Hanjin Shipping returned to the black for the first quarter of 2015, and further improvement can be expected from South Korea’s biggest container shipping company, said analysts in a research note.
KDB Daewoo Securities’ analysts Jay JH Ryu and Kim Choong-hyun said, “Hanjin Shipping’s first-quarter 2015 operating profit [of] KRW155 billion [USD140 million] sharply beat the market consensus of KRW122.1 billion.”
The company posted a net profit of KRW22.9 billion, reversing its first-quarter 2014 loss of KRW224.5 billion.
Ryu and Kim expect that the company would show improvement in the second half of 2015 thanks to several catalysts.
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Firstly, higher contracted rates will help Hanjin Shipping to earn higher revenue. The company has concluded contracts with 90% of its major beneficial cargo-owners on transpacific routes, and transpacific contract rates were raised by more than 10%.
The analysts said, “Spot rates which account for the remaining 10% of shipments are expected to move up in June on seasonally strong demand. If US retailers begin to build up their currently low inventory, this could fuel an even faster-than-expected rise in rates.”
Low oil prices are regarded as another catalyst.
“Despite the current rise in bunker prices, this is not high enough to trigger downside risks to earnings estimates, even if it reaches USD400/barrel,” said Ryu and Kim.
The analysts gave a ‘buy’ rating on the company with a target price of KRW10,000. Hanjin Shipping’s stocks are now trading at KRW6,610.
They concluded, “There are increasing signs that rates may be bottoming out with Asia-Europe rates recently picking up. Furthermore, the shipper would continue to benefit from cost savings and could see a potential pick-up in volume during the peak season starting in May-June. The current stock price does not fully reflect potential earnings improvements.”