[Click eStock] "Korean Air, 4Q Earnings Expected to Fall Short of Estimates... Target Price Down"

[Asia Economy Reporter Song Hwajeong] DB Financial Investment forecasted on the 29th that Korean Air's poor performance likely continued in the fourth quarter of last year and lowered the target stock price from 34,000 KRW to 31,000 KRW. The investment rating was maintained as 'Buy.'

Kim Pyeongmo, a researcher at DB Financial Investment, said, "We lowered the target stock price due to the downward revision of the 2020 earnings estimate," adding, "For a stock price rebound, a recovery in cargo and passenger transport volume is urgent, but the timing of the rebound remains difficult to predict." He further stated, "However, concerns about the sluggishness in China and Southeast Asia routes are believed to have been mostly reflected in the stock price, so the investment rating is maintained."

Korean Air's fourth-quarter performance last year is expected to fall short of consensus. DB Financial Investment estimated that Korean Air recorded sales of 3.1322 trillion KRW, down 5% year-on-year, and an operating loss of 33.6 billion KRW in the fourth quarter of last year, turning to a deficit. Researcher Kim analyzed, "In the fourth quarter, cargo transport volume and yield (unit fare) both decreased, so sales are expected to decline by about 16% year-on-year," adding, "For international passengers, transport volume on the Americas and Southeast Asia routes was favorable, but due to decreases in Japan and Europe regions, the overall transport volume is expected to have decreased by more than 6% compared to the previous quarter." In particular, for the Europe route, the yield also declined due to a decrease in transfer passengers, resulting in an estimated 2% decrease in international passenger yield compared to the previous quarter. Kim said, "Due to the continued decline in passenger yield and the sluggish cargo sector, poor profitability is expected to continue in the fourth quarter."

While the cargo sector is expected to improve profitability compared to the previous year, the passenger sector is forecasted to remain sluggish until the first half of this year. Researcher Kim stated, "Considering that the cargo sector's sluggishness has continued since the first quarter of last year, a low base effect is expected from the first quarter of this year, and recently, the business conditions of major IT companies and other clients have shown gradual improvement, so at least the cargo sector's profitability will improve compared to the previous year," adding, "Regarding the passenger sector, the sluggishness on the Japan route continues, and due to the 'Novel Coronavirus Infection (Wuhan Pneumonia),' sluggishness is expected on major short-distance routes such as China and Southeast Asia, so it will remain sluggish until the first half of this year."