Container shipping stocks decline on lower freight rates

Container ship [Source : HMM]

South Korean container shipping stocks, which surged after the Covid-19 pandemic, are falling amid concerns about an economic downturn and lower freight rates that have plunged nearly 80 percent from their peak.

Shares of HMM Co., the country’s biggest container shipping company, closed at 19,950 won ($16) on Monday, down 61 percent from their peak of 51,100 won in May 2021. HMM shares have gained up to 16 times since the pandemic but they now remain sluggish.

Shares of exchange-traded funds (ETFs) that track transportation indices on Korea Exchange (KRX) remain low. The KODEX Transportation ETF fell 38 percent from its peak in July 2021. HMM accounts for 18.4 percent of the KRX Transportation Index, the largest after Korean Air Lines Co. at 23.6 percent.

Foreign investors have net sold 133.5 billion won worth of HMM shares from January last year and institutional investors 49.7 billion won. Pension funds in particular offloaded 36.4 billion won in HMM shares.

Shipping stocks have lost momentum due to a plunge in freight rates.

The Shanghai Containerized Freight Index (SCFI), which reflects the spot rates of Shanghai export container transport market, fell 4.2 percent last week. The index had declined for 26 straight weeks last year and 79 percent from its peak in early last year.

“Spot rates have declined to the break-even point level,” said Jung Yeon-seung, an analyst from NH Investment & Securities Co. “Shipping companies will try to continue to hold on to the rates by cutting supply.”

HMM, in the meantime, is projected to see a 23 percent and 47 percent fall in sales and operating income, respectively, in the first quarter ending March, according to financial data tracker FnGuide based on a consensus of three or more securities firms. HMM’s second-quarter operating income is also projected to decline 56 percent on year.

Analysts also raise the possibility that HMM may report an operating loss if the economy continues to remain sluggish in the first half of this year.

Analysts noted that HMM stock is still undervalued.

According to Samsung Securities Co., HMM’s price-to-book ratio (PBR) was 0.4x last year, significantly lower than 1.2x in 2021 and 2.7x in 2020.

Shares of bulk ship operator, on the other hand, which transport raw materials, are projected to gain on China’s reopening of economic activity.