Different from the Start: The Power of HMM's "Cost-Efficient Sailing" [Weekend Money]

Third-quarter operating margin reaches 33.8%
Early orders lower ship acquisition costs
Strengthens long-term bulk contracts and shareholder returns
Fourth-quarter earnings slowdown remains a risk

Yonhap News Agency

A shipping company's profitability can be determined before its ships even set sail. When the ships were purchased and how much they cost affect the company's ability to weather fluctuations in freight rates. That is why analysts are focusing on the timing of HMM's ship purchases following its "surprise" third-quarter results.

On November 15, Mirae Asset Securities raised its target price for HMM by 7.7% to KRW 28,000 and maintained its "buy" rating. The move appears to reflect the brokerage's focus on the company's cost competitiveness after its strong results in the third quarter of 2026.

HMM posted revenue of KRW 4.1271 trillion and operating profit of KRW 1.3946 trillion in the third quarter of 2026. Its operating profit came in 59% above consensus, making for a strong performance. The operating margin reached 33.8%. Higher container volumes and freight rates both boosted its results.

Costs stood out. Revenue rose 21.3% from the previous quarter, while cost of sales fell 9.3%. This is believed to have been due to a decline in the won-dollar exchange rate, which lowered costs when converted into won.

One enduring strength is the cost of bringing ships into service. The company said it had reduced the cost of acquiring ships of the same type by about 10% by placing orders earlier than its competitors. Another advantage is that it owns a high proportion of its container ships and has one of the lowest shares of chartered vessels among major shipping companies. The report noted that HMM remained profitable in the fourth quarter of 2025 and the first quarter of 2026, when major shipping companies posted losses.

HMM is also looking beyond its largest vessels. It plans to reduce the cost of chartering outside vessels by placing direct orders for "feeder vessels," smaller ships that connect hub ports with nearby ports. The smaller vessels, scheduled for delivery in 2028 and 2029, will be deployed on its connecting transport network and new routes in Africa, among other services. The strategy involves not only expanding the fleet but also improving the routes used to transport cargo.

Yonhap News Agency

Another source of support is its bulk business, which transports iron ore, crude oil and other commodities. The company plans to maintain a 6-to-4 ratio of container ships to bulk carriers by vessel count in 2030. It is focused on securing more long-term business, such as its 25-year contract with Brazil's Vale involving eight vessels. The plan is to support results with steady cash flow from bulk shipping when container freight rates fluctuate.

HMM has also changed its approach to shareholder returns. Previously, it set the minimum shareholder return at the lower of 30% of net income or an amount equivalent to a 5% dividend yield. On November 12, HMM simplified the policy, pledging to use at least 30% of net income for shareholder returns through 2030. This includes both cash dividends and share buybacks and cancellations.

However, the company is unlikely to maintain the same pace in the next quarter, according to forecasts. Taking into account relatively flat freight rates, a falling exchange rate and a seasonal decline in cargo volumes, Mirae Asset Securities expects operating profit of KRW 854.1 billion in the fourth quarter, down 39% from the third quarter. "Investors should focus on the fleet strategy to protect the downside to earnings as profits stabilize in the fourth quarter," said Ryu Je-hyun, an analyst at Mirae Asset Securities.

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