Shinhan Securities raises HMM target price… “Pay attention to profit recovery that is greater than expected”

(Seoul = Yonhap News) Reporter Go Eun-ji = Shinhan Investment & Securities raised its target stock price for HMM [011200] on the 14th from 20,000 won to 26,000 won, saying, "We focus on a larger-than-expected profit recovery despite governance uncertainty."

The investment opinion was also raised from ‘neutral’ to ‘buy’. The closing price the previous day was 22,050 won.

Senior researcher Choi Min-ki said in the report that day, “Global container shipping companies have shown an upward trend with the guidance (forecast) being raised, but the response to HMM has been limited,” adding, “However, it is a waste of performance to cover up due to governance concerns.”

Expected sales for the third quarter of this year were KRW 4.0802 trillion, up 51% from the same period last year, and operating profit was estimated at KRW 1.042 trillion, up 238%.

Senior Researcher Choi said, “Container freight rates are showing a steep rise,” and analyzed, “This is the result of a combination of strong cargo volume during the peak season before the tariff changes in the U.S. and China, and supply disruptions such as typhoons in China, backlogs at Western ports, and bottlenecks in the Panama Canal.”

He also said, “Although the price of bunker oil has turned upward, we believe that the increase in freight rates is more than the full amount of fuel surcharges,” and added, “The bulk sector, which has exposure to very large crude carriers (VLCCs) and dry cargo spots, may also have contributed to improving company-wide profits.”

Considering that there is a time lag of about one month between container ship market freight rates and sales recognition, it is expected that the profit reduction in the fourth quarter will not be large compared to the quarter.

However, he said, “A factor of concern is that the movement to return to the Suez Canal is accelerating despite the uncertainty of the situation in the Middle East,” and “the variable is whether shipping companies will adjust the speed of their return due to the intensification of fighting between the Houthi rebels and Saudi Arabia.”

It was explained that the reason for raising the target price and investment opinion was the application of the target price-to-book ratio (PBR) of 0.84 times to the 12-month leading book value per share (BPS).

Senior researcher Choi predicted, “There are concerns about mid- to long-term performance due to the oversupply of container ships, but the stock price does not sufficiently reflect the upward trend in short-term profit,” and predicted, “It is also possible to reduce the discount to reflect profit improvement and the ability to expand shareholder returns.”