[Click eStock] "Aviation, Structural Growth in Demand... Jin Air as the Top Pick"

Expectations for Market Restructuring After Korean Air and Asiana Merger

On the 3rd, Korea Investment & Securities analyzed that the airline industry requires reevaluation as structural growth in overseas travel demand and market restructuring are expected. In particular, it raised the profit estimates for Jin Air, maintained the investment rating at 'Hold,' and raised the target price to 20,000 KRW.

Choi Go-woon, a researcher at Korea Investment & Securities, stated, "Despite the disappearance of both the peak-out possibility and financial uncertainty in the performance of domestic airlines, airline stocks are 15% lower than the average in the first quarter of last year, and LCCs are 22% lower, making them recommended investment opportunities."

Researcher Choi analyzed, "Operating profit in the airline industry is expected to grow by 7% year-on-year this year (LCCs 13%). The fact that earnings increase despite the high base burden in the most important winter peak season means an increase in earnings for the entire year."

Researcher Choi evaluated that the international routes, which move in tandem with overseas travel demand, are the growth drivers of Korea's airline market. He said, "The evaluation of the airline industry should change from an industrial good that follows the economic cycle to a consumer good supported by structural changes in consumption patterns. If we compare with 2019, it is reasonable to see travel demand at 120-130%."

He also pointed out that the competitive environment has significantly contracted due to the pandemic. Researcher Choi explained, "First, the top 1st and 2nd FSCs are about to merge. Although the number of airlines remains the same on the surface, LCCs are also scheduled to integrate Jin Air, Air Busan, and Air Seoul, and including Eastar Jet, four companies have undergone court management or sales, weakening efforts to expand their scale."

Considering this, Researcher Choi recommended Jin Air as the top pick, expecting profit growth and benefits from market restructuring this year. He analyzed, "Jin Air ranks first in operating profit in the LCC market and has already normalized its finances the fastest with a net cash structure."

He added, "Once Korean Air's acquisition of Asiana is confirmed, integration with Air Busan and Air Seoul is planned. Jin Air is specialized in Incheon/Gimpo airports, and Air Busan in Gimhae Airport, allowing them to increase economies of scale and market dominance without cannibalizing each other."

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