Hanjin Shipping could return to the black in the first quarter of 2015 as the power of cheap oil rubs off on the company, said an analyst.
True Friend Korea Investment & Securities analysts Yun Hee-do and Lee Chang-won have forecast a net profit of KRW30 billion (USD27.9 million) for first-quarter 2015, reversing a KRW224.5 billion loss for the first quarter of 2014.
They have predicted an operating profit of KRW103 billion for first-quarter 2015, reversing a KRW62.2 billion operating loss for first-quarter 2014.
Yun and Lee said, “Operating profit should rebound sharply on lower fuel costs. Average bunker prices fell 47% year on year (y/y) in first-quarter 2015, which should lower fuel costs by KRW223 billion.”
Yun and Lee are optimistic about freight revenue, believing rates will rise until August to September, when the traditional third-quarter peak season kicks in.
The Shanghai Containerized Freight Index (SCFI, a key indicator of current market conditions) fell 7.9% y/y in the first quarter of 2015, but has rebounded since reaching a historical low. Of note, the SCFI was down 26% y/y in the first week of April. The analysts believe the SCFI will continue to fall y/y while rising quarter on quarter.
Yun and Lee said, “Meanwhile, Hanjin’s average freight rate should fall less than the SCFI due to its transported volume mix. Asia-US routes account for 40% of transported volume, higher than that of Asia-Europe routes (30%). Given congestion problems on the US west coast, Asia-US freight rates are up y/y and container vessel supply-demand conditions are more favourable on Asia-US routes.”
Still, the analysts are not very bullish about Hanjin Shipping’s stock, which is now trading at KRW7,430.
The analysts said, “Hanjin still faces a substantial interest expense burden and lacks competitiveness as it has no super large container vessels.”