[Click eStock] Korean Air 'Cargo Freight Rates Soar 72%' in Focus

[Asia Economy Reporter Junho Hwang] Hana Financial Investment maintained its buy rating on Korean Air on the 5th and raised the target price from 30,000 KRW per share to 35,000 KRW per share.

Hana Financial Investment evaluated that despite the sharp decline in passenger demand due to COVID-19, the operating profit surplus trend through the strong cargo sector was confirmed for three consecutive quarters. They also expected international passenger demand to recover toward the end of the year due to COVID-19 vaccinations. Movements to secure liquidity through rights offerings, asset sales, and government support were also judged to be positive.

Korean Air recorded sales and operating profit of 1.9 trillion KRW and 146.3 billion KRW, respectively, in the fourth quarter of last year. Sales fell 36.7% year-on-year, but operating profit increased by 20.1%. Fourth-quarter international passenger transport (RPK) plummeted 94.0% compared to the same period last year, while international flight supply decreased by only 77.3% due to the resumption of some international routes. The load factor (L/F) dropped to 22.1%.

However, the demand for transporting COVID-19 test kits, automobile parts, and IT products expanded, and the sharp shortage of container ships shifted existing shipping demand to air cargo demand, resulting in a 21.2% increase in cargo transport (FTK). Additionally, Korean Air's fourth-quarter cargo yield surged 72.0% year-on-year, and operating profit exceeded the market consensus of 125.3 billion KRW.

Hana Financial Investment expects that international demand will not fully recover in the first quarter of this year, but since cargo demand continues, the reduction in first-quarter performance is expected to be limited.