[Click eStock] "Korean Air, Cargo Freight Rate Increase Drives Profit Improvement"

Eugene Investment & Securities Report

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities maintained a buy rating and a target price of 41,000 KRW for Korean Air on the 15th. This is based on the expectation of profit improvement due to rising cargo rates in the fourth quarter.

In the third quarter, Korean Air's revenue and operating profit were 2.3 trillion KRW and 420.2 billion KRW respectively, representing a 44.4% increase and a turnaround to profit compared to the same period last year. The operating profit significantly exceeded the previous forecast of 313.3 billion KRW.

Researcher Minjin Bang of Eugene Investment & Securities said, "The results clearly demonstrated profit leverage from the additional rise in cargo rates," adding, "Cargo transportation increased by 23.6% compared to the same period last year, and rates, which began to rebound from August, rose by 31.4% year-on-year." As a result, cargo sales increased by 62.4% year-on-year, setting a record for the highest quarterly performance. Passenger revenue increased by 21.6% year-on-year but still remains at 13.2% of the third quarter of 2019. However, due to active efforts to attract transfer passengers, transport (RPK) increased by 33.9% year-on-year, and the load factor (L/F) also recovered to the 40% range.

Fuel costs increased by about 110% compared to the same period last year. However, non-fuel costs slightly decreased year-on-year, contributing to the earnings surprise. Despite a foreign currency-related loss of about 260 billion KRW caused by the sharp rise in the won-dollar exchange rate, net profit was maintained.

The expected operating profit for the fourth quarter is forecasted to increase by 326.3% to 498.9 billion KRW. From November, the company's international passenger routes are gradually expanding, and the unit price of aviation fuel is also expected to rise further, increasing cost burdens. As the peak season approaches, cargo rates are rising sharply, so the average quarterly rate is expected to increase by about 30% compared to a year ago, and cargo volume is also expected to increase by more than 10%. Researcher Bang explained, "The increase in cargo rates will offset cost factors and further drive additional profit improvement."

Researcher Bang added, "Considering the global economic recovery and the low inventory levels in the United States, the air cargo market is expected to experience a soft landing next year," and "there is also a possibility that passenger demand will return before that."

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