[Click eStock] "Pan Ocean, Short-term Freight Rate Decline Pressure Inevitable... Target Price Down"

Target Price Adjusted Downward by 5% Compared to Previous Level

NH Investment & Securities lowered the target price for Pan Ocean from 6,300 KRW to 6,000 KRW on the 29th, citing inevitable short-term pressure on freight rates. The investment rating was maintained at 'Buy.'

Researcher Jeong Yeonseung of NH Investment & Securities explained, "We lowered the 2024 and 2025 earnings per share (EPS) estimates by 7% and 6%, respectively, resulting in a 5% reduction in the target price. We also revised down the freight rate outlook considering the increased uncertainty in iron ore demand within China and the decline in commodity prices due to the strong dollar."

The outlook indicates unavoidable short-term pressure on freight rates. Researcher Jeong stated, "The Baltic Dry Index (BDI) strength in the first quarter of this year was mainly driven by China's iron ore port inventory replenishment, which increased to 144 million tons as of the 21st, marking the completion of short-term inventory buildup. The Singapore iron ore futures price fell 22%, from $142 per ton at the beginning of the year to $110. With steel prices weakening and iron ore inventory replenishment completed, short-term demand slowdown pressure is expected."

Pan Ocean's stock price remains in an undervalued phase. Researcher Jeong noted, "The current stock price is at a low level with a price-to-book ratio (PBR) of 0.5 times, but due to weak demand-side improvements, it has not escaped the undervaluation phase. In the long term, supply-demand balance improvement driven by environmental regulations is a factor that raises the valuation floor, but in the short term, improvement in China's commodity demand is necessary."

First-quarter earnings are expected to slightly exceed market forecasts. Researcher Jeong said, "First-quarter sales are projected to increase by 17.7% year-on-year to 1.17 trillion KRW, while operating profit is expected to decrease by 15% to 95.8 billion KRW. Operating profit by segment in the first quarter is estimated at 57.8 billion KRW for bulk carriers, 29.5 billion KRW for tankers, and 3 billion KRW for containers." He added, "In the case of containers, short-term freight rates are expected to strengthen temporarily due to the Red Sea issue, leading to a temporary return to profitability."