KOSPIChemicals051910

LG Chem

₩262,000▲ 1.95%2026-10-02 close

Market Cap

₩18.5T

Turnover

₩33.5B

Volume

130,000 shares

Shares out.

70.6M

PER

—

PBR

0.6×

EPS

-₩19,320

Dividend Yield

0.71%

PER, EPS, PBR and BPS are calculated in-house from the last 4 quarters (2025Q3–2026Q2) · Dividend yield is based on ₩2,000 per share · Prices as of the 2026-10-02 close

Report overview

Petrochemical Restructuring and Subsidiary Stake: Two Axes Under Test

Quarterly operating profit has recovered on inventory lagging effects, yet losses attributable to owners persist, leaving the Yeosu naphtha cracker restructuring approval and the monetization of the LG Energy Solution stake as the key swing factors for future earnings and balance-sheet structure.

1
In Q2 2026 consolidated revenue was KRW 14.176tn and operating profit KRW 599.6bn, swinging back to profit from the prior quarter's operating loss, with net profit attributable to owners also turning slightly positive.
2
However, both 2024 and 2025 posted net losses attributable to owners, and the debt-to-equity ratio rose from 81.4% in 2022 to 114.5% in 2025.
3
Much of the Q2 2026 improvement stemmed from inventory lagging and one-off tariff refunds, and the company said it expects negative lagging and higher logistics costs in Q3.
4
For the Yeosu cracker restructuring, the stated goal is to build a cooperation model with GS Caltex and obtain final government approval within the year, but the target facilities and ownership structure remain undecided.
5
The company has disclosed a plan to lower its LG Energy Solution stake toward around 70% over the medium to long term, and how those proceeds are used is cited as a variable for both the balance sheet and shareholder returns.

Business structure

LG Chem is organized around three in-house divisions - petrochemicals, advanced materials and life sciences - plus the subsidiary Farm Hannong and the consolidated battery affiliate LG Energy Solution.

Based on the Q2 2026 results release (disclosed July 31, 2026), petrochemicals posted revenue of KRW 5.329tn and operating profit of KRW 426.5bn, advanced materials KRW 999.0bn and KRW 19.9bn, life sciences KRW 369.0bn and KRW 60.0bn, Farm Hannong KRW 274.1bn and KRW 25.4bn, while LG Energy Solution recorded revenue of KRW 7.560tn and operating profit of KRW 113.3bn.

In other words, the battery subsidiary accounts for more than half of consolidated revenue, while petrochemicals remain the core of the parent's own operations.

Petrochemicals span commodity olefins and polyolefins alongside higher-value products, with the company highlighting SSBR for electric vehicles, IPA for semiconductors and ultra-high-polymerization PVC as its premium axis.

Yeosu and Daesan are the key production bases, and Yeosu ethylene capacity of roughly 2.08m tonnes was reported as the largest for a single domestic company (per the Korea Petrochemical Industry Association, November 2025).

Advanced materials covers cathode materials, engineering plastics, electronic materials and separators; beyond its largest customer LG Energy Solution it has added external clients such as GM and Toyota, and direct shipments to Toyota's North American manufacturing arm were reported to have begun in Q2 2026.

Life sciences rests on established products such as diabetes and growth hormone treatments while the company states it is concentrating resources on oncology drugs centered on its US affiliate Aveo.

Competitively it overlaps domestically with Lotte Chemical, Hanwha Solutions, Yeocheon NCC and GS Caltex, faces Korean and Chinese peers in cathode materials, and Japanese suppliers in electronic materials.

In its value-up plan the company said it reorganized its growth engines into four pillars: high-value petrochemicals, eco-friendly fuels and recycling, battery and electronic materials solutions, and oncology drugs.

Earnings trend

Quarterly revenue · Operating profit

₩11.4T₩467.5B25Q2₩11.2T₩679.7B25Q3₩11.2T-₩413.3B25Q4₩12.2T-₩49.7B26Q1₩14.2T₩599.6B26Q2

RevenueOperating profit

Annual revenue · Operating profit

₩51.9T₩3T2022₩55.2T₩2.5T2023₩48.9T₩916.8B2024₩45.9T₩1.2T2025

RevenueOperating profit

Quarterly results · Last 5 quarters
Quarter	Revenue	Operating profit	Op. margin
2025Q2	₩11.4T	₩467.5B	4.1%
2025Q3	₩11.2T	₩679.7B	6.1%
2025Q4	₩11.2T	-₩413.3B	−3.7%
2026Q1	₩12.2T	-₩49.7B	−0.4%
2026Q2	₩14.2T	₩599.6B	4.2%

Annual results
Year	Revenue	Operating profit	Net income (parent)	Op. margin	ROE	Debt-to-equity
2022	₩51.9T	₩3T	₩1.8T	5.8%	5.9%	81.4%
2023	₩55.2T	₩2.5T	₩1.3T	4.6%	4.2%	89.2%
2024	₩48.9T	₩916.8B	-₩690.9B	1.9%	−2.1%	95.6%
2025	₩45.9T	₩1.2T	-₩1.8T	2.6%	−5.5%	114.5%

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 fell for two consecutive years, from KRW 51.865tn in 2022 and KRW 55.250tn in 2023 to KRW 48.916tn in 2024 and KRW 45.932tn in 2025.

Operating profit dropped from KRW 2.996tn in 2022 (5.8% margin) and KRW 2.529tn in 2023 (4.6%) to KRW 916.8bn in 2024 (1.9%), before recovering modestly to KRW 1.181tn in 2025 (2.6%).

Net profit attributable to owners, however, swung from gains of KRW 1.845tn in 2022 and KRW 1.338tn in 2023 to losses of KRW 690.9bn in 2024 and KRW 1.819tn in 2025, reflecting a structure in which much of consolidated profit accrues to non-controlling interests, compounded by asset impairments.

Of total equity of KRW 47.106tn at end-2025, non-controlling interests accounted for KRW 14.260tn, while total liabilities of KRW 53.956tn lifted the debt-to-equity ratio to 114.5%, up markedly from 81.4% in 2022.

By contrast, operating cash flow rose to KRW 8.234tn in 2025 from KRW 7.012tn in 2024, underscoring the gap between accounting losses and cash generation. Quarterly results have been highly volatile.

From operating profit of KRW 679.7bn and net profit attributable to owners of KRW 119.4bn in Q3 2025, the company slid to an operating loss of KRW 413.3bn and an owners' net loss of KRW 1.397tn in Q4 2025, followed by revenue of KRW 12.247tn with an operating loss of KRW 49.7bn and an owners' net loss of KRW 348.2bn in Q1 2026.

Q2 2026 turned positive with revenue of KRW 14.176tn, operating profit of KRW 599.6bn and owners' net profit of KRW 113.5bn, which the company attributed to favorable inventory lagging and wider product spreads in petrochemicals plus higher sales in advanced materials and life sciences.

Yet with one-off items such as US reciprocal tariff refunds included in the company's explanation and volumes reduced by the Yeosu No. 2 cracker shutdown, the quality of that profit cannot be read as structural improvement.

Industry analysis

Korea's petrochemical sector has faced a prolonged supply-demand imbalance in commodity grades driven by large Chinese capacity additions, and it was reported that in August 2025 the government and industry agreed to cut 2.7m-3.7m tonnes out of the country's 14.7m tonnes of naphtha cracker capacity.

Restructuring is proceeding complex by complex: after the first project between Lotte Chemical and HD Hyundai Chemical at Daesan was approved, the Ministry of Trade, Industry and Energy on July 20, 2026 approved the Yeosu No. 1 plan submitted by Yeocheon NCC, Lotte Chemical, Hanwha Solutions and DL Chemical, under which two crackers totaling 1.39m tonnes per year are to be idled for three years.

The LG Chem-GS Caltex "Yeosu No. 2" project has yet to fix which facilities are to be combined or how the business combination would be structured, and a fair trade law clause restricting share ownership by a grandchild company of a general holding company has been flagged as an obstacle to forming a joint venture.

Improved 2026 earnings across Korean petrochemical firms have been attributed to a jump in product and feedstock prices amid Middle East tensions plus lagging effects from cheaper inventory, and industry voices have questioned whether this represents a genuine cyclical recovery.

In battery materials, the company said on its earnings call that the pace of North American EV demand recovery has slowed versus early-year expectations, while expansion of the North American energy storage market is cited as supporting cell and separator demand.

In cathodes, competition is shifting toward adding LFP and next-generation chemistries on top of high-nickel portfolios, with Chinese producers' cost competitiveness a structural burden.

The result is a company that houses a cyclical business (petrochemicals), penetration-driven businesses (battery and electronic materials) and a pipeline business (oncology drugs) under one roof.

Outlook

On its Q2 2026 earnings call the company guided that Q3 would still face uncertainty from negative lagging effects as feedstock prices decline and from rising logistics costs.

In petrochemicals it maintained the goal of completing final approval of its restructuring through a strategic partnership with a refiner and of establishing the cooperation model within the year, and said it would raise the revenue share of high-value applications from around 10% in 2026 to more than 25% by 2030.

At the Q1 2026 briefing it had noted that the Yeosu No. 2 cracker was halted on March 23 and that it would lift average utilization above 70%.

For advanced materials, management said supply expansion to new customers and higher volumes to LG Energy Solution should deliver meaningful second-half volume growth versus the first half, with a larger increase in Q4 than Q3, while adding that the slower North American EV recovery makes its 2026 volume plan unachievable.

In next-generation products, materials for 46-series cells are being developed for mass production in 2028, LMR and LFP are targeted for mass production after 2028, and sodium-ion materials are planned for high-power mass production in late 2027 and long-life, high-capacity commercialization in 2029.

In electronic materials, targeting a doubling of revenue by 2030, mass production of a premium automotive light-control film began in Q2 2026, and the company said it would expand semiconductor material projects such as CCL for non-memory and heat-dissipating adhesive films.

In life sciences, under an oncology-focused strategy, US clearance for a Phase 1/2 trial of the oncology candidate LG00313112 was obtained on June 30, 2026, a licensed-out gout drug entered Phase 3 in China, and a rare obesity drug was reported to be slated to begin Phase 3 in the second half.

On the financial side, disclosures and briefings have laid out plans to reduce the LG Energy Solution stake toward 70% over the medium to long term, deploy the proceeds for balance-sheet improvement and shareholder returns, and raise the payout ratio to 30% over time.

Valuation

PER

—

PBR

0.6×

ROE

-4.5%

EPS

-₩19,320

BPS

₩452,601

Dividend per share

₩2,000

Summing the four most recent quarters (Q3 2025 through Q2 2026) gives a net loss attributable to owners of KRW 1.512tn, so earnings-based multiples are not computable and none is displayed on the data card.

The reference points available to the market therefore cluster around the multiple to net assets and the discount to the value of subsidiary holdings, and the shares currently trade below book value per share.

On subsidiary value, activist fund Palliser Capital argued in an October 2025 open letter that the stock was trading at roughly a 74% discount to net asset value, while Samsung Securities noted in a June 1, 2026 report that the NAV discount applied to subsidiary stakes was around 73% and assessed that reducing net debt through stake monetization could narrow it.

On dividends, the company said a payout was decided for fiscal 2025 as a shareholder-return measure despite the net loss attributable to owners, meaning the dividend rests on asset-monetization resources rather than on current earnings.

Regarding target prices, it was reported that Samsung Securities maintained a Buy rating and a KRW 500,000 target in its June 1, 2026 report, and that Eugene Investment & Securities raised its target to KRW 500,000 while maintaining Buy in a May 6, 2026 report (both are those brokerages' views, not judgments of this report).

Ultimately the valuation debate hinges on how far the petrochemical restructuring flows through to the profit structure and whether subsidiary stake monetization translates into actual cash flows.

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 paired with a shift to high-value products

On its Q2 2026 call the company reaffirmed the goal of completing final approval of the Yeosu cracker restructuring and establishing a cooperation model within the year.

It also said it would lift the revenue share of high-value products such as SSBR for EVs, IPA for semiconductors and ultra-high-polymerization PVC from around 10% in 2026 to more than 25% by 2030.

Capacity reduction points toward lower fixed costs and less commodity supply pressure, while a rising high-value mix is presented as widening the room for operating margin improvement.

The petrochemical special act, which streamlines permits and shortens business-combination review periods, is also cited as reducing procedural uncertainty.

Cathode customer diversification and second-half volume growth

The company reported that advanced materials showed a recovery in Q2 2026 with revenue of KRW 999.0bn and operating profit of KRW 19.9bn.

It guided that expanded supply to new customers plus higher volumes to LG Energy Solution should produce meaningful second-half volume growth versus the first half, with a larger increase in Q4.

Direct shipments to Toyota's North American manufacturing arm were reported to have begun in Q2 2026, reducing concentration on its largest customer.

In electronic materials, mass production of a premium automotive light-control film started in Q2 2026, extending the push into semiconductor and automotive electronics applications.

Subsidiary stake and cash generation as buffers

In its value-up plan the company said it would lower its LG Energy Solution stake toward around 70% over the medium to long term, having previously raised roughly KRW 2tn through a price return swap on 5.75m shares, according to reports.

A May 2026 report also noted analysis that liquidity had been built up through divestments including the water solutions and aesthetics businesses. In the accounts, operating cash flow rose to KRW 8.234tn in 2025 from KRW 7.012tn in 2024, illustrating the gap between reported net losses and cash generation.

The company has indicated it will allocate proceeds to balance-sheet improvement and shareholder returns and raise the payout ratio to 30% over time.

Bear factors

Questionable durability of lagging-driven profits

The company attributed the Q2 2026 improvement in petrochemical profitability to favorable inventory lagging as feedstock prices rose and to wider spreads, noting that one-off items such as US reciprocal tariff refunds were also involved.

Conversely it guided that Q3 would face continued uncertainty from negative lagging as feedstock prices fall and from higher logistics costs.

Industry commentary has similarly framed the 2026 return to profit across Korean petrochemical firms as a function of price spikes tied to Middle East tensions and the use of cheaper inventory. On that reading, the earnings base would be retested once feedstock prices stabilize.

Accumulated owner-level losses and rising leverage

Net profit attributable to owners was negative for two straight years - a KRW 690.9bn loss in 2024 and a KRW 1.819tn loss in 2025 - including a KRW 1.397tn owner-level loss in Q4 2025 alone. Total liabilities of KRW 53.956tn at end-2025 exceeded total equity of KRW 47.106tn, lifting the debt-to-equity ratio to 114.5%.

The CFO was reported to have said on the January 2026 call that the scale of stake monetization was calibrated to defend against a further credit rating downgrade, implying that ratings management constrains capital allocation. That dividend funding rests on asset monetization rather than earnings is another consideration.

Restructuring delays and associated costs

According to July 2026 reports, LG Chem and GS Caltex agree on the need for restructuring but have not reached final agreement on the scale of cuts or asset treatment, and both were said to have missed the government's original submission deadline.

The company itself explained that even with approval this year, follow-on steps such as a spin-off and domestic and overseas merger clearances would take considerable time.

On headcount, a voluntary retirement program for employees with 20 or more years of service was reported in March 2026, and further workforce adjustment in advanced materials has been discussed. Capacity cuts and workforce adjustments carry near-term costs and employment implications.

Risk factors

Feedstock and geopolitical risk

Feedstock prices and procurement conditions for naphtha feed directly into earnings, and at its Q1 2026 briefing the company said it would diversify naphtha purchasing to mitigate sourcing risk. Naphtha supply tightness stemming from Middle East tensions has also been cited as a reason for restructuring delays.

When feedstock prices move the other way, lagging effects subtract from profit. Currency and logistics cost swings remain margin variables given the export-heavy structure.

Policy and regulatory risk

Petrochemical restructuring depends on approval by the Ministry of Trade, Industry and Energy and related fair trade procedures, and a fair trade law clause limiting share ownership by a grandchild company of a general holding company has been flagged as a constraint on forming a joint venture with GS Caltex. The government has tied plan submission to support under a

Governance and shareholder-return risk

Consolidated results and corporate value are closely tied to the listed subsidiary LG Energy Solution, and both the company and industry observers have noted that the size and timing of stake monetization could shift with market conditions.

Activist fund Palliser Capital was reported to have demanded stronger board independence and share buybacks funded by the subsidiary stake in an October 2025 open letter. How such demands are addressed bears directly on capital allocation decisions.

The structure whereby the subsidiary's share price affects the parent's monetization capacity and return funding also warrants attention.

What to watch next

Late October 2026
Q3 results and the earnings call. Key checks are how much the negative lagging effect and higher logistics costs the company flagged weighed on petrochemical profit, and whether advanced materials sustained profitability.
Q4 2026 (within the year)
Whether final government approval of the Yeosu cracker restructuring and the cooperation model with GS Caltex are settled. The key is whether target facilities, the scale of cuts, and the timeline for follow-on steps such as a spin-off and merger clearance are disclosed together.
Q4 2026 to H1 2027
Whether and how the LG Energy Solution stake is actually monetized (block deal, derivative transaction, etc.) and where the proceeds go. The company has indicated an allocation between balance-sheet improvement and shareholder returns, so disclosures can be checked against that.
Q4 2026 to January 2027
Q4 cathode shipment volumes and the ramp status of North American production including the Tennessee plant. Since the company guided to a larger volume increase in Q4, actual shipments and utilization improvement can be compared against that.
Late January 2027
Full-year 2026 results, the dividend decision and the 2027 business plan. This will show whether the stated intent to raise the payout ratio is reflected in actual decisions, alongside the direction of metrics such as the debt-to-equity ratio.

Overall view

LG Chem's recent results point in conflicting directions. Operating profit recovered from KRW 916.8bn in 2024 to KRW 1.181tn in 2025 and KRW 599.6bn in Q2 2026, yet net profit attributable to owners was negative in both 2024 and 2025, and the debt-to-equity ratio rose from 81.4% in 2022 to 114.5% in 2025.

As the company itself explained, the Q2 2026 improvement included inventory lagging and one-off items, and it guided to negative lagging and higher logistics costs in Q3, so the durability of these profits is still being tested.

Operationally, the medium-term pillars presented are the goal of restructuring approval for the Yeosu cracker within the year, a higher high-value product mix (from around 10% in 2026 to over 25% by 2030), expansion of external customers such as Toyota, new electronic materials in mass production, and an oncology-focused drug pipeline.

On the other side sit the company's acknowledgment that the 2026 cathode volume plan is unachievable amid slower North American EV demand, delays in reaching agreement with GS Caltex plus fair trade law constraints, and the costs and employment implications of restructuring.

With the earnings base not yet normalized, valuation discussion centers on the multiple to net assets and the discount to subsidiary stake value, and whether monetization translates into actual cash flow and returns is what bears watching.

Ultimately the items to verify are the timing of restructuring approval, the degree of improvement in cathode volumes and utilization, and the concrete execution of subsidiary stake usage. This report is for informational purposes and contains no buy or sell opinion 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.