[Click eStock] "Korean Air Endures with Cargo, Passenger Demand Raises Expectations"

NH Investment & Securities "Maintains Korean Air Target Price at 39,000 Won"
Sufficient Resilience to Withstand COVID-19... Earnings Recovery Expected Through 2023

[Asia Economy Reporter Gong Byung-sun] Korean Air showed positive performance in the cargo sector. Although there are concerns about the spread of COVID-19 due to the Delta variant, expectations remain high even when assuming a limited recovery in passenger demand within this year.

NH Investment & Securities forecasted Korean Air's Q2 revenue this year to increase by 16.1% year-on-year to 2.0065 trillion KRW, and operating profit to rise by 53.8% to 169.4 billion KRW. In particular, all of this year's earnings estimates were revised upward. NH Investment & Securities predicted Korean Air's operating profit for this year to increase by 77% from the previous 127.5 billion KRW to 225.3 billion KRW. Revenue was also estimated to rise by 7% to 5.3 trillion KRW.

The cargo sector is strong. Air cargo freight rates increased by 2%, and cargo volume grew by 6%. Despite rising fuel costs due to oil price increases and delayed passenger demand recovery caused by the spread of the Delta variant, profitability improved again due to increased high-margin cargo sales, enabling performance improvement.

The cargo strength is expected to continue into the third quarter. Researcher Jeong Yeon-seung of NH Investment & Securities said, “Global container transport delays persist, and with the expansion of automobile-centered industrial production, urgent cargo will increase,” adding, “The launch of new IT products in the second half of the year will also lead to increased air cargo demand.”

Although COVID-19 is spreading again due to the Delta variant, it is expected to have little impact on this year's performance. Rather, it is likely to act as a factor accelerating medium- to long-term vaccination speed. White House spokesperson Jen Psaki stated, “Vaccines approved in the U.S. are effective in protecting against the Delta variant.” Despite the Delta variant, the medium- to long-term recovery trend in passenger demand remains valid.

Meanwhile, the integration process between Korean Air and Asiana Airlines is underway. While awaiting the Fair Trade Commission's decision, the direction is clear. Passenger revenue for Korean Air and Asiana Airlines combined is expected to reach 12 to 14 trillion KRW by 2023. Researcher Jeong explained, “Steep profit improvement is possible depending on the extent of fare increases,” adding, “Due to reduced competition intensity, increased direct sales leading to lower discount rates, and reduction of low-profit routes, a real fare increase is expected.”

Accordingly, NH Investment & Securities maintained its investment opinion of ‘Buy’ on Korean Air with a target price of 39,000 KRW. The closing price on the previous day was 31,850 KRW. Researcher Jeong said, “There is sufficient capacity to withstand COVID-19,” and “It will enter a performance recovery cycle by 2023.”

This content was produced with the assistance of AI translation services.