[Click e Stocks] Jin Air, Market Cap Drops 150 Billion Won in One Day but...

[Asia Economy Reporter Hwang Junho] Korea Investment & Securities forecasted on the 24th that it would be able to sufficiently control the risk related to capital erosion concerns that have increased for Jin Air.

On the 21st, Jin Air's stock price plummeted by 19%. The cause was the growing concern over capital erosion in the third quarter of this year. However, Korea Investment & Securities estimated that the funds needed to resolve the capital erosion would be about 60 billion KRW, and judged that the market capitalization loss of 150 billion KRW in just one day was an excessive concern. In particular, they viewed the fact that Jin Air's stock price fell more than Jeju Air, which decided on a 300 billion KRW rights offering at the end of August, as excessive.

Choi Go-woon, a researcher at Korea Investment & Securities, stated, "Concerns have increased in the airline industry, which relies heavily on foreign currency borrowings, due to the rise in the KRW-USD exchange rate, but it cannot be worse than during the pandemic."

In particular, Jin Air is expected to return to profitability in the fourth quarter with the recovery of travel to Japan. With the resumption of individual tourism to Japan, the performance of the low-cost carrier (LCC) industry has shown improvement since this month. Since visa-free entry was allowed on the 11th, the average daily number of LCC international passengers has increased by more than 60% compared to September. Among them, Jin Air is expected to be the first to achieve a profit turnaround in the fourth quarter, as its fixed cost burden was relatively smaller compared to competitors.

The largest shareholder has also changed to Korean Air, which has sufficient liquidity. Although capital erosion at Jin Air is inevitable at the end of the third quarter this year, the impact of early repayment of 74.5 billion KRW in perpetual bonds is greater than the estimated foreign exchange translation loss of 27 billion KRW. It is expected that new perpetual bonds can be raised by the end of this year, and support from affiliates is also possible, so there seems to be no problem, according to his opinion.