Daishin Note & Comment 18 Sep 2007 Hanjin Shipping (000700 KS) Ji-hwan Yang (82-2-769-2738) [email protected] NOL’s ARPF rises 9.8% yoy to $2,910/FEU in August Maintain BUY NOL’s ARPF rises 9.8% yoy to $2,910/FEU in August Neptune Orient Lines Ltd. (NOL), which is a Singaporean container carrier, released its Aug operating results. Its CP: W45,100 TP: W65,000 average revenue per FEU (ARPF) during the four-week period from Jul 28 to Aug 24 climbed 9.8% yoy to MV: W3,234bn $2,910/FEU. This is its highest figure since Nov 2005; $259/FEU higher than the $2,651/FEU recorded in Aug 2006, and $89/FEU higher than the $2,821/FEU posted in Jul 2007. NOL’s shipping volume during the same period has ballooned 10.7% yoy to 189,6000 FEUs, while its shipping volume during the first eight months of this year incresaed 10.9% yoy to 1,496,6000 FEUs. The fact that both its shipping volume and AVRF achieved about 10% yoy growth shows that the operating conditions of container shipping companies are improving substantially. Asian container carrier visit confirms outbound shipping volume is solid Last week, we paid a vist to Hanjin Shipping’s Asian region headquarters, APL’s (an Asian unit of NOL) China headquarters, and COSCO Container Line, all located in Shanghai, China. We found out the following: 1. There are concerns that container shipping demand will fall in 2H07 and 2008 due to US economic slowdown, but the shipping companies don’t believe the concerns will materialize. 2. ARPFs from the Americas and Europe are continuing to rise, while the outbound load factors for these routes stands at about 100%. 3. The container carriers are expecting the general rate for the European routes will be raised by $200/TEU in 4Q07, and the general rate for the American routes will be raised in 2008. Maintain BUY and target price of W65,000 Hanjin Shipping underperformed the KOSPI recently due to the concerns that: 1) its fuel costs will rise with higher oil prices; and 2) the financial instability triggered by the US subprime mortgage issue, will lead to a slowdown of the real economy. However, as of Sep 14, the average price of Singapore bunker C oil stands at $379.9/Mton, which is not much different from our 3Q07 forecast of $381/Mton. Futhermore, we veiw that its share price is excessively reflecting the concerns that shipping volume will shrink in 2H07 and 2008 due to US economic slowdown. Due to a recent share price drop Hanjin Shiping is now trading at PBR of 1.3x based on a FY07F BPS of W35,075 and 1.16x based on a FY08F BPS of W38,858. In other words, the company is significantly undervalued to other Asian container carriers. We view that Hanjin Shipping has sufficient upside potential given that its operation conditions are making a significant turnaround, as demonstrated by NOL’s Aug operating results. Thus, we maintain the BUY rating and the target price of W65,000 for Hanjin Shipping. NOL’s monthly shipping volume NOL’s monthly ARPF $/FEU ‘000천FEU FEU ShippingVolume volume (LHS) % $/FEU % Shipping volume growth (yoy) ARPF AARPF(yoy,우)RPF growth Volume(yoy,우) (yoy; RHS) 3,000 25 3,000 15 2,900 2,500 20 10 2,800 2,000 15 5 2,700 1,500 10 2,600 0 1,000 5 2,500 -5 500 0 2,400 -10 2,300 0 -5 Jan- Apr- Jul-06 Oct- Jan- Apr- Jul-07 Oct- 2,200 -15 06 06 06 07 07 07 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Source: NOL, Daishin Securities Research Center. Source: NOL, Daishin Securities Research Center Bunker C oil prices Annual average BunkerB-C유 C B-C 연평균 $/Mton oil price bunker C oil price 450 400 350 300 250 200 150 100 50 0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Source: Clarkson, Daishin Securities Research Center. [Table] Asian container carriers’ valuations ($mn, x, %) Sales OPR NI PER PBR 06 07E 06 07E 06 07E 06 07E 06 07E OOIL 4,598 5,472 424 560 579 2,509 6.9 2.5 1.5 1.5 YANG MING 3,244 3,701 43 110 34 92 38.4 16.6 1.0 1.2 EVERGREEN 4,538 5,131 -107 42 16 24 110.9 56.4 1.0 1.1 NOL 7,607 7,625 372 501 381 379 5.3 13.6 0.9 2.0 WAN HAI 1,593 1,779 97 145 94 126 13.1 12.0 1.4 1.6 HJS 7,100 7,203 153 240 300 164 6.1 22.0 0.8 1.2 HMM 5,884 5,521 136 310 132 178 20.3 37.1 1.4 2.9 Source: I/B/E/S 2 Compliance Notice [ Hanjin Shippiing (000700 KS)] Rating and target price ▶ This report has been prepared without any undue external influence or interference, and accurately reflects Date 07.09.18 07.08.22 07.08.17 07.08.13 07.07.16 07.06.27 07.06.22 07.06.05 07.05.07 07.04.03 07.03.08 the personal views of the analyst who is responsible for this report. Rating BuyBuyBuyBuyBuyBuyBuyBuyBuyBuyBuy TP 65,000 65,000 65,000 65,000 65,000 45,500 45,500 45,500 45,500 39,500 39,500 ▶ In accordance with clause 4-16 of the supervisory regulation for the securities industry, we inform: Date 07.02.27 07.02.12 07.02.02 07.01.22 06.12.08 06.11.13 06.09.21 06.09.04 05.11.07 - No information or content in this report has been shared before it is released on Daishin’s website. Rating Buy Buy Buy Buy Mkt Perf Mkt Perf Mkt Perf Mkt Perf Mkt Perf TP 39,500 39,500 33,600 33,600 29,100 24,700 20,400 20,400 23,000 ▶ No part of this report is provided in advance to institutional investors or a third party. ▶ Sector ratings [ Hanjin Shipping (0007000 KS)] Target price and actual price - Overweight: industry indicators are expected to outperform the market over the next 6m - Neutral: industry indicators are expected to be in line with the market over the next 6m Share price (W) Target price (W) 70,000 - Underweight: industry indicators are expected to underperform the market over the next 6m ▶ Company ratings 60,000 -Strong Buy: the stock is expected to outperform the market by at least 20% over the next 3m 50,000 - Buy: the stock is expected to outperform the market by at least 10% over the next 6m 40,000 - Marketperform: the stock is expected to either outperform or underperform the market by less than 10%p over the next 6m 30,000 - Underperform: the stock is expected to underperform the market at least 10%p over the next 6m 20,000 ▶ This report is distributed only to the customers of Daishin Securities Co., Ltd. for informational purposes, and 10,000 none of the contents presented in this report may be copied or transmitted to any other party. 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