[Click eStock] "Korean Air, Focus on Speed Difference Between Passenger Recovery and Cargo Slowdown"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating and a target price of 33,000 KRW for Korean Air on the 5th.

Korean Air's standalone operating profit for the second quarter grew 274% year-on-year to 735.9 billion KRW. This exceeded the market's estimated operating profit of 668 billion KRW by 10%. The second-quarter revenue recorded 3.3324 trillion KRW, a 71% increase compared to the same period last year, reflecting a smaller-than-expected rise in other variable costs excluding fuel and labor expenses.

Ji-hwan Yang, a researcher at Daishin Securities, said, "Compared to the approximately 40% increase in passenger supply, the rise was significantly less than expected," adding, "Labor costs increased substantially to about 570 billion KRW." Among operating expenses, fuel costs rose 153% year-on-year to 1.014 trillion KRW, and labor costs increased 29% to 571 billion KRW.

A notable point in the performance is that the passenger load factor (domestic + international) reached 80%, surpassing market expectations. Domestic load factor was 88.7%, and international was 79.1%. Additionally, the company increased the proportion of won-denominated fixed borrowings through derivative contracts to manage interest rate and exchange rate risks, thereby reducing exposure to currency fluctuations, which is also positive.

Researcher Ji-hwan Yang analyzed, "The key to future performance and stock price lies in the market's perception shift regarding the difference in the pace of passenger recovery and cargo slowdown," adding, "In the short term, cargo slowdown is progressing more slowly than market concerns, and passenger recovery is likely to appear quickly, but doubts about sustainability need to be resolved."