[Click eStock] "T'way Air, Continued Liquidity Outflow... Additional Capital Expansion Needed"

NH Investment & Securities Report

[Asia Economy Reporter Minji Lee] NH Investment & Securities maintained a neutral investment rating on T'way Air on the 30th. The target price was raised by 18% from the previous level to 3,800 KRW due to an upward revision of long-term earnings estimates.

Although earnings estimates for this year and next year were downgraded considering the sluggish aircraft utilization rate caused by slow demand recovery, the 2023 earnings estimate was revised upward. The upward revision reflects a higher mid- to long-term international passenger fare level. Initially, the expected passenger fare for 2023 was projected to rise about 15% compared to 2019, but this was raised to 19%. The fare increase is analyzed to be influenced by the reduction in operating aircraft of domestic airlines.

In the short term, earnings deterioration and liquidity outflows are expected to continue. Yeonseung Jeong, a researcher at NH Investment & Securities, said, “Competitors such as Jin Air, Jeju Air, and Air Busan are currently raising capital through rights offerings,” adding, “T'way Air also raised capital through a third-party allotment rights offering at the beginning of the year, but due to slower-than-expected passenger demand recovery, the possibility of additional capital increases is emerging.”

Third-quarter sales are expected to reach 58.2 billion KRW, a 19.7% increase compared to the same period last year. Operating losses are predicted to continue at 38.8 billion KRW. Compared to the previous quarter, performance is expected to worsen, as despite the peak domestic travel season in July and August, the increase in social distancing levels led to a slowdown in passenger demand and intensified fare competition, which likely expanded the scale of operating losses.

The domestic vaccination rate has risen to 56% as of the previous day. Discussions on changing the quarantine system to "With Corona" are expected to intensify by the end of October, along with gradual resumption of international passenger flights. If additional capital increases proceed stably, an upgrade in the investment rating is also anticipated.

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