[Click e-Stock] Pan Ocean Expected to Diversify Profits, Target Price Raised

Profit Structure Diversification Expected from Tanker Expansion

Yuanta Raises Pan Ocean Target Price from 7,000 Won to 7,800 Won

Yuanta Securities announced on July 21 that it would raise its target price for Pan Ocean from 7,000 won to 7,800 won, citing expectations of profit structure diversification through the expansion of its tanker fleet.

Yuanta Securities projected Pan Ocean’s second-quarter revenue at 1.5585 trillion won (up 20.5% year-on-year) and operating profit at 160.2 billion won (up 30.2% year-on-year). Choi Ji-woon, a research analyst at Yuanta Securities, emphasized, "The rise in the Baltic Dry Index (BDI) and the surge in tanker freight rates are expected to drive a surprise second-quarter performance at Pan Ocean."

Second-quarter bulk shipping operating profit was forecast at 61.9 billion won, up 16.9% from a year earlier. Choi noted, "The average BDI in the second quarter was 2,751 points (up 87.4% year-on-year). We believe the increase in China’s iron ore imports and greater ton-miles (shipping distances) from the Simandou iron ore project supported the favorable market conditions." He added, "As bunker oil prices stabilized, profitability losses from some spot cargoes contracted prior to the oil price surge were largely offset by subsequent contracts."

Container shipping operating profit was estimated at 12.4 billion won, down 18.5% year-on-year, while tanker operating profit was estimated at 36.3 billion won, up 121%. Choi explained, "Pan Ocean appears to have benefited from market upswings by increasing the allocation of MR tankers for petrochemical transport in the rapidly rising Western market." LNG operating profit was projected at 48.3 billion won, a 29.9% increase from the previous year, attributed to stable profits secured through long-term contracts and favorable foreign exchange effects.

Choi forecast, "The bulk shipping market in the second half is expected to remain supported by expanded ton-miles resulting from the ramp-up of the Simandou iron ore project." However, he predicted, "MR tanker freight rates will adjust back to pre-war levels, so third-quarter tanker profit will likely decline compared to the previous quarter."

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