We re-iterate our belief in the growth prospects of the Turkish Aviation sector. Other than the possible negative consequences of political tension in the region and a sudden surge in oil prices, we anticipate no major negative surprises in 2013e and foresee low teens double-digit total passenger growth next year. We cut our recommendation for Turkish Airlines by one notch to 'Accumulate' on valuation grounds, while we maintain our current recommendations for Celebi and Tav.


Growth continues in 2013


On top of the 15% CAGR recorded between 2003 and 2011, total air passenger traffic at Turkish Airports grew by 10.5% in 2012. We forecast low teens double-digit total passenger growth (i.e. 10.1%) in 2013e parallel to the sector's 2012 performance. We calculate 12% y/y growth for January 2013, in line with our expectations.


4Q12 Results


TAV outperformed market expectations at the bottom-line and posted quite successful operational figures in its 4Q12 results. We do not expect the same trend to be replicated for Turkish Airlines and Celebi as both companies will suffer from EUR appreciation in the last quarter and their slightly indicative tax financials imply weak results for IFRS financials.


Eyes are on the third airport tender


The long-awaited tender for the third airport in Istanbul will take place on May 3. All market players will closely be following the tender results as the tender will have quite important consequences. Any delay in the initially anticipated construction period will hit Turkish Airlines' growth projections, while TAV's possible win or failure in the tender will re-shape the future of the company.


Celebi - Welcoming a new partner


The on-going JV talks between the Celebioglu family and the Actera Group were finalized in the beginning of February. We calculate the implied transaction price at TRY26.8/share, which is 14% higher than our upward revised target share price of TRY23.6. A partnership with Actera will likely trigger new investments and strengthen the company's hand ahead of very important tenders (i.e. Frankfurt Ground Handling and Mumbai Cargo). Although any success in the upcoming tenders might also trigger rights issue concerns, which may put pressure on the share performance, we expect the long-term benefits of those to outweigh the short-term negatives.


Turkish Airlines - More than a rebound


In our initiation of coverage report dated one year ago, we already described 2012 as a rebound time for Turkish Airlines, but the company's performance was far better than our expectations, which also translated into an 184% surge in the share price in last 12 months. We re-iterate our rhetoric of "as long as demand is alive, the rest are of secondary importance" and the current demand outlook supports our positive stance about the company. We made slight revisions to our assumptions, but thanks mainly to a lower risk free rate and incorporating higher multiples-based valuation, we arrive at a higher target share price of TRY8.50 (previously TRY 6.35). Yet, we downgrade our 'Buy' recommendation by one notch to 'Accumulate' on valuation grounds.


TAV Airports - Maintaining our cautious stance


TAV received a formal letter from the State Airports Authority indicating that their losses due to the third airport would be compensated by the state. This development only partially cast aside our concerns as we still do not know how the losses will be calculated. We decided to maintain our cautious stance (i.e. through the incorporation of a higher risk premium) prior to seeing the outcome of the tender as the tender could be a game changer, but could also be a problematic one.

Source BNE