[Click eStock] "Korean Air Expected to Deliver 4Q Results Exceeding Consensus"

Merger Progressing with Asiana Airlines... Detailed Review Needed
Eugene Investment & Securities "Maintains Korean Air Target Price at 41,000 Won"

On the 26th, a Korean Air cargo plane carrying the initial shipment of Pfizer vaccines secured through the international vaccine supply organization 'COVAX facility' landed at the Incheon International Airport Cargo Terminal on Yeongjongdo Island. The shipment received that day consisted of a total of 58,500 doses, and these vaccines are scheduled to be delivered directly to five central and regional vaccination centers without passing through the logistics center in Pyeongtaek, Gyeonggi Province. Pfizer vaccine administration will begin the following day, on the 27th, at the Central Vaccination Center set up at the National Medical Center in Jung-gu, Seoul. Photo by Airport Photographers Group, Yeongjongdo.

[Asia Economy Reporter Gong Byung-sun] Korean Air is expected to report fourth-quarter results last year that exceed market consensus, driven by rising cargo rates. The Fair Trade Commission (FTC) has tentatively concluded a conditional approval for the merger with Asiana Airlines, but the actual benefits may still vary depending on detailed conditions.

On the 4th, Eugene Investment & Securities estimated Korean Air's fourth-quarter revenue last year at 2.81 trillion KRW, a 47.8% increase compared to the same period last year, and operating profit at 624.5 billion KRW, a 433.5% increase over the same period. These figures exceed the respective consensus estimates by 5.05% and 29.11%.

The cargo sector is expected to have contributed to the earnings growth. The average quarterly freight rate rose significantly by 39.6% compared to the same period last year. The rate increase is due to supply shortages and robust cargo volume. In fact, the Asia-Pacific region's cargo capacity (ACTK) has remained 15.7% lower compared to the same month in 2019, while Korean Air's cargo transport increased by more than 30% during the same period.

International passenger revenue is expected to remain at around 15% of the fourth quarter of 2019. Although some routes resumed operations from November last year, the recovery in passenger demand was somewhat delayed due to the spread of the new COVID-19 variant Omicron.

Meanwhile, the merger with Asiana Airlines is progressing, but risks still exist. On December 29 last year, the FTC submitted the corporate merger approval review report for Korean Air and Asiana Airlines and plans to hold a plenary meeting for review within this month. However, it is necessary to verify the detailed contents of the structural measures proposed by the FTC as conditions to ease competition restrictions.

Researcher Bang Min-jin of Eugene Investment & Securities explained, “Conditions that undermine the core synergy of the merger, such as network strengthening, limit the practical benefits of the acquisition and may cause surplus labor issues.”

Accordingly, Eugene Investment & Securities maintained a “Buy” investment opinion on Korean Air with a target price of 41,000 KRW. The closing price on the previous day was 29,500 KRW.