Drewry Maritime Equity Research, beginning coverage of the two big South Korean liner shipping companies, said it takes a negative view on both Hyundai Merchant Marine (HMM) and Hanjin Shipping, saying it finds their valuations “expensive and financial health poor.”
HMM, part of the giant Hyundai Group, fired back Thursday, stating it was prepared to weather financial adversity and “is working through various avenues to improve their financial position.”
Lamont Petersen, vice president of marketing with HMM at its U.S. headquarters in Dallas, said reports that Hyundai’s financial position
is dire "were prematurely conceived and greatly
HMM said “as the company drives improved liquidity, investors have signaled their confidence in the company’s future.”
The company said it "is enjoying a renewed and quantifiable resurgence of interest from investors. Recently released asset-backed shares were quickly snapped up on the Korean stock exchange, which gave a boost of $140 million to the company’s balance sheet.
“Also fueled by the easing of political tensions between North and South Korea, the sale of these securities was brisk - resulting in the share price of Hyundai stock more than doubling from 9,800 Korean won ($8.82) to 18,900 Korean won in just the last two months,” the company said. “Additional new HMM common shares will soon be released as well, the sale of which is expected to boost their bank balance by U.S.$1 billion.”
Drewry said both HMM and Hanjin “have mirrored the weakness in global container shipping sector in the past few years. They have seen profitability eroded in the wake of volatile freight rates and irrational industry discipline. Losses in their key segments of container shipping have led to severe deterioration in their financial health. They have failed to generate enough cash flow to suffice their operational needs and instead relied heavily on short term debt capital from the local markets.”
Rahul Kapoor, senior analyst at Drewry Maritime Equity Research, stated “Korean container shipping companies have their backs against the wall with mounting debt and piling losses. Both HMM and Hanjin have severely strained their balance sheets in the current industry downturn and the near term outlook doesn’t seem benign. They have seen massive book value erosion between 2009-12, to the tune of 60 percent and will need years of profitability and massive capital increase to tide over what we see as still challenging freight markets. Even as we see the worst is behind them in terms of losses, we are not optimistic of a major turnaround near term and expect the two to continue grappling with weak financial health.”
HMM said repayment of deposit monies to it from the failed merger attempt with Hyundai Construction last year has also had a positive impact on its cash reserves.
HMM also said second quarter 2013 results improved.
The company, which has tanker and dry bulk opertions as well as being in the container liner industry, had net income of 32 billion Korean ($29 million) won in the second quarter compared to a loss of 158 billion Korean won in the second quarter of 2012 and a loss of 99 billion Korean won in the first quarter of this year.
Revenue in the second quarter this year was $1.8 trillion Korean won ($1.6 billion), down 10.3 percent from the same period a year earlier, but up 8.7 percent over the first quarter.
“Hyundai Merchant Marine expects to soon return to profitability after a long interval of operating losses driven by intelligent management of capital amd assets, reductions in operating expenses and improving rate levels is some trade lanes,” the company said.
The company’s container division had an operating loss of 35 billion Korean won in the second quarter, compared to a loss of 27 billion Korean won in the second quarter of 2012 period, but a much smaller loss than the 88 billion Korean won loss in the first period of this year. Container revenue was $1.38 trillion Korean won ($1.22 billion), down 6.5 percent from the same period in 2012, but up 14.7 percent from the first quarter of this year.
The company said the operating loss in the container division "decreased significantly due to overall efforts of cost reduction and volume increase." - Chris Dupin