Samsung Securities announced on Dec. 2 that it has lowered its target price on Asiana Airlines to 3,800 won, although the groundwork for another leap has been laid by HDC Hyundai Development, who was chosen as the preferred bidder for the ailing airline.
As HDC Hyundai Industrial Development has offered 2.5 trillion won to acquire Asiana Airlines, Samsung Securities said that expectations for an improvement in the airline’s financial structure are rising. “HDC Hyundai Industrial Development will be able to use about 1.4 trillion won to improve Asiana's financial structure after purchasing old shares held by Kumho Asiana Group and repaying loans from Korean Development Bank,” said Kim Yeong-ho, a Samsung Securities analyst. “With 1.4 trillion won, HDC Hyundai Industrial Development will be able to pur our fires, given that Asiana’s long-term and short-term borrowings and debentures amounted to about one trillion won at the end of the third quarter of this year.”
However, the analyst said it is still unclear that the 1.4 trillion won will be enough to sharpen Asiana’s competitive edge as the aviation industry is entering a down cycle amid intensifying competition with low-cost carriers (LCCs).
He also noted adverse factors facing Asiana Airlines, including the opening of the lucrative China routes to new airlines, lingering concerns about a fall-off in the performance of the passenger service division due to a prolonged Japan travel boycott among Korean tourists, and a drop in profitability and shipments in the cargo sector.
Samsung Securities also pointed out that skepticism remains about HDC Hyundai Development’s understanding of the aviation industry and ability to create synergy with its affiliates. Kim said, “Investors need to keep an eye on Asiana Airlines' restructuring plans and strategies after its acquisition by HDC Hyundai Development.” He added, “As a capital increase of about two trillion won is inevitable after the acquisition contract is signed, Asiana’s current share price is still high in our view.”