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HMM's heyday ends earlier than expected

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An HMM container ship / Courtesy of HMM
An HMM container ship / Courtesy of HMM

By Park Jae-hyuk

HMM, formerly known as Hyundai Merchant Marine, is expected to face difficulties in its privatization, due to the growing skepticism about its performance later this year, according to securities analysts, Thursday.

The cash-strapped company, which is currently under the control of creditors led by the state-run Korea Development Bank (KDB), posted its second-quarter operating profit of 2.9 trillion won ($2.2 billion), a drop from 3.1 trillion won in the first quarter, ending a streak of 6 quarters of record-breaking sales and operating profit figures.

In addition, the shipping company itself expected deteriorating profitability of its container ship business, citing potential declines in the consumer confidence index and GDP, caused by uncertainty about the U.S. economy, COVID-19 resurgence, rising raw material prices and interest rate hikes intended to curb inflation.

The Shanghai Containerized Freight Index, which shows overall sea freight rates, has shown a downward curve since the index reached a peak of 5109.6 points earlier this year.

"Sea freight rates will continue to fall throughout this year," the Korea Ocean Business Corp. (KOBC) said in its recent report.

Amid growing fears that the global shipping industry has peaked, multiple domestic brokerages lowered their price targets for HMM stock, causing concerns among investors.

Shinyoung Securities analyst Eom Kyung-ah said HMM will not be able to avoid falling freight rates, while Meritz Securities lowered its price target for HMM stock to 27,000 won from 29,000 won.

Daishin Securities analyst Yang Ji-hwan, lowered his price target for HMM stock to 29,000 won from 30,000 won, anticipating that the falling freight rates will make it more difficult for creditors to privatize HMM.

"It would be better to privatize the company this year," the analyst said.

Under the Moon Jae-in administration, the KDB indicated its intention to sell its stake in HMM, while the Ministry of Oceans and Fisheries, supervising another of HMM's major shareholders, KOBC, expressed skepticism about privatizing the shipping company in the near future.

HMM executives answer questions from reporters during a press conference at the shipping company's headquarters in Seoul, July 14. Korea Times file
HMM executives answer questions from reporters during a press conference at the shipping company's headquarters in Seoul, July 14. Korea Times file

When HMM held a press conference last month to unveil its plan to invest 15 trillion won by 2026, CEO Kim Kyung-bae told reporters that his company had not yet discussed with its major shareholders when and how they would privatize the company.

At the same time, Kim emphasized that HMM's long-term investment plan will be completed, no matter when the government privatizes the company.

Although SM Group has increased its stake in HMM throughout this year to 6.17 percent, becoming its third-largest shareholder, the HMM CEO ruled out the possibility of the conglomerate becoming his company's largest shareholder, saying that the group's investment was not intended for it to get involved in the management of it.


Park Jae-hyuk pjh@koreatimes.co.kr


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