KOSPIChemicals011170

Lotte Chemical

₩61,000▲ 1.16%2026-10-02 close

Market Cap

₩2.6T

Turnover

₩8B

Volume

130,000 shares

Shares out.

42.8M

PER

—

PBR

0.2×

EPS

-₩27,818

Dividend Yield

1.67%

PER, EPS, PBR and BPS are calculated in-house from the last 4 quarters (2025Q3–2026Q2) · Dividend yield is based on ₩1,000 per share · Prices as of the 2026-10-02 close

Report overview

Back in the Black After Four Loss Years; Restructuring Is the Test

LOTTE Chemical swung back to operating profit in the first and second quarters of 2026, but much of that gain leaned on raw-material timing effects and its advanced materials unit, leaving execution of the Daesan and Yeosu naphtha cracker restructuring as the key variable ahead.

1
Operating profit was 73.5 billion won in the first quarter of 2026 and 110.1 billion won in the second, a second straight quarterly profit, while second-quarter revenue of 5.686 trillion won was the largest of any quarter since the second quarter of 2025.
2
By contrast, the company posted operating losses in each year from 2022 through 2025, including a 943.1 billion won operating loss and a 2,037.1 billion won net loss attributable to owners in 2025.
3
Restructuring is under way: the Daesan plant was spun off and is being folded into an integrated entity with HD Hyundai Chemical in September 2026, while the Yeosu plant is to be merged into a joint entity with Yeocheon NCC, Hanwha Solution and DL Chemical.
4
In June 2026 Korea's three main rating agencies kept the unsecured bond rating at AA- but cut the outlook to negative, and net borrowings rose from 6,840.9 billion won at end-2025 to 8,063.1 billion won at end-March 2026.
5
The ethylene spread fell from about 315 dollars per ton in April 2026 to below 100 dollars by late July, raising the risk of negative lagging effects in the second half.

Business structure

LOTTE Chemical's revenue core is basic chemicals, where naphtha crackers produce olefins such as ethylene and propylene along with commodity resins including polyethylene (PE) and polypropylene (PP).

In the second quarter of 2026, basic chemicals (the domestic basic materials business, LC Titan, LC USA and LOTTE Daesan Petrochemical) posted revenue of 3,940.3 billion won, while advanced materials posted 1,155.1 billion won.

Subsidiaries added to that, with LOTTE Fine Chemical at 586.3 billion won and LOTTE Energy Materials at 194.2 billion won in revenue.

In other words, more than two-thirds of group revenue comes from commodity petrochemicals, while recent profit contribution has been concentrated in advanced materials and fine chemicals.

Advanced materials earned 132.5 billion won of operating profit in the second quarter of 2026, with wider product spreads and currency effects cited as drivers. LOTTE Fine Chemical said it would keep investing in higher value-added materials such as semiconductor and food and pharmaceutical grade products.

The battery materials arm is built around Iljin Materials, now LOTTE Energy Materials, acquired for a total of 2.7 trillion won in March 2023, plus a cathode foil plant in the United States.

Competition overlaps domestically with LG Chem, Hanwha Solution, Yeocheon NCC and HD Hyundai Chemical, and abroad it runs directly into large new capacity in China and the Middle East.

Under the Yeosu reorganization, LOTTE Chemical's basic materials operations along with PE and hydrocarbon resin businesses from Hanwha Solution and DL Chemical are to be pooled into a new entity focused on higher value products such as medical-grade LDPE and POE for autos and cables.

Earnings trend

Quarterly revenue · Operating profit

₩4.1T-₩250.5B25Q2₩4.8T-₩132.6B25Q3₩4.7T-₩433.5B25Q4₩5T₩73.5B26Q1₩5.7T₩110.1B26Q2

RevenueOperating profit

Annual revenue · Operating profit

₩22.3T-₩762.6B2022₩19.9T-₩347.7B2023₩20.4T-₩894.1B2024₩18.5T-₩943.1B2025

RevenueOperating profit

Quarterly results · Last 5 quarters
Quarter	Revenue	Operating profit	Op. margin
2025Q2	₩4.1T	-₩250.5B	−6.1%
2025Q3	₩4.8T	-₩132.6B	−2.8%
2025Q4	₩4.7T	-₩433.5B	−9.2%
2026Q1	₩5T	₩73.5B	1.5%
2026Q2	₩5.7T	₩110.1B	1.9%

Annual results
Year	Revenue	Operating profit	Net income (parent)	Op. margin	ROE	Debt-to-equity
2022	₩22.3T	-₩762.6B	₩27.8B	−3.4%	0.2%	55.1%
2023	₩19.9T	-₩347.7B	-₩50B	−1.7%	−0.3%	65.5%
2024	₩20.4T	-₩894.1B	-₩1.7T	−4.4%	−11.9%	72.9%
2025	₩18.5T	-₩943.1B	-₩2T	−5.1%	−16.2%	76.5%

Consolidated basis (financial statements including subsidiaries) · Final figures from DART filings · Net income attributable to owners of the parent · Data as of 2026-09-04

Earnings analysis

On an annual basis, revenue slid from 22,276.1 billion won in 2022 to 19,946.4 billion won in 2023, 20,430.4 billion won in 2024 and 18,483.0 billion won in 2025.

Operating results stayed negative all four years at -762.6 billion won in 2022, -347.7 billion won in 2023, -894.1 billion won in 2024 and -943.1 billion won in 2025, with the operating margin sinking to -5.1 percent in 2025.

Net income attributable to owners went from a 27.8 billion won profit in 2022 to losses of 50.0 billion won in 2023, 1,710.5 billion won in 2024 and 2,037.1 billion won in 2025.

Alongside those losses, the debt-to-equity ratio rose from 55.1 percent in 2022 to 76.5 percent in 2025, while operating cash flow shrank from 1,542.4 billion won in 2024 to 488.9 billion won in 2025.

Quarterly, operating losses continued at 250.5 billion won in the second quarter of 2025, 132.6 billion won in the third and 433.5 billion won in the fourth; notably, the fourth quarter of 2025 carried a net loss attributable to owners of 1,323.8 billion won, far larger than the operating loss.

That gap suggests non-operating items such as asset impairments were concentrated in the fourth quarter, though the specific line items need to be checked in the disclosure notes.

Moving into 2026, revenue of 4,990.5 billion won with operating profit of 73.5 billion won in the first quarter was followed by revenue of 5,686.4 billion won and operating profit of 110.1 billion won in the second, a second consecutive profit, and second-quarter net income attributable to owners of 219.2 billion won exceeded operating profit.

Korea Investors Service attributed the first-quarter swing to higher oil prices and positive lagging effects, the use of naphtha bought cheaply before the conflict, and a government subsidy program for naphtha import price gaps totaling about 670 billion won.

In the second quarter, basic chemicals essentially broke even, with 3,940.3 billion won of revenue and only 2.3 billion won of operating profit, and the company said turnaround maintenance and raw-material driven lagging effects reduced profitability versus the prior quarter.

Industry analysis

The petrochemical cycle remains in oversupply. Ethylene capacity has exceeded demand by a wide margin since 2018, and in 2024 global demand of roughly 184 million tons compared with capacity of about 225 million tons, a gap of more than 41 million tons.

The ethylene spread, the industry's profitability gauge, fell from an average of about 315 dollars per ton in April 2026 to an average of 135.3 dollars in June and 100 dollars as of July 30, against a breakeven level the industry typically puts at 250 to 300 dollars.

Chinese producers resuming output and exports, combined with weak downstream demand, kept product prices soft while naphtha rose from 708 dollars per ton in June to 801 dollars in July, compressing spreads.

Feedstock bought at high prices during the conflict starts entering production in the second half, raising concern that negative lagging effects will erode margins. Domestically, government-led capacity cuts are the main cyclical response.

After a voluntary agreement between the government and industry in August 2025 to cut naphtha cracker capacity by 2.7 million to 3.7 million tons, the Daesan and Yeosu projects alone are set to remove roughly 2.5 million tons a year, close to the lower end of that target.

LOTTE Chemical is the largest participant in those cuts, exposed to both the 1.1 million ton Daesan shutdown and the Yeosu integration.

Korea Investors Service noted, however, that new capacity additions exceed restructuring in Northeast Asia and Europe, making meaningful supply-demand improvement unlikely for now, with room for improvement after 2028.

S-Oil's Shaheen project, with total spending of 9,258.0 billion won, is in trial operation targeting commercial startup early next year, another regional supply variable.

Outlook

Management's own near-term guidance is cautious. LOTTE Chemical said external uncertainty would persist in the third quarter with delayed global demand recovery and greater feedstock price volatility, and that it would keep working to improve profitability through production optimization and stronger competitiveness.

The restructuring timeline is relatively concrete. LOTTE Daesan Petrochemical, spun off from the Daesan plant, launched on June 1, and HD Hyundai Chemical is to absorb it as of September 1, after which 1.1 million tons a year of cracker capacity is to be shut.

For the Yeosu project, participants aim to launch the integrated entity as early as this year after merger contracts, board approvals and spin-off and merger procedures, though the launch could slip into next year depending on contract details.

On the specialty side, the company plans to use the Yulchon compounding plant, targeted for completion and commercial operation within this year, to raise the share of high value products such as super engineering plastics.

On finances, Chief Financial Officer Sung Nak-sun said on the second-quarter conference call that the parent-basis debt-to-equity ratio at the end of 2025 was in the mid-60 percent range and that completing the business reorganization should bring meaningful balance sheet improvement.

Asset disposals are proceeding in parallel.

The company shared with creditors and the Ministry of Trade, Industry and Energy a plan to wind down parts of its basic chemicals operations in Malaysia, Indonesia and the United States; it liquidated Malaysian synthetic rubber maker LUSR at the end of 2025 and in February 2026 agreed to sell a 75.01 percent stake in Pakistani PTA subsidiary LCPL for 97.9 billion won.

Talks over selling 25 to 30 percent of Indonesian subsidiary LCI to a local sovereign fund have also been reported; according to local media on August 24, 2026, discussions of about 1.7 billion dollars are under way with no finalized contract.

Valuation

PER

—

PBR

0.2×

ROE

-8.8%

EPS

-₩27,818

BPS

₩316,148

Dividend per share

₩1,000

Because the sum of net income attributable to owners over the most recent four quarters (third quarter of 2025 through second quarter of 2026) is negative, earnings-based multiples cannot be calculated, so the market is effectively valuing the company on a net-asset basis.

The share price sits well below net asset value per share, which can be read as reflecting four straight years of operating losses, rising net borrowings and the cut in rating outlook.

A cash dividend per share was maintained at the last fiscal close even during the loss period, but the absolute level is not high, so restructuring progress and balance sheet metrics rather than dividends dominate the valuation debate. Brokerage views diverge.

Analyst Lee Choong-jae at Korea Investment & Securities said in a July 2026 report that he was maintaining a buy rating and a target price of 130,000 won.

By contrast, analyst Jeon Yu-jin at iM Securities said in an August 10, 2026 report that, despite slightly raising earnings estimates, she applied a 20 percent discount to the multiple to reflect weaker market and sector sentiment, lowering the target price from 130,000 won to 100,000 won while keeping a buy rating, based on 2026 net asset value per share at a price-to-book ratio of 0.35 times.

KOSAI neither endorses nor judges these views; the practical approach is to track restructuring progress alongside the real-time multiples shown on the screen cards.

PER, EPS, PBR and BPS are all calculated in-house (the same method as Naver and Toss) · Dividend yield = cash dividend per share from DART filings (supplemented by KRX) ÷ current price · As of 2026-09-04

Bull factors

Restructuring shifts fixed costs and debt off the books

Borrowings are transferred along with the Daesan spin-off, which observers expect to cut net debt substantially, and removing the Daesan plant from consolidation is seen as setting the stage for annual profit improvement.

Hana Securities estimated savings of about 150 billion won in depreciation and about 50 billion won in financing costs, as reported in June 2026.

NICE Investors Service similarly noted that roughly 1.6 trillion won of borrowings transfer through the merger of LOTTE Daesan Petrochemical into HD Hyundai Chemical and that the Yeocheon NCC reorganization effect is worth expecting. The actual transfer size and timing need to be confirmed in post-merger disclosures.

Advanced materials and fine chemicals cushion earnings

Advanced materials posted operating profit of 132.5 billion won in the second quarter of 2026, up 136.6 percent year on year, with revenue up 10.5 percent to 1,155.1 billion won, attributed to wider product spreads and favorable currency effects.

LOTTE Fine Chemical also posted second-quarter revenue of 586.3 billion won and operating profit of 61.9 billion won, up 14.8 percent and 89.3 percent respectively from the prior quarter. Commentators noted that advanced materials offset much of the weakness in basic chemicals. Whether these two pillars grow their profit contribution as the commodity share shrinks is the point to watch.

Policy and creditor support plus asset sale cash

Korea Investors Service cited the government's naphtha import price gap support program, budgeted at about 670 billion won, as one factor underpinning first-half 2026 profitability.

It also flagged smaller operating losses from the reorganization and easier liquidity pressure following a structural innovation support agreement with creditors as positives.

At group level, the sale of a stake in LOTTE Rental has proceeded alongside the wind-down of overseas basic chemicals, and first-half results swung from loss to profit. Whether the cash raised goes toward debt repayment or new business investment must be verified in later disclosures.

Bear factors

Collapsing spreads and negative lagging effects

The ethylene spread fell from an average of about 315 dollars per ton in April 2026 to 100 dollars on July 30, roughly a third in three months and far below the usual 250 to 300 dollar breakeven.

Analysts warned that the lagging effect which drove first- and second-quarter earnings could turn into a drag, with the spread decline expected to hit results in earnest in the second half.

Even a sharp fall in oil prices would force sales of products made from expensive feedstock at lower prices, making a short-term earnings slowdown unavoidable. Basic chemicals barely breaking even in the second quarter of 2026 illustrates that vulnerability.

Negative rating outlook and borrowing structure

On June 12, 2026 Korea Investors Service kept the unsecured bond rating at AA- but changed the outlook from stable to negative, citing consecutive operating losses since 2022, slow easing of financial burden, and limited real balance sheet improvement despite the reorganization.

Net borrowings rose again from 6,840.9 billion won at end-2025 to 8,063.1 billion won at end-March 2026, and including items such as 1.3 trillion won of price return swap balances, the agency judged the real burden to be higher than headline metrics.

As of March 2026, borrowings containing event-of-default triggers totaled 6,495.4 billion won, and one analysis found that a single-notch cut in the short-term rating could trigger clauses on 1,191.4 billion won.

Commercial paper and electronic short-term bond balances stood at 1,040.0 billion won as of July 13, 2026, more than 4.5 times the roughly 230 billion won at the start of the year.

Residual obligations and execution risk in restructuring

Even after the reorganization, obligations remain, including cash support commitments tied to the integrated entity's borrowings, roughly 600 billion won of additional equity injection duties, price return swap burdens that function as debt, and profitability pressure at overseas cracker units.

Korea Investors Service projected that even at end-2028, when Daesan restructuring effects are reflected, financial stability metrics would be unlikely to improve sharply from end-2025. The Yeosu integrated entity's launch could also slip past year-end depending on contract details. In short, the benefits and the burdens of the reorganization arrive with different lags.

Risk factors

Feedstock and currency volatility

Naphtha rebounded from 708 dollars per ton in June 2026 to 801 dollars in July and remains highly volatile with Middle East politics and crude prices.

Analysts described a dilemma: prolonged Middle East tension raises input costs that weak downstream demand prevents passing through, while a settlement that sends oil sharply lower produces negative lagging effects.

The company said favorable exchange rates helped second-quarter 2026 results, but currency works in reverse when the direction changes. Quarterly earnings should therefore be read as highly sensitive to feedstock and currency assumptions.

Losses in the battery materials unit

LOTTE Energy Materials posted second-quarter 2026 revenue of 194.2 billion won and an operating loss of 16.9 billion won, with volumes up but profitability down as one-off items including the prior quarter's positive lagging effect disappeared.

Korea Investors Service noted that in 2025 the unit's losses widened as utilization fell on weak electric vehicle demand. The company said it expects higher volumes in the third quarter on growing demand from artificial intelligence and battery foil applications. How the new plant's startup flows into earnings is a point to verify.

Group linkages and regulatory risk

Second-largest shareholder LOTTE Property and Development booked net losses of 242.5 billion won in 2024 and 316.0 billion won in 2025 from equity-method losses tied to LOTTE Chemical, and its own rating outlook was cut as a result.

Rating agencies flagged the possibility that weak affiliate results or credit deterioration could spill over to the group during LOTTE Chemical's restructuring period.

Separately, reports said the Fair Trade Commission conducted on-site inspections at ten companies including LG Chem and LOTTE Chemical over suspected collusion in chemical products. Regulatory and investigative outcomes, as well as changes in group support structures, warrant separate tracking.

What to watch next

September to October 2026
This is when disclosures should confirm completion of HD Hyundai Chemical's absorption of LOTTE Daesan Petrochemical effective September 1 and the subsequent shutdown of 1.1 million tons a year of cracker capacity. Changes in the consolidation scope and the size of transferred borrowings set the baseline for fourth-quarter statements.
Mid-November 2026
The third-quarter release is the key checkpoint for which way basic chemicals moved from the near-breakeven level of the second quarter, and how far the feedstock volatility and negative lagging effects the company flagged actually showed up in margins.
Fourth quarter of 2026
Watch for merger contracts, board approvals and spin-off and merger procedures for the Yeosu No. 1 project, and whether the integrated entity launches this year or slips. When the Yeosu basic materials business leaves consolidation will reshape the earnings structure.
December 2026
Actual startup and early utilization of the Yulchon compounding plant, targeted for completion and commercial operation within the year, together with the shift in the share of high value products such as super engineering plastics, will gauge progress in the specialty transition.
First quarter of 2027
This window should reveal the startup timing and regional supply impact of S-Oil's Shaheen project, in trial operation targeting commercial startup early next year, along with whether the Indonesian LCI stake sale talks result in a signed contract.

Overall view

LOTTE Chemical is at a point where a directional shift in earnings, two straight profitable quarters after four loss-making years, coexists with questions about the quality of that profit.

In 2025 the company reported revenue of 18,483.0 billion won, an operating loss of 943.1 billion won and a net loss attributable to owners of 2,037.1 billion won, but the trend changed with operating profit of 73.5 billion won in the first quarter of 2026 and 110.1 billion won in the second.

Even so, basic chemicals earned only 2.3 billion won in the second quarter of 2026, the weight of profit shifted to advanced materials and fine chemicals, and rating agencies judged that raw-material timing effects and policy support both contributed to first-half results, all reasons to test the durability of the profit.

On the balance sheet, net borrowings rose again to 8,063.1 billion won at end-March 2026 and all three domestic rating agencies moved the outlook to negative, while management said completing the Daesan and Yeosu reorganization should bring meaningful improvement.

The industry backdrop is mixed, with the ethylene spread well below breakeven even as government-led capacity cuts proceed.

What ultimately needs checking comes down to four items: how the Daesan merger flows into the financials, when the Yeosu integrated entity launches, how large the second-half negative lagging effect proves, and how fast the specialty transition is executed. This report is for information purposes and contains no buy or sell recommendation or target price.

Sources

Korea Exchange (KRX) — Prices · Market Cap · Volume
FSS electronic disclosure system (DART) — Financial statements · Dividend filings

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Report written 2026-09-05 · Data as of 2026-09-04

This content is AI analysis of market data and web search results, provided for information only. It is not a solicitation or recommendation to invest. Investment decisions and their consequences are the investor's own responsibility. Data may be delayed or contain errors.