[Click eStock] "LX International, a Stagflation Defensive Stock"

[Asia Economy Reporter Ji Yeon-jin] Hi Investment & Securities forecasted on the 7th that LX International will benefit from commodity stocks as supply chain bottlenecks worsen due to the Ukraine war, raising concerns about stagflation. Stagflation is a phenomenon where inflation and economic recession occur simultaneously.

Researcher Lee Sang-heon of Hi Investment & Securities referred to the stagflation during the 1970s oil shock, when soaring oil prices caused inflation while the gross domestic product (GDP) declined, worsening the global economy.

Lee said, "Currently, excessive liquidity expansion has occurred due to central banks' responses to COVID-19, and above all, supply chain bottlenecks caused by COVID-19 and other factors have led to a mismatch between supply and demand, causing inflation to surge," adding, "Energy shortages caused by decarbonization policies also influenced inflation, and inflationary pressure has further increased due to rising energy prices from the Ukraine crisis, raising the possibility of stagflation."

He predicted that tightening policies such as raising benchmark interest rates to counter inflation will inevitably lead to contraction in consumption and investment. Lee said, "Although safe assets may be highlighted as an alternative to stagflation concerns, commodity stocks that can pass on rising raw material prices to product prices will also benefit to some extent," forecasting that LX International will improve its performance in the first half of this year due to rising prices and increased production in the energy and palm sectors.

The company’s consolidated sales last year reached 4.5506 trillion KRW, a 35% increase compared to the same period last year, and operating profit surged 363.4% to 207.6 billion KRW. This was the result of significant improvements in the energy, palm, and logistics sectors. Lee said, "In the energy and palm sectors, profitability greatly improved as production increased amid rising prices of coal and palm products," adding, "In the logistics sector, the increase in freight rates and cargo volume led to a large increase in profits."

Recently, due to the Ukraine crisis and other factors, energy supply instability and food supply issues have emerged, causing coal and palm prices to rise. Therefore, it is expected that performance will sharply improve in the first half of this year as price increases and production growth in the energy and palm sectors are reflected. The company’s stock is trading at a price-to-earnings ratio (PER) of 3.6 times based on this year’s expected performance, and the dividend yield is also 7.3%.

This content was produced with the assistance of AI translation services.