[Click eStock] "Jeju Air, Mid- to Long-Term Fare Downward Stabilization"

NH Investment & Securities stated on the 28th that Jeju Air is expected to experience a mid- to long-term fare downward stabilization. Accordingly, they maintained a 'Buy' rating and a target price of 18,000 KRW.

Researcher Jeong Yeonseung of NH Investment & Securities analyzed, "The current international passenger fares lack sustainability, and considering the competitive landscape and demand slowdown in the second half of the year, fare decline stabilization and profit momentum slowdown are expected."

International passenger fares have shown a sharp upward trend since the third quarter of 2022. Rapid demand recovery and slow supply growth led to fare increases. The international fare for the first quarter of 2023 is expected to be 93.5 KRW, a 75% increase compared to the 2019 average.

Researcher Jeong predicted that it will be difficult to maintain the current fare levels. He stated, "Due to the gradual expansion of low-cost carriers' passenger fleets, reduced consumer spending power caused by inflation, a decrease in low-cost carrier users due to mid- to long-term population decline and passenger premiumization, and an unchanged competitive structure during the post-COVID phase (with nine domestic low-cost carriers), fares are expected to stabilize downward."

Jeong added, "International fares are expected to enter a downward cycle after peaking in the first quarter of 2023. Since supply capacity already recovered to 90% as of January this year, additional profit improvement momentum will also weaken."

Jeju Air is expected to see a sharp improvement in profitability in the first quarter of this year. Strong fare levels are anticipated to drive significant profitability improvement in Q1.

From a supply and demand perspective, the outlook is negative. Researcher Jeong noted, "There have been issuances of perpetual convertible bonds (5.51 million shares, average conversion price 13,878 KRW) and exchangeable bonds issued by AK Holdings (exchangeable into Jeju Air common shares, convertible shares 8.64 million, conversion price 15,050 KRW)."