Korean Air announced its preliminary results for the third quarter of this year (July–September) that fell short of market expectations, prompting securities firms to lower their target prices.
Yang Ji-hwan of Daishin Securities Co. cut the target price for Korean Air to 26,000 won from 28,000 won on the 22nd. ▲ LS Securities 27,000 won ▲ KB Securities and Hana Securities 28,000 won ▲ Sangsangin Investment & Securities 29,000 won ▲ NH Investment & Securities 30,000 won also set lower target prices than before.
Korean Air's earnings were to blame. On a separate basis, Korean Air posted revenue of 4 trillion won and operating profit of 376.3 billion won in the third quarter of this year. Operating profit missed the market consensus by 19.1%. Researcher Yang Ji-hwan said, "Third-quarter results recorded a shock that exceeded the weakness we expected."
Even during the peak summer vacation season, the main reason for Korean Air's weak results was underperformance on North American routes. As U.S. entry and exit screenings were tightened, demand fell, and increased supply pushed down fares at the same time.
However, securities firms kept their investment rating at "buy." They said Korean Air's share price has already priced in the bad news, with a year-to-date decline of 4.25%.
There is also an outlook that earnings will improve in the fourth quarter of this year (October–December) thanks to the long Chuseok holiday and the year-end shopping season effect. Choi Min-gi, a researcher at Shinhan Investment & Securities, said, "With solid demand on China and Japan routes and a recovery in the cargo market entering peak season, we expect international and cargo fares to hold up in the fourth quarter."
There was also an assessment that a recovery on North American routes is necessary for Korean Air's earnings to rebound. Ahn Do-hyun, a researcher at Hana Securities, said, "Because North American routes have the greatest impact on Korean Air's results and valuation, it is necessary to closely monitor the intensity of competition on North American routes going forward."