The author is an analyst of NH Investment & Securities. He can be reached at [email protected] — Ed.
Excluding one-off losses, Pan Ocean’s 4Q20 results satisfied consensus. Considering the rise in second-hand bulk carrier prices and increasing demand for commodities, we expect the bulk shipping market to see a supply-demand improvement after the Lunar New Year holidays. Pan Ocean also announced its first dividend following its rehabilitation in 2013. We suggest paying attention to the firm’s ESG policy changes.
Recent price adjustment stems from off-season effects; opportunity to buy
We maintain a Buy rating and TP of W6,400 on Pan Ocean.
In 2021, OP should amount to W275.5bn (+22% y-y). Recently, bulk shipping indices have weakened, led by falling demand for large-sized bulk carriers amid a decline in iron ore shipments ahead of the Lunar New Year holidays. However, freight rates for small/mid-sized bulk carriers (Panamax and Supramax) are still showing upward trends (+214% y-y and +126% y-y, respectively) thanks to strong demand for grain, coal, and other commodities (manganese, nickel, wood, etc). When iron ore demand recovers after the holidays, bulk shipping rates should climb again.
The secondhand price index for bulk carriers stands at 107p (+8% YTD). In 2021, we expect bulk carrier supply to grow only 1.5% y-y, with deliveries of 31.0mn DWT and demolitions of 17.0mn DWT. Demand for bulk carriers is expected to rise 3.8% y-y in 2021, leading to improved supply-demand conditions in the bulk shipping market.
4Q20 results meet consensus excluding one-off losses; dividend policy established
Pan Ocean reported 4Q20 sales of W620.5bn (+0.3% y-y) and OP of W60.2bn (+17.7% y-y; OPM 9.7%), satisfying our estimates and consensus. However, the company booked a net loss, as bulk carrier impairment losses of W69.6bn were reflected on the non-operating side.
Impairment losses were reflected as the average BDI in 2020 (1,066p) recorded the lowest level since 2016; however, the outlook for 2021 remains favorable. The BDI is currently averaging 1,590p YTD (+49% y-y), and the possibility of reflecting additional impairment losses for bulk carriers looks limited.
Pan Ocean decided to pay a DPS of W50 in 2020. It is the first dividend since the firm’s rehabilitation procedure in 2013. The company also set a mid/long-term dividend policy of paying out 10~20% of non-consolidated net income. We positively view Pan Ocean’s strengthened shareholders’ return policy.
