[Click eStock] "Expanding Transport Sector Weight... Focus on HMM and Pan Ocean"

While the transportation sector's performance in the second quarter of this year is generally expected to meet market estimates, securities analysts have highlighted the need to pay attention to HMM and Pan Ocean.

On the 23rd, Myung Ji-woon, a researcher at Shinhan Investment Corp., said, "The surge in shipping freight rates, recovery in air passenger numbers and increased cargo demand, growth in parcel volume, and profitability improvement projects are factors that raise expectations for second-half performance, presenting an opportunity for 'stock price increases.'"

Export containers are piled up at Busan Port. Photo by Kang Jin-hyung aymsdream@

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The shipping sector is expected to maintain high freight rates. Researcher Myung said, "The Shanghai Containerized Freight Index (SCFI) for the second quarter was 2,628 points, up 167% compared to the same period last year and 31% compared to the previous quarter," adding, "Due to geopolitical conflicts in the Middle East, the Suez Canal detour will continue."

The aviation sector has completed the recovery of long-haul passenger demand. In the second quarter, the number of long-haul passengers (combined for the Americas, Europe, and Oceania), excluding Russia, was 2.73 million, similar to the same period in 2019. Air cargo freight rates are also recovering. The sharp rise in sea freight rates has driven substitution demand for air cargo, along with increased export volumes from Chinese e-commerce. The parcel delivery sector is seeing an increase in new customers related to contract logistics due to logistics difficulties and rising costs. Direct purchases from Chinese e-commerce continue to grow.

HMM was identified as the top preferred stock expected to react to second-quarter earnings. Researcher Myung said, "Operating profit is expected to exceed market estimates by 29%. The Suez Canal detour will continue until the end of the year," adding, "The second-quarter results will confirm the impact of the SCFI surge, and the stock price may jump in the short term." He also noted, "Issues to be cautious about include the upcoming U.S. tariff increase next month, oversupply of container ships, Hapag-Lloyd's withdrawal from the alliance, and convertible bond volumes," but added, "These have been known since the beginning of the year and are likely mostly reflected in the stock price."

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Regarding valuation calls (buying at stock price bottoms), he recommended Pan Ocean, saying, "This is a range where valuation calls are possible. If catalysts such as improved peak season performance, supply restrictions due to environmental regulations, and Chinese economic stimulus are met, it will show strong upward momentum." Researcher Myung added, "The 12-month forward price-to-book ratio (PBR) is 0.40 times," noting, "The lowest PBR during the early COVID-19 period in 2020 was 0.48 times. The correlation between the Baltic Dry Index (BDI) and earnings has slightly weakened, and considering the sluggish Chinese economy, it is excessively low."

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