S. Korea top shipper HMM sees boom amid global demand surge

While HMM Co., formerly known as Hyundai Merchant Marine, saw its stock value zoom upward amid soaring shipping demands, market responses remained divided on whether the nation’s top shipper can maintain its bullish run throughout the year.

The company and its creditors remained hopeful, citing the successful synergy of business strategy and government policy actions, but some observers pointed out that the shipper should take more precautions in expanding ship orders.

The company saw its stock price soar Thursday, with the index attaining the 50,000-won ($44.21) mark at one point. Though the figure dipped back to 44,450 won at market closing, it still extended a growth of almost 50 percent from a month earlier.

The latest boosting factor was the news delivered on the previous day that Morgan Stanley Capital International added the shipper to its global and regional equity index as part of May rebalancing.

HMM, which is set to unveil its quarterly business performance indexes for the January-March period on Friday, achieved an operating profit of 980.8 billion won last year, returning to profit for the first time in a decade.

The company was also noted for its highest profitability, which came to 640 million won per employee. The given assessment was almost double that of market bellwether Samsung Electronics.

Taking into account the continuing shipping demands and high freight rates, as well as the global trade volume recovery, the company is largely anticipated to exceed the 1 trillion-won mark in its quarterly operating profit.

The state-run lender Korea Development Bank and the Ministry of Maritime Affairs and Fisheries are consequently expecting to cash in from some 6 trillion won in policy finance funds that have been injected into HMM over the years. 

KDB currently holds 300 billion won in convertible bonds that are slated to mature on June 30. Should these bonds be converted into stocks, based on the latest stock value, the corresponding amount may exceed 2 trillion won.

Some skeptics claimed that HMM’s business boom may be but a temporary consequence of the Suez Canal blockage, an incident which had disrupted the global shipping industry from late March to early April.

HMM had steadily been adding ships to major international sea routes since last year to deal with the soaring freight demands -- a move which has picked up further momentum lately.

The Korean shipper has deployed three more ships to the United States route, marking the 24th additional shipping allocation since August last year, officials said Wednesday.

The largest of the three will be a 6,800 twenty-foot-equivalent unit (TEU) ship which departed the Busan Port on Wednesday. Accounting for over 60 percent of the freight volume were export products by domestic small- and mid-sized businesses.

In HMM’s perspective, however, the buoyant trend traces back to its earlier strategic decision to drastically increase the production of very large carriers. The government’s five-year plan to rebuild the nation’s shipping business in 2018 also came in timely for the then-struggling HMM, officials said.

“For more than a decade since the 2008 Global Financial Crisis, the situation was gloomy, not only for HMM but for all Asian shippers, as major European shippers played a chicken game, expanding their ship size and lowering freight rates,” an HMM official said.

The endless price-cutting race drove Hanjin Shipping into bankruptcy in 2016 and HMM into a long-term deficit, starting 2011.

The dramatic turning point for HMM came in 2018, when the South Korean government established the Korean Ocean Business Corp. -- a policy financial institution dedicated to marine transport funds.

Backed by the KOBC’s guarantee, HMM placed orders for 20 mega container ships to the country’s top three shipbuilders -- Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries.

“Concerns had been rampant over the bold order volume, but we judged that the investment was crucial in order to gain an upper hand in the turbulent global shipping market,” the official said.

The strategy paid off as the company joined THE Alliance -- one of the world’s three largest shipping alliances -- in the following year, mainly due to its massive container ship portfolio.

“Our ship portfolio not only expanded the logistics diversity for the alliance, but also allowed member companies to shire some of their old ships for repairs, especially in order to meet the enhanced environmental regulation requirements,” he said.

But concerns have persisted on the shipper’s debt-to-capital ratio which still remains high at 455 percent as of the end of last year. Though visibly down from the 2,499 percent in 2015, the figure was a hike from the 296 percent in 2018.

“Despite the rosy outlook in the market, it is uncertain whether the current trade volume and freight charge uptrend will last,” said an official of the Korea International Freight Forwarders Association.

Former Oceans Minister Kim Young-choon also expressed concerns on the currently overheated market and warned against excess production.

“Korean shippers should be prepared for the forthcoming round of chicken game and invest more into replacing outdated ships in the meantime,” he wrote on his Facebook.

“Investors, too, should take this market pattern into account when making their investments.”

By Bae Hyun-jung (tellme@heraldcorp.com)