Korean Air Delivers Semiconductors Instead of Passengers, Target Price Raised [Click e-Stock]

Shinhan Investment Corp.: "Korean Air Proves Its Fundamentals With Exceptional Cargo Rates"

Target Price Raised to 38,000 Won

On July 15, Shinhan Investment Corp. maintained its 'Buy' investment rating for Korean Air, raising its target price by 9% from 35,000 won to 38,000 won, citing confirmation of the airline’s strengthened fundamentals.

Choi Min-gi, Senior Researcher at Shinhan Investment Corp., stated, "Korean Air is posting outstanding results in the global aviation industry, thanks to the unique characteristics of its cargo business and its geographic advantages," adding, "With concerns over earnings easing and the effect of the merger with Asiana Airlines gradually materializing, the stock is expected to be re-rated."

For the second quarter, Korean Air posted standalone revenue of 5.0199 trillion won (up 25.9% year-on-year), and operating profit of 261.8 billion won (down 34.4% year-on-year). Revenue surpassed both the market consensus (4.956 trillion won) and Shinhan Investment Corp.’s previous estimate (4.9903 trillion won).

Although operating profit declined year-on-year due to a sharp increase in fuel costs (up 111%), it remained at a very stable level compared to the initial concerns when the Middle East war erupted. Notably, the actual operating profit far exceeded both Shinhan’s previous projection (57.9 billion won) and the consensus estimate (84.3 billion won), delivering a significant earnings surprise.

The main driver of this strong performance was the cargo business, including semiconductors (up 46.1%). "Strong demand for cargo stemming from robust AI (Artificial Intelligence) capital expenditure led to a surge in freight rates (up 41.8%), offsetting the rise in fuel costs," stressed Senior Researcher Choi.

The passenger business (up 18.8%) also contributed to top-line growth. Although outbound demand (Korean nationals traveling abroad) was somewhat subdued due to higher fuel surcharges, transfer demand was actively captured thanks to decreased foreign airline supply on Middle East, China, and Japan routes, while inbound demand (foreign arrivals) benefited from a favorable forex rate and remained solid.

Shinhan Investment Corp. pointed out that expectations for Korean Air’s earnings should be raised for the second half of the year as well, given that freight rates in the air cargo market are not declining as much as jet fuel prices.

Furthermore, in the passenger segment, a recovery in outbound demand is expected around the Chuseok holiday due to reduced fuel surcharge burdens. While the prolonged depreciation of the won will continue to add non-operating cost pressures in the near term, strong inbound demand is expected to continue acting as a buffer.

Senior Researcher Choi said, "While renewed uncertainties in the Middle East have heightened volatility in global airline stocks, Korean Air, which has demonstrated robust profit-generating capability even amidst high oil prices, is likely to face less downward pressure on its stock. In addition, burdens from earnings of airline subsidiaries are expected to gradually ease from the second half as long as oil prices do not surge further."

This content was produced with the assistance of AI translation services.