Hanjin Shipping is expected to achieve an operating profit of KRW437 billion (USD400.6 million) for 2015, surging 432.3% from 2014, but it is unclear whether the success will last.
Hana Daetoo Securities analysts Shin Min-seok and Yoo Jae-seon have forecast an operating profit of KRW113.5 billion (USD104 million) for the first quarter of 2015, reversing a KRW62.2 billion loss in the first quarter of 2014.
Shin and Yoo said, “The recent drop in fuel prices has supported the company’s business. Bunker oil price for the first quarter of 2015 was USD284 per tonne, a drop by 50.9% from the same period in previous year.”
They continued, “Also, a port strike on the US West Coast has caused container shipping rates to go up by 1.5% in the USWC and 41.65% in the US East Coast.”
While the strike caused congestion in USWC ports and held up ships, resulting in a rate spike, which has gone back to square one following the settlement of the labour dispute in February.
Given this, Hana Daetoo is pessimistic about Hanjin Shipping’s performance in the long term.
Shin and Yoo said, “The operating profit for the first quarter will be better than expectations, but the growth will be lower as the operating profit in the second quarter is predicted to reach only KRW55.1 billion.”
Hanjin Shipping’s massive debt also presents concerns.
Shin and Yoo concluded, “Hanjin Shipping has about KRW2 trillion of debt, so the investment in larger vessels has been delayed. To compete with top-tier liner shipping companies, Hanjin Shipping should repay debts and order larger vessels.”
They maintained a target price of KRW7,000 and ‘neutral’ rating on Hanjin Shipping.