International investment bank HSBC has released a new update for Turkish aviation sector shares and raised their target prices!
Noting the positive effect of high demand, low costs and rising exchange rates, HSBC stated that it made a purchase recommendation for all aviation shares, while underlining that it expects target prices to be higher in the current situation.
Here are the highlights from the HSBC report:
Strong demand and price environment, combined with lower fuel prices, could support earnings growth from 2Q23.
Regional capacity expansion and the fuel component may limit returns from 2H23, but overall the outlook for 2023 remains positive.
We revise all forecast prices upwards and keep their buy recommendations as they have positive currency positions.
The aviation industry is entering its peak period in good shape.
Especially promising for international traffic, the outlook for summer traffic and strong pricing and the downward trend in oil and jet fuel prices continue to present an attractive investment opportunity for the aviation industry. Fuel bill relief can provide a buffer against rising non-fuel unit costs from inflation and wage adjustments. Challenges include pressure on pricing and returns in 2H23 due to fuel and competitive capacity, and a high base effect for last year’s 2H23. The depreciation of the TL could benefit the three companies we cover from a stronger tourism season as well as foreign currency revenue structures.
Forecast and currency revisions bring higher target prices; We keep buying recommendations.
PGSUS stock review
The airline continues to see a positive trend in bookings going forward into the summer months, with stronger occupancy factors on a yearly basis, especially on the international side. The continued international orientation in the passenger mix suggests higher revenue growth through the price impact and the ancillary income contribution.
Target price for Pegasus: 773.40 TL
THYAO share comment:
The continued strong situation in passenger volume and returns provides a strong buffer against falling cargo prices. 1Q23 results were impressive considering the USD190m earthquake impact. We expect TA to deliver stronger profitability from 2Q23 as this impact largely lags behind, cargo yields stabilize, passenger volumes increase, yields are preserved and lower fuel impact kicks in.
Target price for THY: 223.50 TL
TAVHL stock comment:
The airport portfolio is mostly focused on tourism and should benefit from accelerating Turkish lira weakness before the summer period. This year, we expect TAV to exceed 2019 passenger numbers and benefit from a balanced traffic mix aimed at the more profitable international side.
Overall, we are increasing TPs and maintaining our Buy recommendations, as indicated in the table below. We evaluate stocks as attractive according to 2023 forecast multipliers and highlight positive currency positions.
Target price for TAV Airports: 131.60 TL
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