Transitioning from Coal to Green: A Quest for Sustainable Energy

LX International (LXI) is making progress in its transition towards eco-friendly operations, utilizing profits from its E&P division. Concerns over the exclusion of coal projects by the National Pension Service (NPS) are expected to ease gradually for several reasons. Firstly, LXI has begun diversifying its business through acquisitions like HanGlas and Poseung Green Power. Secondly, the company is planning for growth in its new environmental and wellness businesses. Lastly, LXI's elevated dividend per share (DPS) level should be sustainable. This transition is crucial for LXI's future success.

In terms of financials, we predict that LXI will achieve an operating profit (OP) of W636.5bn in 2024, a 6% increase compared to the estimated OP for 2023. The impact of decreased freight rates and weakened coal prices will be partially offset by the earnings from HanGlas and Poseung Green Power, as well as increased coal production in Indonesia and China. LXI aims to shift its focus towards eco-friendly and wellness businesses by acquiring nickel mines and smelters and expanding its carbon credit business. The current undervaluation of the company is expected to gradually dissipate as production begins in 2024 at its eco-friendly plastics subsidiary PBAT.

The second quarter of 2023 proved challenging for LXI's coal business, with earnings falling short of expectations. Sales amounted to W3,440.4bn, a 31% decrease year-on-year, and the operating profit was W129.2bn, a 55% decrease year-on-year. However, there were some positive developments within the E&P division, as the operating profit improved quarter-on-quarter due to increased Indonesian GAM coal production and a decrease in related royalty payments, despite a decline in coal prices. The trading and new growth division, which includes coal trading, experienced narrower earnings quarter-on-quarter due to weak coal prices and regular maintenance at Poseung Green Power. The logistics division also faced a decrease in profitability due to continued low freight rates.