20171115-三星证券-Valuation_merits_to_re-enter_spotlight_7页_383kb

Korean Air (003490) Summary

Core Content

This document provides an analysis of Korean Air (KAL) by Samsung Securities, including its recent financial performance, valuation metrics, and future forecasts. The report highlights the company's current stock price, market capitalization, and key financial indicators such as earnings per share (EPS), profit margins, and valuation multiples. It also compares KAL with other major carriers and outlines the analyst's recommendation and target price.

Key Points

3Q Results

• Sales: Increased by 3.1% year-over-year (YoY) to KRW3.21t, but operating profit dropped by 22.7% YoY to KRW355.5b.
• Passenger yield: Declined by 6.4% YoY, influenced by slowing demand ahead of the long holiday period.
• Cargo yields and volume: Both improved, contributing positively to the company's performance.
• Fuel costs: Rose by 12.2% YoY to KRW71.7b, with average jet fuel prices likely up 15% YoY to USD63/bbl.
• COGS: Increased by 7.5% YoY due to rising fuel costs and initial outlays for the hotel business.

Analyst's Recommendation

• Rating: BUY
• Target Price: KRW40,000
• Current Price: KRW30,700
• Price-to-Book (P/B): 1.16x, which is 23% below the global peer average of 1.5x, suggesting a potential undervaluation.

Future Forecasts

• 2017E EPS: Revised down to KRW6,556 from KRW10,622, a -38.3% change.
• 2018E EPS: Revised to KRW5,390 from KRW4,434, a +21.6% change.
• Operating Profit: Revised down by 5% for 2017 and 6% for 2018, due to weak 3Q results and increased oil prices.
• P/E Ratio: 4.7x for 2017E, with a 23% discount to the global average.
• P/B Ratio: 1.16x for 2017E, and 1.0x for 2018E, indicating potential value.
• ROE: Expected to be 27.3% for 2017E, 16.7% for 2018E, and 14.2% for 2019E.
• EV/EBITDA: 5.1x for 2017E, 4.4x for 2018E, and 3.7x for 2019E.

Valuation Merits

• The analyst believes the 3Q results should ease concerns, and attention is now likely to shift to the valuation merits.
• The company's cargo earnings continue to grow with improving yields and volume.
• The passenger earnings are expected to turn around this quarter, as the 3Q weakness was due to demand spread over a long period, not a contraction.
• The joint venture with Delta Air Lines is expected to bring additional passenger growth.

Market Performance

• One-Year Performance:
  • 1M: 2.0%
  • 6M: -4.8%
  • 12M: 10.7%
• Vs Kospi:
  • 1M: -0.1%
  • 6M: -13.9%
  • 12M: -13.5%

Key Changes

• Recommendation: Remains BUY.
• Target Price: Unchanged at KRW40,000.
• 2017E EPS: Revised down by -38.3% to KRW6,556.
• 2018E EPS: Revised up by +21.6% to KRW5,390.

Comparison with The Street

• Number of Estimates: 15
• Target Price: KRW43,400
• Recommendation: 4.1 (out of 5)
• BUY: 5
• HOLD: 3
• SELL: 2

Summary of Valuation Metrics

Forecast Revisions

Major Carriers: Valuation Overview

Conclusion

The report emphasizes that despite the weak 3Q performance, Korean Air is still a BUY with a KRW40,000 target price. The analyst attributes this to the company's improving cargo performance, potential recovery in passenger earnings, and the validity of the joint venture with Delta Air Lines. The current valuation, particularly the P/B ratio, suggests that the stock may be undervalued compared to global peers, offering a potential re-entry opportunity.