[Click eStock] "Fierce Competition in 1Q... Jin Air's Performance Declines"

Fares Fall in 1Q Due to Intensified Competition
Cost Increases Limited by Lower Fuel Expenses

Jin Air's first-quarter performance this year is expected to be somewhat sluggish. Although international customer usage is increasing, fares had to be lowered due to intensified competition. However, since cost increases are limited, profitability is not expected to be significantly impaired.

On the 31st, Hana Securities lowered Jin Air's target stock price by 14.3% to 12,000 KRW due to these reasons. The closing price on the previous trading day was 9,430 KRW. The investment rating of 'Buy' was maintained.

Hana Bank's forecast for Jin Air's first-quarter performance this year is sales of 405 billion KRW and operating profit of 60.7 billion KRW. Compared to the same period last year, sales are expected to decrease by 6% and operating profit by 38%. Despite an increase in revenue passenger kilometers (RPK), which is the product of paying international passengers and transport distance, international passenger fares are expected to drop by 10% year-on-year to 100 KRW per kilometer due to intensified competition within the industry.

In particular, the growth rate of low-cost carrier (LCC) passengers in the first quarter is lower compared to full-service carriers (FSC). The first quarter is the peak season for LCCs, and Jin Air has recorded half of its operating profit in the first quarter over the past two years. The slowdown in demand in the first quarter is analyzed to be a burden for LCCs overall. This year, total sales are estimated to increase by only 1% year-on-year, while operating profit is expected to decrease by 8% to around 150 billion KRW. This is due to the decline in fares despite an increase in available seat kilometers (ASK), which is the product of available seats and travel distance.

Fortunately, cost increases are limited. Last year, total costs increased by 19%. In particular, labor costs rose by 24% (16% of sales), and airport-related costs increased by 34% (15% of sales). This year, fuel costs are expected to decrease compared to the previous year, offsetting the rise in costs. With operating expenses increasing by only 2%, profitability may not be significantly impaired despite the fare decline.

On the 26th, Jin Air used 110.6 billion KRW of its capital reserve of 296.1 billion KRW to cover deficits through a shareholders' meeting. Of the remaining capital reserve of 185.5 billion KRW, 89.4 billion KRW was transferred to retained earnings. By resolving the deficit, dividends have become possible for the first time since the COVID-19 period. However, as the integration with Air Busan and Air Seoul approaches, there is a possibility that cash will be managed conservatively. Do-hyun Ahn, a researcher at Hana Securities, explained, "Jin Air's stock price basically moves in line with consumer sentiment and moves inversely to the exchange rate. If the exchange rate stabilizes and expectations for domestic economic recovery emerge, there is sufficient momentum for stock price growth."