EUR 682.64 For Business Accounts Only

Container shipping equities

Even after a state-backed restructuring in 2016, HMM continued to bleed financially until 2019. The turnaround happened in 2020 and early signs based on its first quarter results suggest that HMM will have another robust year in 2021. Yet, it is an open secret that the current profitability phase is more an outcome of super inflated freight rates that the industry is witnessing than HMM’s own efforts. We believe the key stakeholders like The Korea Development Bank (KDB) realise this and hence are looking to exit quickly. Despite the current turnaround, we are skeptical about HMM’s long-term growth story because of the following reasons: 1) there has been no change in its cost structure, albeit the high cost structure which is currently masked by sales driven by a super inflated freight will come back to haunt once rates begin to normalise; 2) HMM will have to brace for higher operating costs, including higher charter costs, rising fuel bills and decarbonisation tax; and 3) HMM’s debt is still high at about USD 5.4bn, around USD 1bn higher than in 1Q20, substantially deteriorating the firm’s financial stability. In addition, the sale of HMM fits in with moves to privatise some of South Korea’s large companies to improve
competitiveness and also reap the benefits of the current container market. If the bank proceeds with the privatisation of HMM, it would be in line with their newly announced vision to strengthen the country’s maritime sector while also letting some other cash rich conglomerate become its anchor shareholder.