Korea’s reopening stocks shine despite surging Omicron cases

South Korea’s reopening stocks rallied even as the local COVID-19 cases hit record-highs with the spread of the Omicron variant. Investors raised bets on improvement in the airlines, travel, beverage and fashion sectors’ earnings since the government planned to manage the pandemic as the seasonal flu once the worst is over.

Analysts recommended paying attention not only to industries benefitting from the economic reopening and demand recovery but also sectors maximizing profitability by product price hikes.

WORST-HIT NAMES OUTPERFORM

Among stocks expected to take advantage of the economic reopening, shares of companies that were hit harder than others outpaced their peers.

Jin Air Co. and Jeju Air Co., for example, have risen 29.3% and 23.2% so far this month, respectively, while Asiana Airlines Inc. has also advanced 18.2%. Those rises compared with a 5.5% gain in Korean Air Lines Co.

The country’s top carrier logged a record operating profit of 1.5 trillion won ($1.2 billion) last year on surging demand for air cargo. But those smaller rivals, especially budget airlines, were hurt hard as the COVID-19 slashed international travel worldwide.

Their sluggish earnings have been putting pressure on their stock prices. Despite strong gains this month, their share prices stayed lower than pre-pandemic levels.

“The more they lost in sales, the more benefits they would gain,” said Lee Eun-taek, an analyst at KB Securities. “But it’s better to avoid companies with a sluggish trend even before the COVID-19.”

BIG TRAVEL AGENCIES MAIN BENEFICIARIES

In the travel sector, Modetour Network Inc., Lotte Tour Development Co. and Hanatour Service Inc. have advanced 16.7%, 17% and 15.7%, respectively. Those major players are expected to absorb the predicted recovery in demand since many smaller companies closed the business due to the COVID-19.

Survivors have already reduced the burdens of labor costs after massive job cuts. They can make profits even from lower sales thanks to systemization and automation.

“Once international travels resume, major travel agencies will be main beneficiaries of the impact of rising profits from surging demand, jumping prices and the industry restructuring,” said Ji In-hae, an analyst at Shinhan Investment Corp.

FASHION, BEVERAGE

Fashion and sports-shoe companies are expected to shine when the economy reopens. Hwaseung Enterprise, an original development manufacturer (ODM) for global sports brands such as Adidas, has risen 10.2%, while Handsome Corp., a fashion powerhouse, has gained 6.7%.

KB Securities predicted the sectors to raise product prices, improving profitability further.

“Prices of only some items have not risen for the last two years. Clothes, shoes, beverages, medicines, as well as travel services and airfares, are among them,” said the brokerage house’s analyst Lee.

Soju makers’ stocks rallied as prices of the South Korean distilled alcoholic beverage are forecast to rise. Korea Ethanol Supplies Co. increased the price of ethyl alcohol, a key ingredient of soju, by 7.8%, for the first time in about a decade.

Demand for soju is expected to increase once the government lifts social distancing measures such as the business hours of bars and restaurants that have been hurting liquor makers’ sales.

The country’s leading soju maker HiteJinro Co. has advanced 17%, while its rival Lotte Chilsung Beverage has risen 6.8%.

Write to Jae-Yeon Ko at yeon@hankyung.com
Jongwoo Cheon edited this article.