[Click eStock] "Pan Ocean, Expecting Solid Performance Despite BDI Adjustment"

Published 20 Apr.2022 07:00(KST)

Hana Financial Investment Report

[Click eStock] "Pan Ocean, Expecting Solid Performance Despite BDI Adjustment"

[Asia Economy Reporter Minji Lee] Hana Financial Investment on the 20th forecasted that Pan Ocean will record solid first-quarter earnings despite adjustments in the Baltic Dry Index (BDI). Pan Ocean maintained a buy rating and a target price of 8,000 KRW.

Pan Ocean's first-quarter revenue and operating profit are expected to grow by 76.9% and 125%, respectively, compared to the same period last year, reaching 1.2 trillion KRW and 110 billion KRW.

Although the BDI turned downward from the beginning of the year, averaging 2,041 points in the first quarter?a 41.6% decrease from the previous quarter?this posed a burden. The rise in fuel costs due to increasing international oil prices was also a concern. However, the appreciation of the KRW/USD exchange rate, influenced positively by the US dollar as the functional currency, and the break-even points (BEP) of chartered vessels secured in the second half of last year being similar to the first-quarter average BDI meant that overall profitability deterioration was not a factor, leading to an expectation of solid earnings.

The BDI continues to weaken. After rising to 5,060 points in mid-October, the BDI turned bearish and fell to 1,296 points by the end of January. The suspension of coal exports from Indonesia and disruptions in iron ore production and transportation due to heavy rains in Brazil were contributing factors.

Seongbong Park, a researcher at Hana Financial Investment, said, “The BDI shifted to an upward trend from February and has consistently remained above 2,000 points recently. Although city lockdowns in China, including Shanghai, negatively impacted dry bulk shipping volumes, the lockdown caused operational disruptions at Shanghai Port, increasing the number of dry bulk vessels waiting by 15% compared to a month ago, reaching 220 vessels. This reduction in available shipping capacity is believed to have driven the recent freight rate increase.”

If the lockdown intensity in the Shanghai area eases and Brazil expands iron ore exports, the BDI is expected to gradually shift to an upward trend. Researcher Park added, “We expect solid operating results to be achievable through the third quarter due to the sustained rise in the BDI. The current stock price, with a price-to-book ratio (PBR) of about 0.9 times, also indicates limited valuation pressure.”