HMM returns to annual profit in a decade as stake sale looms

HMM Co., South Korea’s largest container line, returned to an annual profit for the first time in a decade, boosted by higher freight rates and increased cargo volumes as the global economy is recovering from the pandemic.

The company is widely expected to have another strong year in 2022 given the continued transport bottleneck amid a shortage of container ships, as the shipper is gearing up for a massive stake sale for privatization.

HMM posted a consolidated 2021 operating profit of 7.38 trillion won ($6.17 billion), its highest since the company’s foundation in 1976 and a 652% increase from the previous year, according to a regulatory filing on Monday.

Among major Korean companies, HMM’s annual profit marks the fourth-largest following Samsung Electronics Co., SK Hynix Inc. and POSCO.

HMM’s consolidated revenue more than doubled to 13.79 trillion won last year. Its operating profit margin was 53.4%.

The company posted an operating loss to the tune of 500 billion won every year between 2011 and 2019 amid a protracted global shipping industry slowdown.

However, HMM began to post a strong quarterly profit from the fourth quarter of 2020, as many countries were lifting their lockdown measures, fueling a drastic recovery in freight volumes.

Container carriers often report weaker earnings in the fourth quarter compared to the third quarter, when shipping demand peaks ahead of the year-end shopping season. But increased traffic for the Asia-America route, due to heavy volumes for year-end events such as Black Friday, “continued to boost the demand for shipping, also driving up freight charges," said a company official.

With the resumption of business activities, global shipping costs have soared, sending the Shanghai Containerized Freight Index (SCFI) to all-time highs.

As of Feb. 11, the index nearly doubled to 4,980.93 from 2,825.75 a year ago.

Analysts expect HMM’s operating profit to rise as high as 10 trillion won this year as the industry continues to suffer from the lack of container ships, further fueling freight rate charges.

THIS YEAR’S KEYWORD, PRIVATIZATION

The shipper’s stellar 2021 performance comes as state-run Korea Development Bank (KDB), its largest shareholder and top creditor, is exploring a sale of its stake in the container ship carrier to recover taxpayers’ money it injected into the company.

HMM, formerly known as Hyundai Merchant Marine, was taken over by KDB in 2016 after the company accumulated huge losses amid an industry slowdown.

In July of 2021, the state-run bank said it is seeking to sell 2.6 trillion won in perpetual convertible bonds issued by HMM to lay the groundwork for the privatization of the company. HMM issued over 3 trillion won in bonds in 2017 to raise operating funds, and the state-run bank assumed most of them.

KDB currently owns 20.7% of HMM as its largest shareholder, followed by state-run Korea Ocean Business Corp. (KOBC), which holds a 20% stake.

In October, KOBC said it is converting its holdings of HMM’s unsecured convertible bonds into common shares.

“If both KDB and KOBC convert their CBs into shares, the two largest shareholders’ combined stake in HMM will be nearly 70%. With that stake size, it’s impossible to privatize the shipper by selling to an investor. So, gradual stake sales in the market looks more plausible,” said KDB Chairman Lee Dong-gull at a press conference last month.

HMM’s new Chief Executive Kim Kyung-bae will be handling the stake sale, which is tied to the strong rise in HMM’s valuation and earnings in line with the fast recovery of the container shipping industry.

Kim, formerly CEO of Hyundai Motor Group’s logistics unit, Hyundai Glovis Co., will officially assume HMM’s leadership on March 29.

Write to Jeong-Min Nam at peux@hankyung.com
In-Soo Nam edited this article.