Turkish Airlines - Ride the 3Q Strength

Since we took a bullish stance on the aviation sector and upgraded our recommendation on Turkish Airlines to BUY on May 23, the stock has gained 30% and outperformed the BIST 100 by 20% and the MSCI Europe Airlines Index by 10%. A sharp upturn in passenger traffic and solid y-o-y improvement in operating profitability were the main drivers behind the stellar performance. But, as the passenger traffic growth has exceeded our projections since then, particularly in 3Q17, and the outlook remains intact, we have raised our full-year total passenger volume growth forecast by 1.6 pp to 6.6% and load factor forecast by 0.5 pp to 78.3%. We have also taken into account the decrease in net debt recorded in 2Q17 on the back of the sale and leaseback of 10 aircraft. The result is a new target price of TRY11.85 per share (from TRY8.20 per share). Our new estimates point to a 2018E EV/EBITDA of 6.5, which is below the 7.0 average of its EM peers. Hence, we keep our positive view on the stock with a BUY recommendation.