Credit Suisse Pegasus recommendation:  Decent outlook for the high season, OUTPERFORM

We revise our 2023 EBITDA margin estimate slightly higher ahead of 2Qs (to 35.2% from 33.5%). Our positive EBIT is largely offset by leasing costs and higher tax rate assumptions at the bottom-line. We continue to like PGSUS on valuation, the company’s high share of FX-based revenues and management’s successful growth execution while holding up margins. We reiterate our Outperform rating with a new TP of TRY848 (from TRY683.80 previously). 2Q preview: In light of pre-reported pax numbers, we look for 1) -7% pax yield/km yoy (EURs), which assumes a resilient trend against 27% capacity increase within the quarter and potential TRY dilution from domestic routes, 2) -12% unit cost (CASK), including +5% ex-fuel; the spread largely due to the favourable decline in jet fuel-to-Brent cracks lately.   [embed]https://www.paturkey.com/news/bofa-on-turkish-banks-the-great-normalization-buy-private-banks/2023/[/embed] We do not expect a major change to FY guidance post results, though we are c.5.2ppt  above the minimum of the 30%+ EBITDA margin outlook. Revisions: CSe 2023E earnings estimate: EUR468m (1% below previous EUR474m). We reflect lower jet fuel cracks and ongoing strength in the high margin ancillary revenues. We add higher FX-gains potentially in 3Q given EUR:US$. Our +3% EBITDA increase for ’23 is balanced by our conservative leasing interest and tax assumptions, leaving potential upside to earnings. We convert our EUR-based valuation into TRY with a higher forward-EUR:TRY estimate of 32 (vs 26 previously given recent EUR appreciation).   Catalysts: Completion of a second runway at the main hub (SAW Airport) (CSe: 4Q23). 2Q results due 14-Aug, followed by 3Q results on 8-Nov, where QTD trends in EURUS$ indicating potential FX gains on top of the positive seasonality of the quarter. Risks include the main competitor, THY, expanding its low-cost brand’s presence at SAW, a reversal in the recent tightening of jet fuel-vs-Brent cracks. Valuation: On our revised earnings and EUR:TRY estimates, the shares are at 5.0x our 12M-forward P/E. [embed]https://www.youtube.com/watch?v=L-A9JB9XSQ0&t=6s[/embed] Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg And content at Twitter: @AtillaEng Facebook:  Real Turkey Channel:   https://www.facebook.com/realturkeychannel/