[Click eStock] "Passenger and Cargo Growth Strong... Korean Air Target Price Maintained"

Hana Securities maintained a buy rating and a target price of 27,000 KRW for Korean Air on the 30th, stating that "both passenger and cargo sectors are showing solid growth." The previous trading day's closing price was 22,950 KRW.

On the same day, Do-hyun An, a researcher at Hana Securities, stated, "In the third quarter of this year, Korean Air is expected to record profitability similar to the same period last year due to topline (key indicator) growth and easing fuel cost burdens."

On a consolidated basis, third-quarter sales are expected to increase by 13% year-on-year to 4.81 trillion KRW, and operating profit is forecasted to rise by 15% to 622 billion KRW (operating margin 12.9%). Researcher An said, "Although the recent decline in international oil prices is gradually reducing fuel cost burdens, the impact on airline performance is expected to materialize from the fourth quarter. We are raising the fourth-quarter operating profit estimate to 557 billion KRW (operating margin 11.9%). Annual sales and operating profit for this year are estimated at 18.19 trillion KRW and 2.16 trillion KRW (operating margin 11.9%), respectively."

Korean Air was recently included in the value-up index announced by the government, but its capacity to expand shareholder returns is expected to be limited. Researcher An noted, "Dividends for 2022 and last year were the same at 750 KRW, with payout ratios of 15.6% and 26.1%, respectively. According to the current dividend policy, dividends are within 30% of net income on a separate basis. Considering this year's performance alone, there is sufficient room to increase dividends. However, with the upcoming acquisition of Asiana Airlines, the capacity to expand shareholder returns will be limited."

Regarding the acquisition of Asiana Airlines, expected to be completed this year, he said, "For about two years, Asiana Airlines will be reflected as a subsidiary in Korean Air's consolidated financial statements. Asiana Airlines is expected to significantly improve its cost structure through capital increase via paid-in capital and debt repayment." He added, "By simple calculation, after the capital increase, Asiana Airlines' debt ratio will fall to the 600% range, and interest expenses will be reduced by at least 115 billion KRW annually."

He continued, "Although Korean Air will face short-term fluctuations due to the transfer of European and U.S. routes and merger costs, in the long term, as the only large-scale full-service carrier (FSC) in Korea, it needs to raise its valuation through strengthening dominance on long-haul routes and network optimization synergies." He added, "The full-scale synergy effects are expected after the merger. Currently, Korean Air's stock price is significantly undervalued."