[Click eStock] "Korean Air, H2 Earnings Estimates Raised 2.7x... Target Price Up 12%"

[Asia Economy Reporter Ji-hwan Park] NH Investment & Securities announced on the 23rd that it has raised its annual earnings estimates for Korean Air by 2.7 times due to strong cargo freight rates in the second half of the year, maintaining a 'Buy' investment rating and raising the target price by 12% from the previous 39,000 KRW to 43,500 KRW.

Researcher Yeon-seung Jeong of NH Investment & Securities stated, "We have revised upward the annual earnings estimates due to strong cargo freight rates in the second half," adding, "Freight rate increases and premiumization of passenger demand are also underway amid the recovery of demand on trans-Pacific routes."

He explained, "The annual freight rate increase has risen from 10.1% to 17.7% due to strong air cargo freight rates," and "This reflects the recovery of passenger demand on medium- and long-haul routes in the second half and the rise in long-term freight rate levels due to premiumization of passenger demand." Accordingly, the annual operating profit estimate for this year was revised upward by 171%, from the previous 329.9 billion KRW to 892.4 billion KRW.

Due to the strength in air cargo, there is an assessment that profit generation is possible even during the COVID-19 phase. In the third quarter, container transport disruptions continue due to port congestion. Additionally, border closures in major Southeast Asian countries and operational disruptions at Shanghai Airport have reduced cargo aircraft transport capacity since mid-August, causing freight rates to strengthen again. Researcher Jeong said, "The strong performance from cargo not only increases profits but also leads to debt reduction and capacity for new aircraft introduction, highlighting a factor for long-term financial strength improvement."

In August, passenger numbers on trans-Pacific routes recovered to 30% of the 2019 monthly average, showing a steeper recovery compared to other routes. He said, "Korean Air's expected international load factor in the third quarter is 37.5%, the highest among domestic airlines," and added, "Considering the future vaccine distribution situation, demand recovery is expected mainly on medium- and long-haul routes such as trans-Pacific and European routes."

Passenger fares are also strong. International fares in KRW for the third quarter are estimated to have risen 14% compared to the second quarter. The recovery of demand on trans-Pacific routes and the preference for business class contributed to the fare strength. He forecasted, "In the process of demand recovery after COVID-19, international fares in 2023 are expected to rise 19% compared to 2019, raising the long-term fare level."