[Click e Stocks] Pan Ocean Expected to Continue Smooth Sailing in Q3

[Asia Economy Reporter Junho Hwang] Korea Investment & Securities raised the target price of Pan Ocean from 7,500 KRW to 9,500 KRW on the 13th. This adjustment is based on the expectation that the supply and demand of dry bulk carriers will improve over the long term, and that freight rates will continue to rise steadily due to delays in ship orders caused by environmental regulations.

Pan Ocean posted an earnings surprise in the second quarter. Sales increased by 65% compared to the same period last year, reaching 1.1299 trillion KRW, and operating profit rose by 74% to 112 billion KRW. Both figures exceeded consensus estimates by 31% and 26%, respectively. This is the first time since 2008 that quarterly operating profit has surpassed 100 billion KRW.

Operating profit in the bulk segment reached 100.9 billion KRW, nearly tripling compared to the first quarter. The earnings contribution from charters secured in advance before the BDI (Baltic Dry Index) surged significantly led this surprise. Thanks to this, market concerns that profit leverage from spot freight rate improvements would be limited were also overcome.

Additionally, based on confidence in the market rebound this year, Pan Ocean has actively joined the bulk freight turnaround by increasing the number of dry bulk charters from 113 vessels at the beginning of the year to 179 vessels by the end of the second quarter and purchasing secondhand ships.

Operating profit in the third quarter is expected to increase by 17% from the second quarter to 131 billion KRW. This is due to the seasonal peak effect improving the market conditions further and an increase in fleet size. The average BDI in the second quarter rose 61% compared to the first quarter, and it has increased an additional 15% so far in the third quarter. The total number of vessels currently exceeds 300, increasing by about 10 vessels. There is a time lag in reflecting the sharply rising spot freight rates of open ships in the results, so third-quarter profitability is expected to be the highest this year.

Choi Go-woon, a researcher at Korea Investment & Securities, analyzed, "The structural improvement in dry bulk supply and demand, unlike containers, until 2023 is an important investment point. Although the BDI has reached its highest level in 10 years, shipping companies burdened by strengthened environmental regulations are hesitant to place new orders. The current order backlog ratio is only 6%. Therefore, the shortage of ships is expected to worsen, supporting a steady rise in freight rates."

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