[Click eStock] "HMM, Strong Q1 Earnings Outweigh Freight Rate Concerns"…Target Price Upward Revised

[Asia Economy Reporter Ji Yeon-jin] KTB Investment & Securities announced on the 26th that it is raising the target price to 24,000 KRW for HMM, the largest container shipping company in Korea, as it expects the first-quarter earnings this year to perform well despite concerns over rising freight rates.

HMM's first-quarter sales this year are expected to increase by 72.5% year-on-year to 2.26 trillion KRW. Operating profit is estimated to turn positive at 882.3 billion KRW. European freight rates surged in November last year, rising from about 1,000 USD per TEU in October to 4,109, which is four times higher as of February. The strong performance in the second half of 2020 was driven by American freight rates, which have remained steady around 4,000 USD/FEU without significant decline.

Although the fuel oil input cost per unit is expected to rise by 16-17% year-on-year in the first quarter, the resulting increase in costs is projected to be only 13 billion KRW, while the increase in sales revenue is expected to be much larger. Annual sales this year are forecasted to grow 21% year-on-year to 7.8 trillion KRW, and operating profit is expected to increase by 113% to 2.1 trillion KRW. European spot freight rates, which have surged due to a shortage of container boxes, are assumed to weaken starting from the second quarter this year, and the American market is also expected to weaken from the second half of the year.

However, if the American S/C (Service Contract, fixed freight contract) freight rates renewed until April-May are signed at about twice the level of the previous year, it is expected to generate EBITDA in the range of 2.8 trillion KRW. The simultaneous decline in cargo volume and freight rates during the Chinese Lunar New Year period, which shippers had anticipated, did not occur; rather, as of the 19th, the West Coast freight rate rose again to 4,106 USD/FEU. The container throughput at the Port of LA, which recorded 836,000 TEU in January, is estimated to increase by 34% and 72% year-on-year to 730,000 TEU in February and 775,000 TEU in March, respectively. Analyst Lee Han-jun of KTB Securities said, "Even excluding the COVID-19 base effect, the absolute volume is greater than during the 2017 restocking cycle," adding, "Strong demand and supply shortages are expected to continue at least throughout the first half of this year."

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