[Into the Stock] HMM, Concerns Over Peak-Out Amid Labor Disputes... What Is the Stock Outlook?

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[Asia Economy Reporter Minji Lee] Amid continued strong freight rates, HMM is embroiled in labor disputes, leading to expectations that the stock price's upward momentum will be limited. If union members go on strike, the securities industry believes the company's value will inevitably decline.

Collective Resignation by Maritime Union...Concerns Over Logistics Crisis Becoming Reality

As of 1:30 PM on the 25th, HMM's stock price stood at 39,750 KRW, up 1.15% from the previous trading day. It had also risen 2.54% the day before, continuing an upward trend for two consecutive trading days. Following the maritime union's strike vote on the 23rd, where 92% of members approved the strike, it is expected that they will submit collective resignations on this day, yet the stock price remains on the rise. This is analyzed as reflecting the high possibility of renegotiations due to the potential logistics crisis if the maritime union collectively resigns.

According to HMM, if the union carries out a three-week strike, the estimated damage would reach 680 billion KRW. The industry expects that due to the large damage and the potential logistics crisis for export companies, labor and management will reach a compromise. Labor and management are scheduled to resume negotiations on the 1st of next month. The union demands a 25% wage increase this year and a 1200% performance bonus, claiming wage normalization, while management has proposed an 8% wage increase, a 300% encouragement bonus, and an additional 200% incentive bonus after the year-end settlement.

Namansik, a researcher at Ebest Investment & Securities, explained, "If the maritime union submits collective resignations and moves to overseas shipping companies, it will inevitably have a negative impact on corporate value. However, since there is a possibility of renegotiation based on the management's proposal, we have not considered changes to investment opinions or target stock prices."

Freight Rate Strength Continues Despite Peak-Out Concerns...Strong Q3 Earnings Expected

According to financial information provider FnGuide, the securities industry expects HMM's operating profit for the third quarter to reach 1.7912 trillion KRW, a 546% increase compared to a year ago. Sales are expected to increase by 96.62% to 3.3789 trillion KRW. The Shanghai Containerized Freight Index (SCFI) recorded 4,340.18 points on the 20th, up 58.65 points from the previous week. This is a record high, and the expected operating profit for the second half of the year continues to show an upward trend. Just two months ago, the securities industry estimated operating profit at 1.0353 trillion KRW, but it has been revised upward reflecting the effect of rising freight rates.

Kim Young-ho, a researcher at Samsung Securities, said, "The cumulative freight index for the third quarter reached 4,099 points (a 244% increase compared to the same period last year), indicating that the peak season is underway and freight rate strength is expected to continue." Looking at the second quarter results, operating profit increased by 901% year-on-year to 1.39 trillion KRW, marking the best performance in the first half of the year, with the SCFI average rising 252.5% year-on-year to 3,259 points.

"Good to Buy More" VS "Realize Gains Before Off-Season"

The securities industry presents mixed opinions regarding buying HMM stock. Those expecting further price increases suggest a fair price range between 52,000 and 60,000 KRW. Considering the freight boom cycle and government investment expectations in the container shipping industry, they believe the stock price will follow an upward trajectory.

Yang Ji-hwan, a researcher at Daishin Securities, said, "The recent stock price slump occurred despite a solid container market boom because the U.S. Federal Maritime Commission (FMC) began investigating detention and demurrage fees imposed by shipping companies, leading to a simultaneous correction in global container shipping stocks. Since detention and demurrage fees have different imposition standards for each shipping company, there is no possibility of collusion, so attention should be focused on the robust market conditions expected to continue through next year."

The contribution of new container ships to earnings is also anticipated. HMM received 12 vessels of 24,000 TEU last year and has taken delivery of eight vessels of 18,000 TEU since March this year. Considering that operation usually takes 2-3 months, new volumes are expected to be reflected in earnings from the third quarter. Global shipping research firm Clarkson forecasts demand growth of 4% next year, exceeding the supply growth rate of 3%. Given the low new order investments in 2018-2019, supply-demand improvements are expected to continue through next year.

Choi Go-woon, a researcher at Korea Investment & Securities, analyzed, "Even considering seasonal off-season effects such as China's National Day in October and year-end holidays in the fourth quarter, if bottlenecks caused by the pandemic worsen again, such as the partial closure of Ningbo Port in China, freight rate strength will last longer. Since there is a clear willingness to support the core industries of shipping and shipbuilding, it is still premature to reflect privatization concerns on HMM at this point."

On the other hand, some argue that gains should be realized before the off-season. The freight rate surge is not due to increased cargo volume from economic recovery but rather supply disruptions caused by port congestion. Some securities research centers have downgraded their investment opinions from buy to neutral following the second quarter earnings announcement. Shin Young Securities recommends realizing gains before the off-season and suggests a fair price of 38,000 KRW.

Yeom Kyung-ah, a researcher at Shin Young Securities, said, "Since freight rates have a higher impact on earnings improvement than cargo volume, the removal of port congestion is likely to reduce freight surcharges. Route normalization is expected in the first quarter of next year’s off-season, and stock prices may respond more sensitively to earnings growth rates than absolute profits, so the momentum for stock price increases will slow."

The additional conversion risk of convertible bonds should also be noted. The possibility of converting the 191st series convertible bonds in the first half of next year is weighing on the stock price. Bang Min-jin, a researcher at Eugene Investment & Securities, said, "With the conversion of the 190th series convertible bonds, the additional conversion risk cannot be ruled out. It is necessary to keep in mind the level of 23,340 KRW, assuming 100% dilution."

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