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Renewed focus on attractive valuation

4Q23 review: Earnings miss consensus on bonus payments, despite strong passenger business

For 4Q23, Korean Air reported non-consolidated revenue of W3.98tr (+10% YoY), with strong passenger revenue (W2.46tr; +48% YoY) helping to offset weak cargo revenue (W1.1tr; -29% YoY). Meanwhile, non-consolidated operating profit was sluggish, at W183.6bn. Based on the non-consolidated figures, we estimate consolidated operating profit at W223.6bn, sharply missing the consensus (W411.4bn). Earnings were weighed down by higher-than-expected labor expenses.

Lower TP to W30,000, but maintain Buy; passenger yield to remain strong and cargo yield to rebound

We lower our target price on Korean Air from W32,000 to W30,000 (P/B of 1.0x), as we revised down our earnings forecasts. However, we maintain our Buy rating. International passenger yield has remained strong at the start of 2024, and cargo yield is showing signs of a rebound. Looking ahead, e-commerce-driven growth in cargo volume and tighter supply amid delays in aircraft deliveries should be positive for the stock.

Recently, low-P/B stocks have attracted renewed attention. Given Korean Air’s strong cash flow and solid ROE, we believe sentiment on the stock will improve going forward.