[Click eStock] "Korean Air, Stock Price Returns to Pre-With-Corona Levels... Undervalued Appeal Highlighted"

[Asia Economy Reporter Ji-hwan Park] On the 6th, Korea Investment & Securities presented the opinion that Korean Air's stock price, which had recently fallen back to the previous low after giving up gains due to expectations of with-COVID, should be noted for its price attractiveness. They maintained a 'Buy' investment rating and a target price of 36,000 KRW.

Choi Go-woon, a researcher at Korea Investment & Securities, said, "Recently, with the spread of the Omicron variant, governments around the world have started to strengthen entry and exit regulations again," adding, "For now, in South Korea, both foreigners and nationals, regardless of vaccination status, must undergo a mandatory 10-day quarantine upon entry until the 16th." He said, "If you had planned overseas travel at the end of the year, you need to adjust your schedule, and the plans of airlines to gradually resume international flights ahead of 2022 are inevitably disrupted."

He added, "This is unavoidable."

However, it is premature to conclude that the Omicron variant is a new crisis. Researcher Choi said, "Instead, it is highly likely to be a temporary setback," adding, "Both the quarantine system and consumer sentiment have developed resistance due to repeated resurgences."

He emphasized, "The emergence of Omicron has made it easier to judge the bottom of airline stocks," and "It should be noted that airline stocks have already given up the gains from expectations of with-COVID and have fallen back to the previous low."

In particular, there is an analysis that the resurgence could actually be beneficial to Korean Air's performance. Researcher Choi said, "In any case, the number of international passengers in October and November is only 6% of that in 2019," adding, "On the other hand, as the resurgence intensifies the logistics crisis, air cargo freight rates are expected to rise further." He noted that, based on November TAC data, long-haul air freight rates from Asia rose by an average of 14%, and Korean Air's fourth-quarter cargo freight rates are expected to increase by 21% compared to the previous quarter. While passenger revenue is estimated to decrease by 24 billion KRW compared to previous forecasts, cargo revenue is expected to increase by 70 billion KRW.

As a result, operating profit is expected to record a quarterly high of 550 billion KRW, a 31% increase from the previous quarter. Researcher Choi said, "Korean Air, the only airline that can handle Delta, Omicron, and even Omega variants without problems, is the only airline that has overcome COVID-19, and Omicron is no different."

He emphasized, "As the pandemic prolongs, the financial gap with domestic and international competitors continues to widen," adding, "When overseas travel demand explodes in the early reopening phase, Korean Air is expected to most effectively capture the market." He also added, "Although the current cargo windfall profits will decrease next year, the valuation premium is justified because the dominance in the more important airline market will be strengthened."