[Click eStock] "T'way Air, Slower-than-Expected Earnings Recovery... Target Price Down"

On the 4th, Korea Investment & Securities downgraded the target price of T'way Air from 4,000 KRW to 3,500 KRW, citing slower-than-expected earnings recovery. The investment rating was maintained as 'Buy.'

Hwang Hyun-jung, a researcher at Korea Investment & Securities, explained, "Reflecting the slower-than-expected earnings recovery, the target price was lowered by 13%, but the long-term growth potential remains unchanged in light of the turnaround expected in the second half of the year and the change in the largest shareholder. It is time to await new momentum such as benefits to European routes upon the end of the Russia conflict and potential synergies with Air Premia."

T'way Air's operating loss in the fourth quarter of last year sharply widened to 60.9 billion KRW due to fare declines and one-time expenses. Researcher Hwang analyzed, "The fourth-quarter performance was as poor as expected. With the launch of European routes, international supply (ASK) increased by 34% year-on-year, making it the most aggressive expansion among low-cost carriers (LCCs), but fares also dropped by 16%. Additionally, large foreign exchange losses related to maintenance provisions were reflected in operating expenses, further increasing the loss." Although T'way Air added seven aircraft last year, the largest net increase among domestic carriers, the war prevented it from flying over Russian airspace, making it impossible to deploy the A330-300 on European routes, causing long-haul operations to deviate from plans. Instead, the introduced A330-200 has over 100 fewer seats. Hwang noted, "Production disruptions at aircraft manufacturers have also prolonged, causing supply issues. Ultimately, it is taking longer than expected to achieve economies of scale, resulting in continued losses."

With governance issues settled, there is a growing opinion that attention should be paid to T'way Air's potential. Last week, Sono International acquired a 46.3% stake in T'way Holdings, the largest shareholder of T'way Air, securing management rights. Hwang said, "Although T'way Air's stock price has fluctuated sharply, it has ultimately returned to its previous level. While the valuation may seem expensive this year as European route losses have not yet ended, it is important to focus on the bigger picture that Daemyung Sono aims for with the acquisition of T'way. They have preemptively seized the opportunity created by the merger of the two major domestic carriers, which will leave a spot for a full-service carrier (FSC). The current losses are growing pains."

The inflection point for earnings is expected to be the third quarter. Hwang predicted, "The third quarter, the peak season for European travel, will be the turning point for earnings. Additional long-haul aircraft will be deployed, and fares will stabilize due to the integration of the two major domestic carriers."

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