[Click eStock] "Korean Air, 2Q Cargo Outlook Positive but Earnings Downgrade Leads to Target Price Cut"

Korean Air is making thorough preparations for customers to travel overseas again, emerging from the dark tunnel of COVID-19. On the 18th, officials were cleaning the Boeing 747-8i aircraft in celebration of spring at the Korean Air maintenance hangar in Unseo-dong, Jung-gu, Incheon. Photo by Moon Honam munonam@

[Asia Economy Reporter Myunghwan Lee] Hana Securities announced on the 21st that it maintains a buy rating on Korean Air but has lowered the target price from 41,000 KRW to 37,000 KRW. This is due to a downward revision of the annual earnings estimates, despite expectations of solid performance in the second quarter driven by strong cargo demand.

Hana Securities forecasts Korean Air's second-quarter revenue and operating profit this year to be 3.4 trillion KRW and 531.4 billion KRW, respectively. These figures represent increases of 67.4% and 174.6% compared to the same period last year.

By segment, international passenger transport is expected to be 74.1% lower than the second quarter of 2019, before the COVID-19 pandemic, as overseas travel demand recovers. This is attributed to the global easing of entry bans and quarantine measures following the introduction of "With Corona" policies. The international flight load factor is estimated to have risen to 75.7%. The cargo segment is expected to generate revenue similar to the first quarter, supported by cargo transport volumes comparable to the previous quarter and a 36% increase in freight rates compared to the same period last year.

Hana Securities noted that Korean Air is implementing a supply expansion strategy in response to recovering demand. The government’s decision to replace PCR tests with rapid antigen tests for overseas arrivals starting in May and to lift restrictions on hourly aircraft arrivals and flight curfews from June is expected to further boost overseas travel demand in the third quarter. Demand recovery is anticipated to be particularly notable on routes to the Americas, Southeast Asia, and Europe.

Accordingly, Hana Securities pointed out that Korean Air plans to aggressively increase supply to reach 50% of pre-COVID-19 levels by September. Routes to the Americas are expected to recover to about 70% capacity. To prepare for the peak season in July and August, the large aircraft A380 will be deployed daily on the New York route and three times a week on the Hong Kong route starting in July. From September, the same aircraft will be operated daily on the Narita route.

However, Hana Securities has slightly lowered the target price following the revision of Korean Air’s annual earnings estimates. Researcher Seongbong Park of Hana Securities stated, "Although earnings are expected to decline compared to the first half, high cargo sales are anticipated to continue in the second half, alongside a full-scale recovery in international passenger demand. The current stock price reflects a price-to-book ratio (PBR) of about 1.2, indicating limited valuation pressure."

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