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Resilient profits

1Q23 review

OP of W161.7bn; weaker coal prices offset by increased output

• For 1Q23, LX International reported revenue of W3.69tr (-25% YoY), hurt by challenging logistics market conditions.
- Logistics: Revenue fell 40% YoY, as a weak container market weighed on the forwarding unit.
- Resources: Despite weaker coal prices (-7% YoY), revenue grew 8% YoY on increased output.
- Trading: Revenue fell 6% YoY. We believe the consolidation of HanGlas helped revenue remain relatively resilient despite unfavorable market conditions.

• Operating profit grew QoQ to W161.7bn (-34% YoY, +2% QoQ).
- Logistics: Operating profit was W49.8bn. OP margin contracted to 2.9%, pressured by lower freight rates.
- Resources: Operating profit was W46.4bn. Despite weaker coal prices, OP margin improved QoQ to 16.3% on increased output.
- Trading: Operating profit was W65.5bn (OP margin of 3.8%). New businesses, stronger panel sales volume, and strength in resource trading contributed to profits.

• Net profit came in at W156.4bn, aided by profit gains in the resources segment (+W17.1bn YoY).


Momentum

Earnings bottoming out; focus on likely rebound

• Looking to 2Q23, we anticipate operating profit of W165.1bn, supported by stabilizing forwarding market conditions and steadying coal prices.

• We expect operating profit of W60.3bn (+21% QoQ) for logistics, W47.2bn (+1% QoQ) for resources, and W57.6bn (-12% QoQ) for trading. Aside from resource trading, which is likely to see a slight profit decline, we expect earnings to rebound overall.

• Coal prices should stabilize on the easing of supply disruptions and improved demand from major importers. However, supply from developed countries like Australia remains tight due to ESG issues. In addition, there is still a possibility of constrained supply from Russia.

• The company has invested nearly W1tr in new businesses. More environmentally friendly mines (nickel, etc.) and power generation operations are likely to gather steam this year.


Recommendation

Maintain Buy and TP of W43,000; excessive undervaluation to ease

• We revise up our 2023 and 2024 operating profit forecasts by 9% and 2%, respectively, reflecting margin improvements from increased coal production. At a P/E of 3x, the stock looks excessively undervalued. We believe investor worries about the level of profit contraction are overpriced into the stock.