[Click eStock] "Jeju Air, Disappointing 2Q Operating Performance Expected"…Target Price ↓

Hana Securities maintained its buy rating on Jeju Air on the 24th but lowered the target price from 25,000 KRW to 21,000 KRW. Although operating performance is expected to be disappointing due to a one-time cost increase in the second quarter of this year, the continued growth in international flight demand is expected to lead to a significant improvement in the second half of the year.

Jeju Air's consolidated sales for the second quarter are expected to reach 394.5 billion KRW, a 212.7% increase compared to the same period last year, and operating profit is expected to turn positive at 30.5 billion KRW. The operating profit is analyzed to slightly exceed the market consensus estimate of 27.9 billion KRW.

Researcher Park Seong-bong of Hana Securities explained, "Due to the increase in overseas travel, Jeju Air's international passenger transport (RPK) is expected to increase by 5.0% compared to the previous quarter, reaching 90.1% of the level in the second quarter of 2019, before the COVID-19 outbreak. The load factor (L/F) is estimated to slightly decrease to 88.3% compared to 90.4% in the first quarter, and the international passenger yield is also estimated to have slightly declined compared to the first quarter."

He added, "Meanwhile, the reduction in fuel costs due to the decline in jet fuel prices is positive, but the increase in labor costs due to expanded aircraft maintenance and incentive payments is judged to have negatively affected operating performance."

However, Jeju Air's operating profit for the third quarter is expected to surpass the record high set in the first quarter. Passenger transport on the Japan route at Incheon Airport last month reached 1.07 million, marking a year-on-year increase for nine consecutive months since October last year. It also recorded the highest level since July 2019.

The China route, although slower than initially expected due to diplomatic tensions between Korea and China and delays in group tourist permits to Korea, continues to show growth, reaching 41% of the June 2019 level. The third quarter is the peak season for international passengers, with summer vacations in July and August and the Chuseok holiday in September approaching, leading to expectations of continued growth in international passenger transport.

Researcher Park said, "Accordingly, Jeju Air plans to increase flights on major short-haul routes such as Japan, Southeast Asia, and Oceania in preparation for the summer peak season, with international supply (ASK) in the third quarter expected to increase by 14.7% compared to the second quarter." He added, "At the same time, a decrease in aircraft maintenance and labor costs compared to the second quarter is expected to positively impact profitability. Considering this, Jeju Air's operating profit for the third quarter is expected to reach 75.8 billion KRW, surpassing the previous record high set in the first quarter."

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