[Click eStock] “Pan Ocean, BDI Expected to Rebound Again in Q3 Next Year”

Q4 Operating Profit Estimated to Exceed Consensus by 16.6%
Shinhan Financial Investment Maintains Pan Ocean Target Price at 7,000 Won

[Asia Economy Reporter Gong Byung-sun] Pan Ocean's fourth-quarter performance this year is expected to exceed market consensus. Additionally, the Baltic Dry Index (BDI) is anticipated to stabilize in the second quarter of next year and rebound in the third quarter.

On the 14th, Shinhan Financial Investment estimated Pan Ocean's fourth-quarter sales to increase by 4.3% from the previous quarter to 1.4 trillion KRW, and operating profit to rise by 16.4% during the same period to 222.7 billion KRW. The operating profit is expected to surpass consensus by 16.6%.

The BDI for the fourth quarter is expected to decline slightly by 0.3% from the previous quarter to 3,722 points. Although it is a seasonal off-peak period, the index remains steady due to increased coal imports by China and optimism about economic stimulus measures. Furthermore, the average charter rate for long-term chartered vessels is estimated to be around BDI 2,100 to 2,200 points.

The BDI is projected to stabilize in the second quarter of next year and rebound in the third quarter. The expected increase in shipping capacity next year is 1.3%, which is lower than the 1.5% growth in cargo volume and also the lowest since 2000. While a temporary decline in freight rates may occur in the first quarter due to China's coal production normalization process, a rebound is expected from the second quarter onward, supported by China's economic stimulus measures returning to normal.

Pan Ocean's average cargo volume per vessel is 116,000 tons, a 22% decrease compared to the third quarter of 2019 before the COVID-19 pandemic. This decline is less severe than the 61.4% reduction in container ship voyages. Hwang Eo-yeon, a researcher at Shinhan Financial Investment, stated, "The decrease in cargo volume is due to the dispute between China and Australia," adding, "Even if the dispute is resolved, concerns about a real increase in shipping capacity due to port congestion normalization are expected to be low."

Accordingly, Shinhan Financial Investment maintained its investment opinion on Pan Ocean as 'Buy' with a target price of 7,000 KRW. The closing price on the previous day was 5,690 KRW.