[Click eStock] "Jeju Air, Exchange Rate and Oil Price Uncertainty... Limited Profit Improvement"

Exchange Rate Rises About 60 Won Compared to Previous Quarter
Asiana Airlines Cargo Division Acquisition Also a Variable
Strong Performance Expected in Q1

Daishin Securities analyzed on the 16th that Jeju Air is expected to post strong first-quarter earnings, but the extent of profitability improvement is limited. This is due to many uncertainties related to international oil prices, exchange rates, and the acquisition of Asiana Airlines' cargo division.

Yang Ji-hwan, a researcher at Daishin Securities, stated, "The reason why Jeju Air's profit improvement and profitability are somewhat lower compared to its competitor Jin Air is because Jeju Air incurs significant losses from exchange rate fluctuations in the 'maintenance debt conversion loss' related to maintenance costs paid in foreign currency."

Researcher Yang added, "The dollar-won exchange rate is a factor affecting airline profitability," and explained, "At the end of the first quarter, the dollar-won exchange rate rose by about 60 won compared to the previous quarter." However, exchange gains are possible if the exchange rate falls.

International oil prices are also a variable. Researcher Yang diagnosed, "The main operating costs of the airline transportation industry are fuel costs, labor costs, and equipment costs, and the rise in oil prices is an absolute factor affecting profitability."

The acquisition of Asiana Airlines' cargo division was also cited as a factor influencing the stock price. Researcher Yang analyzed, "Due diligence is currently underway regarding the acquisition of Asiana Airlines' cargo division, and the impact on the stock price will vary depending on the acquisition amount and financing costs."

He then recommended, "Although the current stock price is undervalued, it is advisable to buy after the uncertainties (related to the second quarter macro environment and cargo acquisition) are resolved."

Meanwhile, Daishin Securities forecasted Jeju Air's first-quarter operating profit at 77.1 billion won, which is about 10% above market expectations.