[Click eStock] "Pan Ocean, BDI Expected to Rise with Emerging Market Economic Recovery"

Shinhan Financial Investment Report
Target Price Raised by 27%

[Asia Economy Reporter Minji Lee] Shinhan Financial Investment maintained a buy rating on Pan Ocean on the 28th, expecting earnings growth due to the recovery of emerging market economies and the expansion of LNG shipping business, and raised the target price by 27% from the previous to 6,100 KRW.

In the fourth quarter, Pan Ocean is estimated to have recorded sales of 591.2 billion KRW, down 6.8% from the previous quarter. Operating profit is expected to rise 0.7% during the same period to 63.4 billion KRW. Bulk carrier operating profit is expected to record 60.6 billion KRW, up 6%, showing solid performance despite the decline in the average USD-KRW exchange rate and the Baltic Dry Index (BDI).

Hwang Eo-yeon, a researcher at Shinhan Financial Investment, explained, “The full impact of the two VLOCs (Valemax) and two Newcastlemax vessels deployed in the third quarter will be reflected, and a fuel cost reversal in the dedicated vessel segment is expected due to the sharp rise in oil prices,” adding, “Additional margin improvement is also expected following the termination of COA contracts concluded at low freight rates in the first half.”

As the emerging market economies, which had been sluggish due to the novel coronavirus disease (COVID-19), recover, the BDI is expected to rise on a trend basis. The emerging market currency index entered a recovery trend with the lifting of lockdowns in June and vaccine development in November. Oil consumption has steadily recovered since its low point in April and is expected to continue recovering next year. Researcher Hwang said, “Increased income and consumption from fiscal policy execution in developed countries will lead to expanded exports and economic recovery in emerging markets,” and added, “We expect a trend of rising BDI similar to the emerging market recovery period of 2016-2017.”

Expansion of the LNG carrier business is also anticipated. On the 15th, the company signed a long-term charter contract for two LNG carriers with SHELL. If the LNG liquefaction plant (200 million tons) currently undergoing investment review next year is approved, orders and charter contracts for 217 LNG carriers will be required. Researcher Hwang said, “Among global shipping companies, Pan Ocean has the best financial structure with a debt ratio of 60%,” and added, “LNG carrier orders and expansion of long-term transportation and charter contracts are expected based on a stable financial structure.”

This content was produced with the assistance of AI translation services.