[Click eStock] Jin Air Q2 Earnings Expected to Decline... Target Price Lowered to 15,000 Won

Hana Securities downgraded its earnings estimates for Jin Air on the 3rd, lowering the target price from 17,000 KRW to 15,000 KRW. The investment rating was maintained as 'Buy.'

Andohyun, a researcher at Hana Securities, stated in a report on the same day, "We estimate 2024 sales to increase by 13% year-on-year to 1.44 trillion KRW, and operating profit to decrease by 7% to 169 billion KRW (operating margin 11.7% (-2.6%p)). The fact that cost increases have become more pronounced in 2024 is a burden. In particular, labor costs and airport-related expenses are expected to rise significantly." Labor costs and airport-related expenses account for one-third of Jin Air's total costs.

He estimated Jin Air's 2nd quarter sales to increase by 7% year-on-year to 276 billion KRW, while operating profit is expected to decrease by 23% to 13.8 billion KRW. Researcher Andohyun explained, "The 2nd quarter is the low season for low-cost carriers (LCCs) with a high sales proportion in Japan and Southeast Asia, but demand for Japan and Southeast Asia routes remains solid, and the yield decline is limited. Domestic sales in the 2nd quarter are expected to decrease by 15% compared to the previous year, but international sales are expected to increase by 17%, driving performance."

However, due to the cost increase factors being prominent in the low season of the 2nd quarter, the operating margin is expected to fall by 1.2 percentage points compared to the same period last year.

The key issue is profitability in the 3rd quarter. Researcher Andohyun said, "Since 3rd quarter profitability will serve as an indicator of the profit resilience of LCCs, it is still premature to be concerned. However, it is unfortunate that Jin Air's aircraft deliveries are delayed due to global manufacturers' supply delays."

Jin Air is scheduled to receive a total of four aircraft (B737-8) this year, with one aircraft expected to be delivered each quarter. One aircraft was delivered at the end of the 2nd quarter.

He added, "Paradoxically, since LCCs are facing difficulties in aircraft supply, the possibility of a sharp fare decline due to oversupply is considered low for the time being. Currently, Jin Air's stock is trading at a 12-month forward (12MF) price-to-earnings ratio (P/E) of around 4 times, which is very undervalued considering the industry's growth potential."