[Click eStock] "HMM, Expecting Highest Profit in 6 Quarters Despite Peak-Out Concerns"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating and a target price of 38,000 KRW for HMM on the 4th, based on the expectation of record-high operating profit in the first quarter.

HMM is expected to achieve record-high operating profit in the first quarter. Sales are estimated to increase by 5% from the previous quarter to 4.68 trillion KRW, and operating profit is expected to rise by 7% to 2.88 trillion KRW. Despite ongoing concerns about a peak-out, the company has set new records for six consecutive quarters.

Ko Woo-woon, a researcher at Korea Investment & Securities, analyzed, “Although the Shanghai Containerized Freight Index (SCFI) has declined weekly since the first week of January, there is a time lag before this is reflected in actual performance. The freight rates on the trans-Pacific route, which accounts for over 40% of HMM’s revenue and holds the highest proportion, were actually better than expected.” The average freight rate for the US West Coast in the first quarter is estimated to have risen 18% compared to the previous quarter.

Port congestion has eased, peaking during the year-end shopping season, but supply remains insufficient. Researcher Ko evaluated, “HMM has sufficiently passed on the burden of rising oil prices to prices, so first-quarter operating profit is expected to exceed market expectations by 12%.”

As the SCFI declined, operating profit in the second quarter is predicted to be lower than in the first quarter. If the current trend continues, the average SCFI in the second quarter is expected to fall by 16%. However, the price-to-earnings ratio (PER) of 1.7 times this year already reflects the peak-out in advance, so the focus should be on how well profitability can be defended rather than fearing profit decline. Researcher Ko stated, “Long-term contracts (SC) for the US, which account for about 25% of volume, will apply new freight rates starting in May. Since the difference between existing contracts and spot rates is more than double, the SC contract renewals are an earnings upside factor that will offset market adjustments until the first quarter of next year.”

Even after the unprecedented boom ends, HMM is expected to generate massive cash flow as it has received new ultra-large vessels. Researcher Ko said, “No one can predict how much freight rates will be adjusted after the logistics chaos normalizes. However, even if the boom ends, the fact that substantial cash remains means that a solid financial structure can be maintained.”

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