Yuanta Securities Korea on the 27th projected that Korean Air Lines' first-quarter operating profit would beat market expectations on growth in international passenger, air cargo, and aerospace, while maintaining a Buy rating and raising the target price to 32,000 won from 29,000 won. The previous trading day's closing price of Korean Air Lines was 24,950 won.
Choi Ji-woon, an analyst at Yuanta Securities Korea, said, "We expect top-line growth to continue, supported by steady trends in passenger, cargo, and aerospace."
For the first quarter of this year on a standalone basis, Korean Air Lines' revenue and operating profit were estimated at 4.2613 trillion won and 389.5 billion won, respectively. Revenue rose 7.7% from a year earlier, and operating profit increased 11%.
Specifically, revenue from international passengers was forecast at 2.4661 trillion won, up 5.5% from a year earlier. Demand on Japan and China routes remained solid in the first quarter, and the disruption to Middle Eastern airport operations due to the U.S.-Iran war in March was seen as leading to a reshuffling of demand toward Asian hubs such as Incheon Airport. It also judged that, as a war-related tailwind, demand on Korean Air Lines' routes to the Americas and Europe expanded.
For air cargo, revenue was revised up to 1.0896 trillion won, a 3.4% increase from a year earlier. This was because demand for high value-added cargo such as semiconductors remained solid in the first quarter and fares were estimated to have risen 2% year over year. The aerospace institutional sector was expected to continue its growth trend on recovering demand for parts due to normalized aircraft supply and revenue recognition from projects booked last year.
For this year, Korean Air Lines' revenue was projected at 17 trillion won and operating profit at 1.5 trillion won. Revenue increased 5.4% from a year earlier, but operating profit decreased 1.7%.
Choi said, "The sharp rise in jet fuel prices in March will, with a time lag, negatively affect second-quarter profitability," adding, "Considering the increase in non-fuel expenses due to the strong dollar, the introduction of new aircraft, and other factors, the full-year operating margin will decline from a year earlier."
However, it assessed that even amid a surge in oil prices and a weak won due to the Middle East crisis, the company would be able to defend demand relatively well compared with competitors.
Choi said, "With a high share of long-haul routes and secured premium demand, the company is relatively well positioned to pass through fares and defend demand," adding, "Through fuel hedging (a financial contract that locks in future jet fuel prices) and a high proportion of foreign-currency revenue, it can partially offset macro (macroeconomic environment) pressures."