LS Securities said on the 16th that Korean Air Lines' first-quarter operating results beat market expectations, but rising international oil prices will increase fuel cost burdens starting in the second quarter. It maintained a "Buy (BUY)" rating and raised the target price to 31,000 won from 28,000 won. Korean Air Lines closed the previous session at 24,300 won, leaving 25% upside potential.
LS Securities estimated that, on a standalone basis, Korean Air Lines' first-quarter revenue would be 4.5151 trillion won and operating profit 516.9 billion won. That far exceeds the market consensus operating profit of 389.6 billion won.
Lee Jae-hyeok, an analyst at LS Securities, said, "In the passenger institutional sector, while strong results on Japan routes continued, business demand to North America and transfer demand on nonstop flights to Europe were solid," and added, "The passenger load factor also hit a record high of 88%, driving a quarterly earnings surprise."
The cargo institutional sector also maintained a solid freight rate level (cargo yield) despite the off-season. Other revenue institutional sectors such as aerospace and aircraft maintenance, repair and overhaul (MRO) posted strong growth, boosting their potential as mid- to long-term growth drivers.
However, starting in the second quarter, fuel costs due to rising international oil prices are expected to be a burden. The analyst said, "We implemented announced increases in fuel surcharges on both passenger and cargo fronts, but that cannot offset the entire expense burden," and added, "Concerns are gradually emerging about a pullback in travel demand due to a sharp rise in fares."
Even so, "After the fuel surcharge increase, preemptive ticketing demand is rising, so second-quarter passenger results will be solid compared with concerns," the analyst added, "but it should be noted that the effect of passing on fuel cost burdens could be partially diluted."