[Click eStock] "Pan Ocean, Earnings and BDI Bottomed in Q1... Strong Bulk Market in Q2"

Heungkuk Securities Report

Heungkuk Securities on the 12th expected Pan Ocean's performance to rebound along with the Baltic Dry Index (BDI). It is analyzed that the company will start to recover from the first quarter. Accordingly, the investment opinion was maintained as Buy, with a target price of 8,000 KRW.

Researcher Lee Byung-geun of Heungkuk Securities stated, “From March, steel production by Chinese steelmakers began to increase, and iron ore port inventories recorded 137 million tons (t), a 4% decrease compared to the previous month,” adding, “Due to improved weather conditions in major raw material exporting countries such as Brazil, iron ore shipments to China are picking up significantly.”

Pan Ocean's first-quarter performance recorded sales of 1.3 trillion KRW and operating profit of 104.3 billion KRW, down 13.2% and 38.3% respectively compared to the same period last year. The researcher analyzed, “The average BDI in the first quarter was 1,011 points, which likely caused losses in open ship and long-term chartering.”

However, he expected that profit defense centered on long-term contracts and tanker ships would prevent the decline in performance from being as severe as market concerns. For tanker ships, operating profit is predicted to be similar to that of the fourth quarter of last year. In March, grain shipments are also increasing due to improved weather in Brazil. Notably, this year’s South American soybean harvest is at a record high, and Brazil’s soybean exports in March reached 15.1 million tons.

He said, “Following the reopening, as China’s industrial production activities rise, the BDI is expected to continue increasing until the peak season in autumn.” Pan Ocean currently has a fleet of about 275 to 280 vessels, an increase of about 10 ships compared to the end of last year. Short-term charters have been secured to defend against losses from open ships and long-term charters. The strategy to maximize profit leverage through expanding long-term charters is still considered valid.

He forecasted, “From the second quarter, as the bulk market remains strong, expansion of long-term charters like in 2021?2022 will become possible.” He added, “Although the BDI has recently been supported at around 1,500 points, the stock price has fallen. Considering that the stock price held up when the BDI was at 500?600 points in January and February, it is judged that a ‘sell-on’ play occurred. Now, it is highly likely that the stock price will move in tandem with the BDI as in the past.”