[Into the Stock] Heumseulla's New Low Plunge "Ah, Those Were the Days"... Outlook in Fog

[Asia Economy Reporter Lee Seon-ae] HMM, which earned the nickname "Heumsla" (a portmanteau of HMM and Tesla) last year due to its record-breaking stock price surge, is now sinking. In just one year, its stock price has been cut in half. Recently, the short-selling balance has noticeably increased, making it a "target of short selling," while the industry outlook remains uncertain, deepening the worries of individual investors.

According to the Korea Exchange on the 8th, HMM hit a 52-week low for three consecutive trading days until the previous day. The stock price fell as low as 19,600 KRW during the session and closed at 19,650 KRW, losing all momentum.

After the COVID-19 pandemic, maritime freight rates soared, pushing HMM's stock price from 13,950 KRW at the end of 2020 to an intraday high of 51,100 KRW on May 28, 2021. However, as maritime freight rates have sharply declined recently due to reduced cargo volume and recession concerns, the stock price has been dragged down. The Shanghai Containerized Freight Index (SCFI) stood at 2,847.6 points as of the 2nd, falling below 3,000 points for the first time since April last year. The SCFI, which reached an all-time high of 5,109.6 points in early January this year, has dropped about 44.3% in nine months. Compared to the previous week, the decline was 306 points, the largest since SCFI statistics began in 2009.

The problem is that a rebound is unlikely in the near future. The plunge in maritime freight indicators is due to shipping companies rapidly increasing their fleet. Researcher Eom Kyung-ah from Shin Young Securities noted, "Global shipping companies outside the top 10 are increasing the number of vessels on routes from Asia to the U.S., intensifying freight rate competition." According to Clarkson, a shipbuilding and shipping analysis agency, the number of new container ships delivered from shipbuilders to shipping companies remained around 1 million TEU (1 TEU equals one 6-meter container) between 2017 and 2022, but it is expected to exceed 2.5 million TEU next year.

The decline in HMM's stock price deeply worries individual investors. HMM is a stock that particularly attracts individual interest. Over the past month, individuals have net purchased HMM shares worth 181.1 billion KRW, ranking it sixth among the top net purchases by individuals during this period.

The problem is that the growing short-selling balance is exerting downward pressure. As of the most recent available data on the 5th, HMM's short-selling ratio was 8.14%, ranking first among all KOSPI companies. The short-selling balance amounts to 820 billion KRW.

Concerns about earnings are also significant. HMM recorded sales of 9.9527 trillion KRW and operating profit of 6.0858 trillion KRW in the first half of the year, marking the highest half-year performance ever. However, looking at the second quarter alone, operating profit decreased by 6.7% compared to the first quarter.

Downgrades of target stock prices by securities firms are also worsening investor sentiment. Last month, Shin Young Securities lowered HMM's target price from 42,000 KRW to 24,500 KRW. Daishin Securities also cut its target from 29,000 KRW to 27,000 KRW.

There are also negative views on shipping companies' aggressive investments. An industry insider warned, "HMM plans to invest 15 trillion KRW by 2026 to expand container ship capacity from the current 820,000 TEU level to 1.2 million TEU and increase bulk carriers from 29 to 55 vessels. Looking at cases like Korean Shipping, which expanded chartering operations by renting ships at high prices during the mid-2000s boom but faced liquidity crises due to the global financial crisis, if the shipping market weakens, similar precedents could be repeated."