Earnings Review / Turkish Airlines (THYAO TI) - No major surprise in 3Q18: Maintain Buy
Turkish Airlines reported a net income of TRY4b in 3Q18, slightly lower than our estimate of TRY4.3b but in line with RT consensus of TRY4.1b. The divergence originated from slightly lower-than-expected operating profitability. 3Q18 EBITDA of TRY6.5b came roughly in line with our estimate of TRY6.8b and RT consensus of TRY6.7b. Despite a sharp increase in fuel expenses, Turkish Airlines posted healthy results in 3Q18, backed by solid yield growth.
We raise our 18-20E EPS 106%/53%/42% on higher unit revenues and our updated macro forecasts, but cut 12M TP (based on DCF and target EV/EBITDAR) by 9% to TRY19.16, on higher jet fuel cost following the change in crude oil pricing dynamics. The stock trades at 5.4x 2019E EV/EBITDAR, a 4% premium to its emerging market peers. We still believe Turkish Airlines deserves to trade at a premium due to its superior cost structure and its appealing growth prospects. Despite solid cash generation, we believe that the appetite for the stock will be curbed by its non-core inorganic growth prospects (i.e. potential acquisition of Sabiha Gokcen Airport).
Turk Hava Yollari is engaged in the airline industry with the airline flying to 103 destinations, throughout Turkey and internationally. As of the year end, Co. maintains 66 aircrafts with a total seat capacity of 10,672, and leases a A300-200 cargo aircraft. Co. has various services for their customers which include: various ways of checking in and on-line ticket sales.
TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.
With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.
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