UBS Maintains Buy Rating for LG Chem, Raises Target Price by 12%

Overview

UBS released a report maintaining a buy rating for LG Chem (051910.KS) and raising the SOTP target price by 12% to KRW 540,000. The report notes that although near-term profit forecasts for the next two years have been lowered due to rising costs from LG Energy Solution's (LGES) U.S.-based LFP production ramp-up and weak high-nickel cathode material deliveries, LGES's market share growth in Europe and the U.S. will drive a significant boost in profitability by 2028. Meanwhile, the cyclical recovery of the petrochemical business, the return to profitability of advanced materials in the second half of the year, and value-release catalysts at the corporate governance level collectively support the stock's positive outlook.

Core views

LG Chem currently has three investment logics supporting it: first, reduced risk in its core petrochemical business; second, structural growth from LG Energy Solution; third, potential narrowing of the holdings company discount. Demand and Market Share: LGES shows strong order intake in European and U.S. markets. Recently securing orders from BMW and Mercedes-Benz supports its expectation that its European EV market share will rise to 16-20% after 2028 (previously 5-13%), and higher capacity utilization is expected to drive profitability in Europe from 2027-2028. In the U.S. market, the company expects total domestic BESS (energy storage) capacity to reach 50 GWh by the end of 2026 (up from the previous assumption of 35 GWh). UBS predicts U.S. BESS demand will grow to 200 GWh by 2030, and LGES's market share could jump to 45-50% by 2027. Based on this, UBS raised its 2028 operating profit forecast for LGES by 10%. Business Turning Point and Recovery: After three consecutive years of losses, the petrochemical business turned profitable in Q1 2026, driven by widening price spreads and inventory gains. With favorable price spreads expected to continue in Q2 2026 and naphtha feedstock secured through June, short-term profitability is sustainable. However, in the medium term, structural overcapacity in China and the Middle East remains a challenge. In advanced materials, multiple projects will start delivering in H2 2026, including Ultium restart, Panasonic orders, and first deliveries to the LGES-Hyundai joint venture. Additionally, the company has the potential to regain Tesla's Shanghai factory share, and this segment is expected to return to profitability in H2 2026. Profit Forecast Adjustment: The report lowered the 2026/2027 net profit forecasts by 62%/0.3%, mainly reflecting rising costs from LGES's U.S. LFP capacity ramp-up and weaker high-nickel cathode material deliveries; however, it raised the 2028 EPS forecast by 28%, reflecting LGES's accelerated market share growth in the U.S. and Europe. Corporate Governance and Catalysts: Since June 2025, LG Chem's stock price has risen by 104%, outperforming LGES by 57 percentage points. This reflects two recognized market catalysts: government-led petrochemical restructuring is expected to significantly reduce exposure to bulk chemicals and financial leverage; the company plans to reduce its stake in LGES from 79% to 70% and return 10% of profits to minority shareholders. These measures have narrowed the holdings company discount from 85% to 80%.

Analysis framework

UBS uses the Sum-of-the-Parts (SOTP) valuation method for LG Chem, valuing each business segment separately and summing them up to arrive at the target price, while also factoring in the holdings company discount to reflect value leakage between parent and subsidiary companies. Valuation Rolling and Multiple Adjustments: The report rolls the valuation basis to 2027 forecast data. Based on comparison with Lotte Chem, the petrochemical business's price-to-book (P/B) multiple was raised from 0.3x to 0.4x; the battery cathode material business's P/B multiple was raised from 3.7x to 3.9x (referencing Korean cathode peers and applying a 60% discount); non-cathode advanced materials and life sciences businesses maintained their original P/B multiples. Core Assets and Discount Adjustment: For the battery business, UBS used the discounted cash flow (DCF) method to independently value LGES, then adjusted it according to LG Chem's ownership stake and included it in the intrinsic value. Combined with the latest upward revision of LGES's target price, this part of the value increased. Finally, applying an 80% holdings company discount to the total NAV resulted in a target price of KRW 540,000, corresponding to a 16x 2027 PE and a 1.1x 2027 PB.

Methodology notes

• Valuation MethodSOTP Sum-of-the-Parts

  Sum-of-the-Parts Valuation

  This method involves valuing each business segment of a diversified company separately using the most appropriate valuation approach and then summing them up to reflect the true value of each segment. In this case, petrochemicals and advanced materials use P/B, while LGES's battery business uses DCF, and the final result is the overall value of LG Chem.

• Valuation MethodDCF Discounted Cash Flow

  Discounted Cash Flow Valuation

  A valuation method based on discounting future free cash flows back to the present. In this case, the battery subsidiary LGES was valued separately using this method and then adjusted according to LG Chem's ownership stake.

• Valuation MethodP/NAV Resource Property Valuation

  Holdings Company Discount

  When a parent company holds shares in a subsidiary but does not hold 100% control, the market often discounts the parent company's valuation because the subsidiary's profits cannot fully accrue to the parent's shareholders. The report tracked the narrowing of this discount rate from 85% to 80% and adjusted the final target price accordingly.

• Valuation MethodPB valuation

  Price-to-Book (P/B) Valuation

  The ratio of stock price to book value per share, commonly used for valuing heavy asset industries. The report set different P/B multiples for LG Chem's petrochemical and advanced materials businesses based on comparable industry companies.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LG Chem (051910.KS)

  Report covers the stock as the parent company benefiting from the petrochemical business rebound, advanced materials recovery, and narrowing holdings company discount

  Strengths

  Diversified business layout spreads risk; petrochemical cycle bottoms out and recovers; improved corporate governance releases value

  Weaknesses

  Short-term net profit dragged down by subsidiary ramp-up costs; medium-term petrochemical sector faces overcapacity pressure

  Comparison

  Since June 2025, stock price has risen by 104%, outperforming LGES by 57 percentage points

  Risks

  Narrowing petrochemical product price spreads; structural overcapacity in China and the Middle East; battery business ramp-up costs higher than expected

• LG Energy Solution (LGES)

  LG Chem's core subsidiary, whose structural growth directly boosts LG Chem's intrinsic value

  Strengths

  Accelerating market share growth in Europe and the U.S.; significantly raised U.S. BESS capacity guidance; promising long-term profitability outlook

  Weaknesses

  Short-term impacted by U.S. LFP ramp-up costs and weak high-nickel cathode material deliveries, putting recent profits under pressure

  Risks

  High-energy-density batteries carry inherent safety risks, potentially leading to lawsuits, recalls, and order losses

Key data

• Target PriceKRW 540,000Raised by 12% from the previous KRW 484,000
• RatingBuyMaintained rating
• Current Stock PriceKRW 425,000As of May 7, 2026
• 2026E EPS Forecast AdjustmentKRW 6,373Lowered by 62%
• 2028E EPS Forecast AdjustmentKRW 70,479Raised by 28%
• LGES EU Market Share Forecast16-20%Market share forecast after 2028 (previously 5-13%)
• LGES U.S. BESS Total Capacity Guidance50 GWhBy the end of 2026 (previous assumption was 35 GWh)
• Holdings Company Discount Rate80%Previously 85%, narrowed due to share reduction and shareholder return plan
• Valuation Multiples (27E PE / PB)16x / 1.1xValuation levels for 2027 corresponding to the new target price

Impact & implications

The report believes that LG Chem offers investors an attractive investment exposure. The core logic lies in value-release catalysts—such as reducing LGES stakes and returning profits to shareholders, de-risking the core petrochemical business, and the potential for further narrowing of the holdings company discount. Although short-term profits are under pressure due to ramp-up costs and weak cathode material deliveries, LGES's strong long-term growth prospects in energy storage and electric vehicle markets in Europe and the U.S. provide clear long-term bullish support.

Risks

• EV batteries' high energy density and high-temperature characteristics pose inherent safety risks, potentially causing battery rupture and thermal runaway, triggering lawsuits, large-scale recalls, and order losses
• In the medium term, structural overcapacity in petrochemicals in China and the Middle East poses challenges for the petrochemical business
• LGES's U.S.-based LFP production ramp-up costs higher than expected

What to watch

• The stability of petrochemical product price spreads in Q2 2026 and subsequent profitability sustainability
• The progress of advanced materials projects in H2 2026 (including Ultium restart, Panasonic orders, etc.) and the pace of profitability recovery
• The implementation progress of LG Chem's share reduction in LGES and the actualization of returning 10% profits to minority shareholders
• LGES's order intake and capacity utilization improvement in U.S. BESS and European EV markets