Containership Market Already Giving off Positive Signals
The author is an analyst of NH Investment & Securities. He can be reached at jinmyung.choi@nhqv.com. -- Ed.
Despite Covid-19 effects, the level of decline in HMD’s order backlog looks minimal. The results of the recent US presidential election and an anticipated recovery in demand for containerships are boosting expectations towards higher new orders. Given such, we view HMD’s shares as being undervalued.
Raise TP: Boost target P/B (0.6x → 0.8x); shares still undervalued
Reflecting an upward adjustment to our target P/B (0.6x → 0.8x), we raise our TP on Hyundai Mipo Dockyard (HMD) from W36,000 to W48,000. Currently trading at the low end of its historical P/B band, HMD’s share price appears set for a recovery.
Despite a recent share price uptrend, we believe that HMD’s shares remain undervalued. Over the past 10 years, the company’s shares have traded at an average P/B of 0.9x, with 0.6x representing the lower boundary of the band—the firm’s shares are currently still trading near this low-end mark.
Despite tepid order backlog, earnings remain solid
Despite Covid-19 effects, HMD’s cumulative 2020 YTD orders show an 11.4% y-y increase. Currently standing at US$4.35bn (-7.4% y-y), we expect the company’s order backlog to expand going forward in response to improving order environment conditions.
2021 outlook: Expect orders to expand
In the wake of Joe Biden’s victory in the US presidential election, expectations are growing towards an easing in the US-China trade conflict. Should the US-China trade relations improve, there should be accompanying favorable impacts on the containership market and other commercial vessel markets.
The containership market is already giving off some positive signals. A recent uptrend in freight rates is sustaining, and a downtrend in ship prices appears to have come to an end. Should global economic conditions recover in 2021, order performance is expected to improve, centering on feeder containerships.