacturing PMI decreased from 53.9 in October to 51.4 in November.

-Retail prices in Istanbul increased by 1.94% in November.

-OECD revised Turkey’s economic growth estimate for 2020 upward.

-The CBRT opened a 3-month FX swap auction for USD1.5bn.

-The period of employment incentives has been extended.

Manufacturing PMI decreased from 53.9 in October to 51.4 in November.
There was no consensus available for the data. Manufacturing PMI decreased from 53.9 to 51.4. Accordingly, headline figure stayed at the expansionary side for the 6th month in a row but declined the slowest level since June when the expansion started. New wave
of the pandemic leaded to difficulties on supply chains, and deceleration on new orders and production facilities whereas inflationary pressures continued in a slower pace due to the recent gains in Lira currency. On the other hand, employment gains continued thanks to the elevated production volume in the previous months.

Retail prices in Istanbul increased by 1.94% in November. Istanbul Retail Price Index of Istanbul Chamber of Commerce, which is a leading indicator for the CPI, increased by 1.94% MoM in November (Oct.20: +2.45%, Nov.19: 0.45%). To recall, according to the outputs of the research prepared by Confederation of Turkish Trade Unions, the monthly food expenditure (limit of hunger) of a family composed of 4, to get a healthy, balanced and sufficient nutrition, increased to TRY2,516.67, up by 1.39% MoM (Oct.20: +1.41%, Nov.19: +2.16%, Median 2005-2019: +1.22%). Turkey’s CPI data of November would be announced on Thursday. According to the consensus, the CPI would increase by 1% MoM (YF: +1.2% YoY, Oct.20: 2.13%, Nov.19: 0.38%, 2003-2019 Average: +0.78%) and reach 12.6% YoY (YF: 12.8% YoY, Oct.20: 11.9%).

OECD revised Turkey’s economic growth estimate for 2020 upward. The Organization for Economic Co-operation and Development (OECD) announced its Economic Outlook report of December 2020. The main message of the report was “A brighter outlook but recovery will be gradual”. According to the OECD, faster vaccine deployment and better cooperation for its distribution would boost confidence and strengthen the pickup but continued uncertainty risks further weakness. Accordingly, the OECD expects that the global GDP decline by 4.2% in 2020 (Prior: -4.5%), before picking up 4.2% in 2021 (Prior: +5%).

Also, the OECD revised their economic growth estimates of Turkey. According to OECD, GDP is set to contract by 1.3% in 2020 (Prior: -2.9%, YF: +0.6%), and –absent renewed macroeconomic tensions –it is projected to grow by 2.9% in 2021 (Prior: +3.9%, YF: +3.8%) and 3.2% in 2022 (YF: +4.3%). “Improving the transparency and the coherence of monetary, fiscal, quasi-fiscal and financial policies would help improve domestic and international confidence. Reducing employment costs and promoting more flexible formal employment forms would boost job creation in the formal sector.” OECD said at the Turkey section of the report. The CBRT opened a 3-month FX swap auction for USD1.5bn. The total demand was 2.1 times higher than the total sale amount. The average swap point was 2756.97. Accordingly, 3-month forward USDTRY currency is 8.0649 whereas the implied interest in TRY basis is 14,39%. This rate was 14.35% at the last 3-month FX swap auction for USD1bn on November 27.

The period of employment incentives has been extended. To recall, it was announced that the application period of short work allowance support, for the firms that applied after December 1, is extended until December 31 yesterday. Today, the period of normalization support is extended until 30 June 2021, and incentives on additional employment and woman/young employment are extended until end of 2022.

MAVI: MAVI beats estimates on solid operational performance

Mavi Giyim announced TL78mn net income in 3Q20 (up 33% y/y) above the consensus estimate of TL39mn (YFe: TL40mn), on back of strong operational profitability. Net sales increased by 2% y/y and up by 54% q/q to TL827mn in 3Q20 (Consensus estimate: TL782mn; YFe: TL760mn). Both Turkey and international operations exceeded our estimates during the quarter. EBITDA fell by 6% y/y to TL196mn in 3Q20 versus the market consensus of TL159mn and YFe of TL150mn, with EBITDA margin decreasing by 2.2 pp y/y to 23.7%.

The company managed to keep its gross margin stable y/y, despite Covid-19 related volatility, which helped the beat at the EBITDA level. Meanwhile, the company’s net debt before lease liabilities came in at TL32mn in 3Q20, bringing the trailing 12m Net Debt/EBITDA ratio to 0.13x (vs. 0.34x in 2Q20). Despite strong results, the management remained cautious for the last quarter of the year. They believe that the recent restrictions in Turkey, especially curfews on weekends, may negatively affect the operations. That said, they did not change their guidance of 11% revenue contraction and 16% EBITDA margin for 2020 (9M20 18% revenue contraction and 16.9% EBITDA margin). The company would hold a teleconference today at 16:00 Istanbul time. We expect the market reaction to the results to be positive today.