[Click eStock] "Pan Ocean, Short-term Uncertainty Expands Due to Economic Recession"

Korea Investment & Securities Report
China's Economic Stimulus Momentum Drives Freight Rate Increase

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Pan Ocean on the 21st and set the target price at 8,300 KRW, down 14% from the previous level. This reflects consideration of short-term uncertainties due to concerns over an economic recession.

Pan Ocean's sales for the second quarter are expected to increase by 10% from the previous quarter to 1.6 trillion KRW, and operating profit is projected to rise 6% to 180 billion KRW. The operating profit forecast has been revised upward by about 13% over the past month and is analyzed to exceed 8% again.

Choi Go-woon, a researcher at Korea Investment & Securities, said, "Although the bulk shipping market seemed sluggish and volatile, the average Baltic Dry Index (BDI) actually rose 23% compared to the first quarter," adding, "The fleet size remained similar to the first quarter at around 300 vessels, and the breakeven point for time charters did not change significantly."

However, the cost burden is estimated to have increased as ship fuel oil prices surged 22% compared to the previous quarter. This reflects the impact of actively passing on costs to freight rates due to the tightest supply and demand for bulk carriers. The KRW-USD exchange rate rose 12% over the past year, and the additional increase in the second half of the year is seen as positive.

As the global economic growth rate has been revised downward, shipping stocks have recently undergone significant price adjustments. The BDI has fallen more than 30% from the high recorded in mid-May this year. The recovery of China's steel market, which is most important for the normalization of Cape-size vessels, is also delayed, increasing uncertainty. Accordingly, the company's target valuation was lowered from a price-to-book ratio (PBR) of 1.23 times based on this year to 1.06 times, the average during the BDI uptrend years of 2017, 2018, and 2021.

Researcher Choi said, "We maintain a buy rating because the improvement in bulk shipping supply and demand is structurally differentiated from other cyclical stocks," and analyzed, "Over the past two years, the dry bulk market has experienced a boom thanks to tight vessel supply even without demand support, so if China's economic stimulus measures are fully implemented, freight rates could surge sharply due to tight supply."

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