News

Turkey has been wracked with anti-government demonstrations over the past several days. The unrest began on 31 May 2013 (Friday) when the Turkish government started the demolition of Istanbul’s Taksim Square (to be replaced with a shopping mall).

Riots and demonstrations have since widened to other major cities with two death tolls and hundreds injured in a show of defiance against the ruling party (Justice and Development Party).

Malaysia’s Ministry of Foreign Affairs had issued an advisory on Turkey’s situation on 4 June, saying that travelling to the affected areas should be postponed or avoided.

Turkey’s stock market tumbled, with BIST National 100 Index dropped 10.5% on 3 June (Monday). The main share index recovered by +4.9% on the subsequent trading day.

Comments

Trade between Malaysia and Turkey has been historically insignificant. In 2012, Malaysia’s exports to Turkey only amounted to RM2.5bn or 0.4% of Malaysia’s total exports. Main exports to Turkey include textile yarns & fabrics, synthetic fibres, natural rubber and CPO. As such, ongoing riot in Turkey is expected to have minimal impact on Malaysia’s trade performance.

On the stock market, our screening shows that only two companies under our coverage have exposure or operation in Turkey:

IHH: Exposure in Turkey through its 60%-owned Acibadem which contributes 40%, 36% and 17% to the group’s revenue, EBITDA and PATMI respectively. Acibadem has 18 hospitals (including 3 under development) and 12 medical centres in Turkey. The political unrest may have a mixed impact on Acibadem’s business. Injuries as a result of violent protests may increase the volume of inpatient admissions and average revenue per inpatient admission, but we think that the figure is not significant to move the needle. On the contrary, we are more concern of the impact towards its operations, including employee absentees, medical supplies, logistics and other routines. Furthermore, prolonged riot may further delay the construction projects and subsequently impact on IHH’s growth plan. Maintain HOLD call with unchanged TP of RM3.53.

MAHB: The airport operator owns 20% stake in Sabiha Gokcen Airport (SGIA), the second international airport in Turkey (after Atartuk Airport). Currently, SGIA is still making losses due to high interest expense and amortization expenses over the concessionaire. MAHB has stop recognizing contribution from the associate, as the accumulated losses was higher than MAHB’s capital investment into the airport. We are valuing MAHB based on Discounted Cash Flow method solely on its Malaysia operation, and zero contribution from SGIA. Maintain BUY call with unchanged TP of RM6.80.

Source: Hong Leong Investment Bank Research- 6 Jun 2013