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2026 still looks challenging

Maintain Buy but lower TP to W430,000

We maintain our Buy rating on LG Chem but lower our target price to W430,000 (from W480,000), reflecting our downward operating profit forecast revision for 2026. The revision was mainly driven by more conservative assumptions for petrochemicals and battery materials. While we remain cautious on 2026, we believe upside potential still exists. The elimination of VAT refunds on PVC exports (China) is likely to be more favorable for ethylene producers. In addition, cathode materials shipments should rise 40% in 2026, accompanied by ASP increases. Furthermore, the potential liquidation of some LG Energy Solution (LGES) shares over the next five years (down to a 70% stake) should provide downside support for the stock.

4Q25 review: Weakness in petrochemicals/battery materials led to earnings miss

For 4Q25, LG Chem posted an operating loss of W413bn, significantly worse than the consensus (-W202.5bn), due to a sharper-than-expected deterioration in petrochemicals and battery materials. The petrochemicals division recorded an operating loss of W239bn, hurt by: 1) weak market conditions amid a surge in new regional supply; and 2) the recognition of one-off costs at overseas operations. The advanced materials unit also posted an operating loss of W50bn, with cathode materials in particular facing an elevated fixed-cost burden amid continued shipment declines. Non-operating losses amounted to approximately W2tr, largely reflecting impairment charges on tangible/intangible assets following a reassessment of the outlook for major businesses, including petrochemicals, batteries, and battery materials.

2026 business plan: Focus on key products despite weak market conditions

LG Chem has set a 2026 revenue target of W23tr (vs. W23.8tr in 2025): W16.6tr for petrochemicals, W4.5tr for advanced materials, W1.4tr for life sciences, and W0.8tr for Farm Hannong. While the overall revenue target implies a YoY decline, achieving this level would still represent a relatively resilient outcome given weak downstream conditions. In petrochemicals, the company plans to narrow losses through: 1) restructuring efforts in cooperation with refiners; 2) a greater focus on high value-added products (such as semiconductor-use IPA and EV-use SSBR); and 3) the development of new businesses. Within advanced materials, the electronics/engineering materials business will likely continue to focus on e-mobility and semiconductor applications to preserve margins, while the battery materials business is likely to see earnings improvement from 2H26 thanks to growth in newly secured orders. In life sciences, LG Chem plans to strengthen its business portfolio through the normalization of the Boostin business and accelerated clinical development of its oncology drug pipeline.