KB Securities has raised its target price for Jeju Air from 4,800 won to 5,700 won, reflecting expectations for improved third-quarter performance, enhanced liquidity, and reduced capital replenishment burdens. However, the firm maintained a 'Hold' rating due to ongoing profitability pressures from high oil prices and cash outflows related to aircraft investments.
KB Securities forecasts Jeju Air's operating profit for the third quarter of this year to reach 19.9 billion won, marking a return to profitability compared to the same period last year and the previous quarter. This figure exceeds both market consensus and KB Securities' prior estimates of 18.2 billion won and 57.2 billion won, respectively.
Kang Sung-jin, a researcher at KB Securities, noted, "Travel demand between Korea and Japan has increased more robustly than expected, leading to better-than-anticipated recovery in Jeju Air's capacity, load factor, and fares. The aircraft utilization rate also appears to have normalized more quickly than expected."
Despite this positive outlook, the operating profit margin is projected to remain at 3.6% due to soaring international oil prices, even during the peak season. While the decline in the won-dollar exchange rate may stimulate outbound travel demand from Koreans and reduce cost burdens, high oil prices could limit the extent of profit improvements.
KB Securities has revised its operating profit forecasts for Jeju Air to a loss of 14 billion won in 2026 and a profit of 20.6 billion won in 2027, adjustments of 45.4 billion won and 23.9 billion won, respectively, compared to previous estimates.
However, the firm believes that the possibility of additional capital expansion cannot be entirely ruled out in the medium to long term. KB Securities estimates that Jeju Air's expected interest expenses will reach 68.7 billion won in 2026 and 81.5 billion won in 2027, indicating that the revised operating profit outlook alone may not be sufficient to cover these costs.
Kang added, "As aircraft investments continue, the likelihood of negative free cash flow persists. While operating conditions are improving, considering interest expenses and investment burdens, it is difficult to conclude that the investment appeal has fully recovered."
* This article has been translated by AI.
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