[Click eStock] "Korean Air Expected to Maintain Q3 Profitability Due to Strong Cargo Performance"

Hana Financial Investment Report
"Q4 Business Environment Expected to Improve Compared to Q3"

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 28,000 KRW for Korean Air on the 23rd. This is based on the analysis that despite the sharp decline in passenger demand, the strong performance in the cargo sector will allow operating profits to remain positive.

Korean Air's third-quarter sales and operating profit are estimated to be 1.6 trillion KRW and 2.1 billion KRW, respectively, down 51% and 78% compared to the same period last year. This is because overseas travel demand has not recovered at all amid the ongoing spread of the novel coronavirus (COVID-19).

[Image source=Yonhap News]

Korean Air's international passenger transport (RPK) is expected to plummet by 92% compared to the same period last year. The load factor (L/F) is expected to record 36.9%. However, cargo transport (FTK) is expected to increase by 20% compared to the same period last year due to the recovery of exports not only of K-quarantine industry-related items such as masks and protective suits but also general cargo. Cargo freight rates are also expected to surge by 43% compared to the same period last year, so the operating profit positive trend is expected to continue in the third quarter following the second quarter.

Since June, Korean Air has been operating routes to about 30 countries out of a total of 110 international routes. Although countries lifting entry bans on Koreans are gradually increasing, the spread of COVID-19 in overseas countries is still ongoing, so a full-scale resumption of overseas travel is expected to be difficult even in the fourth quarter.

However, the business environment is expected to improve compared to the third quarter. Seongbong Park, a researcher at Hana Financial Investment, said, “In the case of cargo, the seasonal peak effect in the fourth quarter and the recovery of existing cargo exports will continue the increase in cargo transport,” adding, “Although cargo freight rates turned to a downward trend after peaking in May, they have shifted to a slight upward trend since August, so the peak season effect will be enjoyed in the fourth quarter.”

He added, “The moves to secure short-term liquidity through paid-in capital increases, asset sales, and government support will have a positive impact on the company in the future.”