iM Securities said on the 19th that for Korean Air Lines, investor sentiment is improving as the downtrend in oil prices is proceeding faster than expected and the merger date with Asiana Airlines has been set. It maintained its investment opinion of Buy and raised its target price to 40,000 won from the previous 34,000 won. Korean Air Lines' previous closing price was 28,850 won.

Korean Air Lines says on the 29th that it conducts a Korean Air Lines·Asiana Airlines Integrated Emergency Evacuation Demonstration on the afternoon of the 28th at its headquarters and cabin crew training center in Gangseo-gu, Seoul, to verify cabin crew safety response capabilities ahead of the launch of the integrated airline this year. The photo shows type-specific emergency evacuation drills using an actual aircraft at the Korean Air Lines headquarters hangar. /Courtesy of Korean Air Lines

iM Securities explained that the target price hike reflects an increase in the target EV/EBITDA multiple to 5.7 times from 5.4 times, driven by faster-than-expected declines in oil prices and improved investor sentiment following the confirmation of the Asiana Airlines merger date.

Bae Se-ho, a researcher at iM Securities, said, "Despite a sharp rise in oil prices in the second quarter this year, the company is expected to stand out for its ability to defend earnings by fully passing higher fuel costs through to passenger and cargo fares compared with competitors," and noted, "This trend appears likely to hold in the third quarter as well."

For the second quarter this year on a standalone basis, revenue was forecast at 4.8 trillion won, up 19.2% from a year earlier, and operating profit at 123.9 billion won, down 68.9%. On a consolidation basis, revenue was projected at 6.9 trillion won, up 10.7% from a year earlier, and an operating loss of 164.8 billion won.

However, assuming a downward trend in oil prices, strong results were expected in the third quarter. iM Securities projected third-quarter standalone revenue of 4.5 trillion won, up 11.5% from a year earlier, and operating profit of 464.9 billion won, up 23.6%.

With the merger date with Asiana Airlines set for Dec. 16, corporate value enhancement was anticipated. Accordingly, the firm expected to see full-scale synergies starting next year.

Bae said, "Conservatively, an annual operating profit increase of about 300 billion to 400 billion won is expected, and we recommend a Buy given the very high visibility for corporate value enhancement."

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