[Click eStock] "Korean Air Target Price Raised to 33,000 Won"

Hana Securities on the 29th raised the target price of Korean Air to 33,000 KRW and maintained a buy rating.

The European Union competition authority (EC) approved the merger of Korean Air and Asiana Airlines. Unless the U.S. Department of Justice files additional lawsuits, it is interpreted that the merger approval procedures in major countries have all been completed, and the acquisition of Asiana Airlines is expected to proceed as scheduled within this year.

Korean Air plans to incorporate Asiana Airlines as a subsidiary by the end of 2024 and complete the merger within two years. The operating environment for FSCs (Full-Service Carriers) is expected to be positive for the next few years. The intensity of competition on long-haul routes is expected to remain eased, and with oil prices and interest rates stabilizing downward, Korean Air is expected to maintain an annual operating profit of around 2 trillion KRW.

The key issues are Asiana Airlines' financial performance and merger costs. Asiana Airlines posted a cumulative net loss of 66.1 billion KRW for the first three quarters of 2024, and its operating profit margin was 4.1%, which turns into a loss after interest expenses. Additionally, the cargo division is expected to be sold in the second half of 2025 (estimated to be profitable), with proceeds of 470 billion KRW expected, but without top-line growth in the passenger division, operating profit in 2026 is likely to be negative.

More attention should be paid to the process of improving Asiana Airlines' financial structure. Starting in December this year, Asiana Airlines is expected to strengthen its capital through a 1.5 trillion KRW paid-in capital increase, prioritizing the resolution of high-interest short-term borrowings and convertible bonds. Therefore, interest expenses in 2025 are estimated to decrease by more than 30% compared to 2024 (estimated reduction effect of 140 billion KRW). There is no need to worry about the increase in Korean Air’s debt. Based on the estimated consolidated results for 2025 (including Asiana Airlines), the debt ratio is estimated to be around 270%, which is an increase compared to before but is considered favorable when taking into account the average of global airlines.

For 2025, Korean Air’s consolidated sales including Asiana Airlines are estimated at 26 trillion KRW, with operating profit at 2 trillion KRW. However, the next two years for Korean Air should be understood as a transitional period. Andohyeon, a researcher at Hana Securities, said, "Fundamentally, it is necessary to focus more on the operating performance and financial structure improvement in 2027 when merger synergies will be fully realized," adding, "After the merger, some stable revenue growth from passenger income due to strengthened long-haul dominance and operating leverage effects can also be expected." While Korean Air has been evaluated as a cyclical company so far, it is judged that the merged Korean Air has embarked on a path of structural growth that breaks away from the cycle.