July 11, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) Jin Air (272450/Trading Buy/TP: W21,000) KOSPI 2,058.78 6.75 0.33 Waiting for restrictions to be lifted KOSPI 200 268.75 1.03 0.38 KOSDAQ 666.90 9.10 1.38 Turnover ('000 shares, Wbn) Volume Value KOSPI 350,018 3,939 KOSPI 200 66,267 2,805 KOSDAQ 761,789 3,861 Market Cap (Wbn) Value KOSPI 1,372,819 KOSDAQ 228,677 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,298 1,095 203 Institutional 854 1,043 -188 Retail 1,760 1,762 -1 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 458 389 69 Institutional 203 165 38 Retail 3,182 3,271 -89 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 997 1,009 -13 KOSDAQ 433 350 84 Advances & Declines Advances Declines Unchanged KOSPI 537 286 72 KOSDAQ 956 258 74 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 45,550 450 420 Hynix 72,900 3,100 315 KODEX Kosdaq150 8,385 115 187 Leverage KODEX Leverage 11,920 105 174 KODEX KOSDAQ150 8,350 -70 173 INVERSE KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value SillaJen 44,800 2,800 247 Ilji Tech 4,270 500 116 Dongjin Semichem 12,800 -850 110 DUAL 2,215 510 108 Seoam Machinery 7,130 370 90 Industry Note: As of July 10, 2019 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Jin Air (272450 KS) Waiting for restrictions to be lifted Airlines 2Q19 preview: Operating loss unavoidable despite limited expansion Earnings Preview For 2Q19, we forecast Jin Air to record revenue of W217.3bn (-4.0% YoY). We believe the carrier continued to reduce domestic capacity (-4.0% YoY) and expand international July 11, 2019 capacity (+5.5% YoY) in the quarter. We estimate overall traffic slipped 0.3% YoY due to a weaker load factor. At the operating level, we expect the carrier to post a loss of W13.8bn, which is worse than the market consensus (loss of W3.1bn). We believe the declines in international (Maintain) Trading Buy load factor (79%; -4.2%p YoY) and yield (-3.9% YoY) had a larger-than-anticipated impact on earnings. In addition, cost pressures, including fuel costs (+29% YoY) and Target Price (12M, W) 21,000 labor costs (+17% YoY), were likely exacerbated by revenue contraction. On the non-operating side, we believe a higher US$/W rate (won depreciation) at end- Share Price (07/10/19, W) 18,800 2Q19 led to F/X-translation losses, contributing to a quarterly net loss of W21.2bn. Expected Return 12% Waiting for restrictions to be lifted 1) Still no sign of end to restrictions: Jin Air is currently banned from adding new aircraft or routes, which is why the carrier was unable to participate in the China route OP (19F, Wbn) 62 allocations in May. Jin Air is seeking to expand international capacity by reducing Consensus OP (19F, Wbn) 89 domestic capacity, but we believe this strategy will also begin showing limitations later this year. In our view, the carrier needs a more progressive approach to addressing the EPS Growth (19F, %) -26.4 restrictions. Market EPS Growth (19F, %) -23.8 P/E (19F, x) 17.2 2) Risks of market share losses: We estimate Jin Air’s market share in the short-haul international segment has fallen from 7% to around 6%. In May, Jin Air lost its no. 2 Market P/E (19F, x) 12.2 place for the first time ever to T’way Air, suggesting the restrictions are beginning to KOSPI 2,058.78 erode the carrier’s market position. At this rate, we think the carrier could settle into third place in 2H19. Market Cap (Wbn) 564 Shares Outstanding (mn) 30 3) Worries about growth: Overall sluggish demand is minimizing the adverse impact Free Float (%) 38.1 of the restrictions, as the carrier has seen relatively limited fixed costs (except for labor) Foreign Ownership (%) 6.0 due to the aircraft registration ban. But in the long term, market share losses are likely Beta (12M) 1.44 to raise worries about growth. 52-Week Low 17,000 Maintain Trading Buy and TP of W21,000 52-Week High 29,000 We maintain our Trading Buy rating and target price of W21,000 on Jin Air. A relaxation (%) 1M 6M 12M of the restrictions could cause the stock to rise at any time, but it remains highly Absolute -7.4 -0.3 -27.8 uncertain when this might happen. Valuation also does not look particularly attractive Relative -5.6 0.0 -19.6 on a relative basis, with the stock trading at a P/E of 10x based on earnings estimates for 2020, when the restrictions are expected to be lifted. 140 Jin Air KOSPI In the long term, we continue to see positive changes across the industry, including 120 M&As, better shareholder returns (dividends, etc.), and profitability-oriented route restructuring. In such an environment, Jin Air could once again generate synergies with 100 its affiliate and top domestic airline Korean Air. 80 60 7.18 11.18 3.19 7.19 Mirae Asset Daewoo Co., Ltd. [ Transport/Energy] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 720 888 1,011 991 1,028 1,092 Jay JH Ryu +822-3774-1738 OP (Wbn) 52 97 63 62 91 108 [email protected] OP margin (%) 7.2 10.9 6.2 6.3 8.9 9.9 NP (Wbn) 39 74 44 33 55 68 EPS (W) 1,457 2,721 1,482 1,091 1,831 2,269 ROE (%) 60.9 47.8 17.9 11.8 17.6 18.7 P/E (x) - 9.7 13.0 17.2 10.3 8.3 P/B (x) - 3.4 2.2 1.9 1.7 1.4 Dividend yield (%) - 0.9 1.6 1.6 2.1 2.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research Key Universe Valuations July 11, 2019 ※All data as of close July 09, 2019, unless otherwise noted. 19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 271,924 45,550 3.1 -56.7 31.8 -49.5 27.8 15.0 11.7 1.2 1.1 8.3 10.0 000660 SK Hynix 53,071 72,900 2.1 -85.3 94.0 -85.4 87.6 23.4 12.5 1.0 1.0 4.8 8.5 005380 Hyundai Motor 29,273 137,000 2.9 61.8 9.5 143.0 11.5 10.5 9.4 0.5 0.5 5.2 5.6 068270 Celltrion 24,254 189,000 - - - - 0.0 0.0 051910 LG Chem 23,825 337,500 1.8 -21.5 56.7 -24.3 68.0 23.7 14.1 1.5 1.3 6.4 10.1 012330 Hyundai Mobis 22,063 231,500 1.5 9.1 10.2 27.0 7.4 9.4 8.7 0.7 0.6 7.5 7.6 005490 POSCO 20,838 239,000 4.2 -14.6 2.8 71.9 3.0 7.2 7.0 0.4 0.4 6.6 6.4 055550 Shinhan Financial Group 20,675 43,600 11.0 4.5 9.0 2.2 6.0 5.9 0.5 0.5 9.3 8.9 017670 SK Telecom 20,550 254,500 3.9 7.2 4.4 -51.8 65.3 13.6 8.3 0.8 0.8 6.6 10.3 051900 LG H&H 19,695 1,261,000 12.8 9.7 15.7 10.6 24.9 22.5 5.4 4.6 20.0 18.9 035420 NAVER 19,036 115,500 0.3 -31.0 123.8 -45.3 194.1 53.6 18.2 2.8 2.4 6.6 17.3 105560 KB Financial Group 18,125 43,350 9.7 3.9 10.8 4.1 5.3 5.1 0.5 0.4 9.2 9.0 000270 Kia Motors 17,410 42,950 1.9 20.5 19.7 54.5 16.7 9.7 8.4 0.6 0.6 6.3 7.0 028260 Samsung C&T 17,319 91,300 2.2 5.4 20.1 -4.2 20.7 13.7 11.4 0.6 0.6 5.2 5.9 018260 Samsung SDS 16,404 212,000 1.3 11.6 16.5 12.7 15.4 23.1 20.0 2.5 2.3 11.3 12.0 015760 KEPCO 16,210 25,250 - - - - - - 0.2 0.2 - - 032830 Samsung Life 16,020 80,100 - - - - 0.0 0.0 006400 Samsung SDI 15,919 231,500 0.4 17.7 37.7 12.6 27.1 20.6 16.2 1.2 1.2 6.4 7.5 034730 SK Holdings 15,479 220,000 2.1 13.3 12.9 -32.3 20.1 10.2 8.5 0.8 0.8 8.9 9.8 096770 SK Innovation 15,303 165,500 4.8 -46.5 75.4 -56.1 94.1 21.4 11.0 0.8 0.8 4.0 7.6 033780 KT&G 13,413 97,700 4.3 12.8 5.6 17.5 5.1 12.7 12.0 1.5 1.4 12.7 12.6 003550 LG Corp.