[Click e-Stock] "Pan Ocean: Long-Term Contracts Provide Profit Downside Protection... 54% Upside Potential"

Daishin Initiates Coverage with 8,000 Won Target Price and 'Buy' Rating

On June 24, Daishin Securities initiated coverage on Pan Ocean with a target price of 8,000 won and a 'Buy' investment rating. The firm cited Pan Ocean’s strong downside protection on profits through long-term contracts, and noted that the company actually benefits from geopolitical risks in the Middle East.

Jini Lee, a researcher at Daishin Securities, stated, "Approximately 40% of Pan Ocean's revenue and 60% of its operating profit come from long-term transportation contracts that are not linked to the Baltic Dry Index (BDI)," adding, "Based on these stable and profitable long-term contracts, we expect room for upside through spot market improvements."

In fact, even as the BDI dropped sharply year-on-year in 2025, Pan Ocean managed to limit its third-quarter operating profit decline to just 2.2% year-on-year, recording 12.52 billion won. This demonstrated strong profit resilience compared to the broader market. Lee explained, "When the bulk shipping market recovers, Pan Ocean has a structure where profit leverage from expanding spot contracts materializes quickly. The downside is protected by long-term contracts, while the upside is driven by spot market conditions. This asymmetric profit structure is the core investment point."

Lee also emphasized that geopolitical risks arising from areas such as the Strait of Hormuz actually benefit Pan Ocean. "Amid heightened tensions in the Hormuz and Suez Canals, Western shipping companies are increasingly using alternative routes, resulting in higher ton-miles. Beyond simply boosting spot tanker rates, these conditions are also driving visible benefits in shipping operations strategy," she said. "In particular, Pan Ocean has concentrated its oil product tankers (MR tankers) in the Western Pool, which covers the area west of the Suez Canal, capturing freight rates that are three to four times higher than those in the Eastern Pool." The pool agreement is a vessel and revenue sharing cooperation model in which multiple shipowners integrate similar vessels under a single management system and distribute the results according to a predetermined ratio.

Lee further assessed that Pan Ocean has strong cost defenses. "Through the Emergency Bunker Surcharge (EBS), Pan Ocean can immediately pass on fuel price increases to customers, minimizing the impact of surging oil prices on earnings," she said. "As a result, in an environment where Middle East risks persist, Pan Ocean’s tanker division is likely to outperform market expectations thanks to simultaneous benefits from higher freight rates and cost defenses."

Lee also highlighted the company’s shift from a traditional bulk carrier focus to a portfolio centered on high-margin LNG carriers and tankers. Pan Ocean owned only three LNG carriers in 2024, but this number has now grown to ten, with two more to be added. The company is also set to acquire ten Very Large Crude Carriers (VLCCs), further expanding its tanker operations.

Lee stated, "The catalysts for further upward revision of the target price include a recovery in the BDI and strengthening Capesize rates, visible growth in LNG freight earnings, and a sustained tanker freight premium amid prolonged geopolitical risks in the Hormuz and Red Sea regions. Conversely, a sharp drop in raw material trade volume due to escalating US-China tariff disputes, and an acceleration of global bulk carrier supply increases, are the main risks for a downward adjustment of the target price."

This content was produced with the assistance of AI translation services.