NH Investment & Securities said on the 22nd that Korean Air Lines is expected to see improved results on synergy from its merger with Asiana Airlines and growth momentum in its aerospace division.
At the same time, it maintained a Buy rating and raised its target price to 34,000 won from 29,000 won. Korean Air Lines' closing price in the previous session was 26,450 won.
Jeong Yeon-seung, an analyst at NH Investment & Securities, said, "The short-term slump in passenger demand due to a sharp rise in fuel costs is expected to translate into a demand recovery in the second half of this year and next year," adding, "We are raising our target price in light of synergy from the Asiana Airlines merger and growth momentum in the aerospace division."
Recently, demand for travel departing Korea has been dampened by higher fuel surcharges caused by high oil prices. However, considering robust domestic consumption and the wealth effect, it analyzed that air passenger demand is closer to being "deferred" than "lost."
Jeong said, "Passenger demand is expected to recover quickly when fuel surcharges fall," adding, "The short-term demand slump can be offset by inbound and transfer demand to Korea from overseas." In the cargo segment, the increase in fuel costs is being passed through immediately via rate hikes.
On the 13th, Korean Air Lines decided through a board resolution to carry out an absorption-type merger of its subsidiary Asiana Airlines. The size of new shares to be issued during the merger process is equivalent to 5.5% of Korean Air Lines' total shares.
Jeong said, "Synergy effects are expected from improving efficiency on key routes, attracting additional transfer demand through network expansion, in-house maintenance, and reducing fixed-cost burdens through economies of scale."
He added regarding the aerospace division, "External growth will continue through increased production of airframe parts, performance upgrades for military aircraft, and expansion of maintenance businesses," and said, "The unmanned aerial vehicle business, pursued in partnership with Anduril, a U.S. defense company, is an additional growth opportunity."