"Korean Air Target Price Raised... Seat-Class Segmentation and Aerospace Expectations"[Click e-Stock]

On the 23rd, Hana Securities raised its target price for Korean Air to 32,000 won, reflecting expectations for more segmented seat classes and the aerospace division, while maintaining its "Buy" investment rating.

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Ahn Dohyun, a researcher at Hana Securities, said, "Most full-service carriers (FSCs) operate four classes - First, Business, Premium Economy, and Economy - but Korean Air has only three (First, Business, and Economy), and its in-flight seat layout is less efficient than that of other airlines."

According to Hana Securities, when compared with airlines that have reduced First and Economy classes and expanded Business and Premium Economy on the same aircraft type, Korean Air's revenue per flight (on long-haul routes) is calculated to be about 15% lower. Ahn said, "The net increase in Korean Air's wide-body fleet is expected to remain modest for the time being due to replacement demand, but the seat-class segmentation strategy is expected to enhance its growth potential," adding, "Seat-class segmentation is expected to be fully implemented after the integration with Asiana Airlines."

Expectations for the aerospace division were also reflected in the target price. Last year, the aerospace division's revenue reached 779.6 billion won, up 31% year-on-year. This was largely driven by an increase in fuselage delivery volume, as well as initial revenue from performance upgrade projects for UH (utility helicopters) and HH (search and rescue helicopters), and from electronic and electrical projects.

However, Ahn noted, "The full value of the aerospace division has not yet been realized, and future revenue and operating profit are on the verge of a step-by-step level-up," adding, "From this year, revenue from airborne early warning and control aircraft, electronic and electrical systems, and UH performance upgrades will start to show a warming effect, and from next year, once the engine MRO (maintenance, repair and overhaul) base is completed, 3PL (third-party logistics) MRO revenue will be added."

He continued, "If low-observable unmanned aerial vehicles are added as well, the aerospace division's annual revenue is expected to grow to around 2.1 trillion won by 2028," adding, "Given the high likelihood of winning additional defense contracts, it is reasonable to regard this revenue figure as a minimum assumption."

Reflecting this growth potential, Hana Securities calculated the standalone value of the aerospace division at a minimum of 1.6 trillion won. This assumes an operating margin in the 5% range for the entire aerospace division in 2028 and applies a target price-to-earnings ratio of 20 times.

The corporate value of Korean Air as a standalone airline is currently around 10.2 trillion won, and is estimated at about 13.8 trillion won in 2028 after integrating Asiana Airlines. When the corporate value of the aerospace division is added, the total corporate value reaches at least 15.5 trillion won, which is a 66% increase compared with the current market capitalization.

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