Earnings Review 20.Aug.14 Turk Hava Yolları Outperform Stronger than expected operating performance… (maintained) Stake (%) 49.1% 50.9% Share Price USD TRY Upside Potential Price Data (TRY) BIST-100 Share Price Absolute Relativ e Current 2.98 6.44 Target 4.04 8.75 36% 18.07.14 16.05.14 19.08.13 1M 82,315 6.63 -3% 1% 3M 75,009 6.89 -7% -12% 12M 72,383 8.40 -23% -30% Price Chart (TRY) 10.0 1.5 1.0 5.0 0.5 Price (TRY) 2Q14 2Q13 YoY chg 1Q14 Revenues 6,139 4,611 33% 5,128 20% 11,266 8,199 Gross profit 1,223 1,032 18% 509 140% 1,738 1,470 18% 438 447 -2% -226 -294% 212 363 -42% EBIT QoQ chg 2014/6M 2013/6M YoY chg 37% EBITDA 831 737 13% 157 429% 988 945 5% Net Fin. Inc -127 -234 -46% -130 -2% -256 -230 11% Net profit 398 144 177% -226 -276% 172 121 42% Net debt Key metrics 10,741 2Q14 8,205 2Q13 31% YoY chg 10,927 1Q14 -2% QoQ chg Gross margin 19.9% 22.4% -2.46 9.9% 9.99 15.4% 17.9% -2.51 EBITDA margin 13.5% 16.0% -2.45 3.1% 10.47 8.8% 11.5% -2.76 Net margin 6.5% 3.1% 3.37 -4.4% 10.90 1.5% 1.5% 0.05 Source: Company 10,741 8,205 2014/6M 2013/6M 31% YoY chg Kenan Turan [email protected] Tel: 90 212 334 9858 J-14 A-14 J-14 A-14 Relative to BI ST (RHS) All in all; Turk Hava Yolları continued its strong top-line growth and posted better than estimated operating performance in 2Q14. Although, pax growth seems to stay behind the management target for 2014, easing contraction in yields signals a better outlook for the coming quarters. Key financials (TRYmn) M-14 M-14 J-14 F-14 0.0 D-13 0.0 N-13 EBITDA came above estimates… Turk Hava Yolları reported TRY831mn EBITDA for 2Q14, down 13% y/y, above our estimate (TRY635mn) and Cnbc-e consensus (TRY730mn). EBITDA margin came as 13.5% for the quarter (3.1% in 1Q14), denoting a 245 bps decrease compared to same period of last year due to contracting in average yields (in USD terms) and higher wet lease, fuel and non-fuel expenses. Especially intense new destination addition for the last 12 months and seat capacity expansion (17% y/y in 2Q14) pressured the margins for the quarter. TRY1,065mn EBITDAR also came above our estimates; denoting 17.5% EBITDAR margin for 2Q14 (19.4% in 2Q13). Ownership Priv atization Administration Free Float S-13 Top-line growth is still quite strong… Turk Hava Yolları reported TRY6.1bn revenues in 2Q14 on the back of strong passenger growth and TRY depreciation, broadly in line with our estimate (TRY6.0bn) and Cnbc-e consensus (TRY5.98bn). Yields continued to decline in $ terms (-2.5% y/y) while depreciation of TRY contributed to top-line growth. For 2Q14, revenues from passengers were up 32% y/y while cargo revenues grew by 28% y/y (contributing only 9% of consolidated top-line). 19.08.14 Airlines THYAO TI THYAO.IS 19,628 8,887 50% 1,380 119.5 79,276 O-13 Pax growth is behind the guidance… Turk Hava Yolları’s passenger growth slowed to 14% y/y in 2Q14 from 20% y/y in 1Q14. Accordingly the Company carried 26.2mn passengers in 1H14, up 16.8% y/y (+20% y/y in domestic and +14.7% y/y in international passengers), staying behind the official target of 23% pax growth in 2014 (59.5mn passengers for 2014). Transfer passengers (represented 25% of total pax in 1H14 and grew by 8% y/y for the same period) contributed to pax growth significantly. However, the load factor was down by 105 bps y/y in 2Q14 (-49 bps y/y in domestic flights;-10 y/y bps in international flights) amid 10% y/y and 17% y/y increases in fleet portfolio and seat capacity for the same period, respectively. Trading Data Sector Bloomberg Reuters EV (TRYmn) Mkt cap (TRYmn) Free float (%) No. of shares (mn) 1-Mnth Av e. Daily Vol. (TRYmn) BIST-100 A-13 Bottom-line exceeded estimates on strong operating performance... Turk Hava Yolları reported TRY398mn, up 177% compared to same period of last year, above our estimate (TRY219mn) and Cnbc-e consensus (TRY233mn). Revenues came almost in line with the estimates while outpaced expectations on stronger margins. Higher net profit of subsidiaries and low effective tax rate contributed to bottom-line for 2Q14 Yatırım Finansman Securities Nispetiye Caddesi Akmerkez Tel: +90 (212) 317 69 00 E-3 Blok Kat:4 Fax: +90 (212) 317 69 32 Etiler / İstanbul 34337 Bloomberg: YATF TURKEY Emre Birkan www.yf.com.tr Executive Vice President [email protected] +90 (212) 334 98 40-41 Cenk Erdal Head of Sales [email protected] +90 (212) 334 98 45-46 Müjde Erdoğan Birdal Director of Sales [email protected] +90 (212) 334 98 42-43 Gülçin Sepken Aygün Director of Trading [email protected] +90 (212) 334 98 51-52 Nida Aydın Associate [email protected] +90 (212) 334 98 55-56 Mehmet Ali Sukuşu Settlement [email protected] +90 (212) 317 68 42 Zümrüt Can Ambarcı Head of Equity Research, Banks [email protected] +90 (212) 334 98 35 Kenan Turan Conglomerates, Retail, Agriculture [email protected] +90 (212) 334 98 58 Gülçe Deniz Steel & Mining, REIT, Cement [email protected] +90 (212) 334 98 36 Alper Üstünışık Glass, Automotive, Consumer Durables [email protected] +90 (212) 334 98 64 Ahmet Emre Kılınç Banks [email protected] +90 (212) 334 98 38 Özge Özcan Associate [email protected] +90 (212) 334 98 39 Institutional Sales Equity Research Macroeconomic Research Levent Durusoy Chief Economist [email protected] +90 (212) 334 98 33 Ecem Özdemir Associate [email protected] +90 (212) 334 98 89 © 2014 YF Securities. 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