Turkish aviation by RenCap: THY, PGSUS and TAV

06:0511 January 2019
Turkish aviation by RenCap: THY, PGSUS and TAV

Turkey is likely to post a record number of foreign tourists flow of over 40mn in 2018. The Ministry of Culture and Tourism has set a goal to attract 70mn tourists by 2023 and a new road map is being worked out with a focus on drawing tourists from the Far East (e.g. China, Japan and South Korea).

A weak TRY supports the aforementioned goals; however, high inflation negatively affects domestic consumer spending and domestic travel in Turkey with airlines redirecting capacity to international destinations where FX yields are below their 2011-2013 levels.

November passenger traffic seems to demonstrate that PGSUS is more vulnerable to a slowdown in domestic consumer spending in Turkey, with a sharper contraction in domestic traffic and also with weaker dynamics of international PLFs as a result of fast capacity relocation to international routes. We think that PGSUS’s weaker performance can be explained by its low-cost nature and less affluent clientele who are more sensitive to a macro downturn, compared with THY which operates in the premium segment. Confirming, THY delivered a much more balanced performance with international traffic more than offsetting a shortfall in domestic travel – a trend we expect to continue in 2019.


We retain our financial forecasts for THY as per our recent report: Turkey: Turkish air – Slowdown but over-discounted – but make downward adjustments for PGSUS although these are also not dramatic as we believe part of PGSUS’s issue was a rapid switch between domestic and international capacity. Our estimates for TAV are unchanged (as per our latest report Turkey: TAV Havalimanlari Holding AS – Ataturk gone but TAV still strong) although the prolongation of operations in Ataturk to the beginning of March 2019, as suggested by Bloomberg, is a plus.

Depending on one’s outlook for the TRY/$ exchange rate, one can make a case for owning PGSUS (long TRY and short FX) or THY and/or TAV (both significantly long FX and short TRY). However, the TRY/$ exchange rate over the period from 2001-2017 depreciated on average by 10% pa and thus the THY/TAV investment case is a safer one over longer periods, in our view. Moreover, we have argued many times that the correct way of valuing these two companies is in the prevailing FX currency – USD for THY and EUR for TAV – and translating the resultant value into TRY. Applying such argumentation suggests sizeable upside for both stocks. While TAV is oil price neutral, THY can benefit from a more benign outlook for oil price changes in 2019. Hence our preference for both THY and TAV for 2019.

We maintain our financial forecasts, ratings and TPs for THY (BUY, TP TRY25/share) and TAV (BUY, TP TRY39.5/share) and decrease financials slightly for PGSUS with a lower TP of TRY32.5/share (from TRY37.1/share) and retain our BUY rating.



Excerpt from RenCap research report  Transportation: 2019 outlook

To go by air, sea, road or rail?

Modified Time: 06:0511 January 2019
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