TRANSPORT & INFRA. : Turkish Airport monthly passenger data

Research evidence excerpt

TRANSPORT & INFRA. : Turkish Airport monthly passenger data

Investment case, valuation and risks

Pegasus Hava Tasimaciligi (Neutral, Target Price TRY251)

Investment case

Pegasus Airlines, mainly a scheduled air travel company, is Türkiye's second-largest

airline and the largest low-cost carrier (LCC). It has a fleet of 118 aircraft as of 2024.

We rate Pegasus as Neutral given balanced risk/reward profile. We expect near-term

earnings momentum to wane, related to elevated ex-fuel costs in the midst of high

inflationary macro and moderate unit revenue outlook. We believe the current risk-

reward profile is unappealing. Pegasus Airlines is a low-cost carrier with a highly

competitive cost structure and an experienced management team. In our view,

Pegasus' other main advantages over Turkish Airlines, to a degree, its main competitor,

are its low prices and costs, supporting the company's strong growth prospects.

Valuation methodology

We use the EV/EBITDA(R) multiple methodology. We value Pegasus using a target

2026E EV/EBITDA(R) of 5.75x. We expect Pegasus to sustain its solid growth pattern

with modest margin erosion. The stock trades at 5.7x EV/EBITDA(R), implying a 33%

discount to emerging peers. We prefer not to rely on DCF analysis due to the high

volatility of the aviation business.

Risks

To the upside:

Key upside risks include: 1) stronger-than-expected aviation demand, especially for

international flights; 2) lower-than-expected crude-oil prices; 3) stronger-than-expected

passenger yields and ancillary revenues; and 4) softer-than-expected competitive

environment at its main hub - Istanbul Sabiha Gokcen Airport.

To the downside:

Key downside risks include: 1) weaker-than-expected aviation demand, especially for