Company Overview
LG Chem, founded in 1947 as Lak-Hui Chemical Industrial Corp, is South Korea's largest diversified chemicals company. It operates across four business segments: petrochemicals, advanced materials, life sciences, and battery materials. Listed on the KOSPI — South Korea's main stock exchange — it has long been regarded as a blue-chip benchmark.
The company has become a focal point in South Korea's broader "value-up" debate, a government-led initiative launched in 2024 to address the persistent undervaluation of Korean-listed companies relative to global peers, sometimes called the "Korea Discount." At the heart of LG Chem's particular predicament is a structural anomaly: the market value of its stake in a listed subsidiary has, at times, exceeded the market capitalisation of LG Chem itself.
Business Portfolio and Financial Performance
LG Chem's operations rest on four pillars. The petrochemicals division — producing ethylene, propylene and other commodity chemicals — remains the largest revenue contributor and has historically served as the group's cash engine. The advanced materials division supplies cathode materials and separators for electric vehicle batteries and was once heralded as the growth engine of the future, though it has more recently been squeezed by a slowdown in EV demand. The life sciences division pursues long-term growth through biopharmaceuticals and drug development, while the agricultural subsidiary, Farm Hannong, rounds out the portfolio.
Financial performance has deteriorated sharply since the company's record year in 2021. The figures tell a stark story:
Year | Revenue | Operating Profit | Net Profit | Operating Margin
2019 | ₩28.6trn | ₩1.05trn | ₩0.55trn | 3.7%
2020 | ₩30.4trn | ₩1.74trn | ₩1.18trn | 5.7%
2021 | ₩42.6trn | ₩2.42trn | ₩2.35trn | 5.7%
2022 | ₩51.9trn | ₩1.37trn | -₩0.23trn | 2.6%
2023 | ₩47.8trn | ₩0.47trn | -₩1.13trn | 1.0%
2024 | ₩46.1trn | ₩0.31trn | -₩1.54trn | 0.7%
After peaking in 2021, a petrochemical down-cycle collided with a slowdown in EV adoption, causing profitability to collapse. The net losses recorded in 2023 and 2024 reflect large asset impairment charges alongside deteriorating margins in the cathode materials business. Those losses have also imposed a hard constraint on shareholder returns: there is simply less to give back.
The Subsidiary Discount: How the Problem Was Created
The origins of LG Chem's valuation problem can be traced to September 2020, when its board resolved to spin off the battery division into a separate entity, LG Energy Solution, through a so-called "physical spin-off" — a structure common in South Korea in which the parent retains 100% of the new subsidiary rather than distributing shares to existing shareholders. Institutional investors and retail shareholders protested loudly, arguing the structure transferred value away from existing LG Chem holders. Approval at the shareholder meeting scraped through at around 82%, an unusually high level of dissent by Korean standards.
When LG Energy Solution listed on the KOSPI in January 2022 in what was then the exchange's largest-ever IPO — valued at roughly ₩118trn at the offer price — the consequences became painfully clear. LG Chem's market capitalisation at the time was approximately ₩50–55trn, a fraction of the implied value of its roughly 81.8% stake in LG Energy Solution. The parent was worth less than the child. LG Chem's share price fell sharply in the months that followed, cementing what analysts described as a structural "holding company discount" — a phenomenon in which Korean parent companies that hold stakes in separately listed subsidiaries trade at a persistent discount to the sum of their parts, often around 50% of net asset value (NAV). Some retail shareholders pursued legal action; the episode helped catalyse a broader legislative debate about protecting the rights of parent-company shareholders in spin-off transactions.
A Chronology of Value-Up Efforts
*January 2021 — Dividend increase formalised.* LG Chem raised its dividend for the 2020 financial year to ₩6,000 per share, up 50% from ₩4,000 the previous year, and pledged a policy of stable dividend growth. The increase was made possible by strong earnings and the battery division's profit contribution before the spin-off.
*January 2022 — LG Energy Solution lists; discount deepens.* The IPO crystallised the valuation paradox described above. The holding-company discount, previously a theoretical concern, became an empirical fact visible to any investor with a Bloomberg terminal.
*December 2022 — Share buyback announced.* As the share price continued to slide, LG Chem executed a buyback of approximately ₩300bn. The market received it with scepticism: without a commitment to cancel the shares, the programme offered limited structural benefit to shareholders. Its value was primarily as a short-term price support.
*March 2023 — Dividend maintained despite losses.* LG Chem held its dividend at ₩5,000 per share even as it reported a full-year net loss. Management characterised this as a signal of commitment to shareholders; analysts noted it implied drawing on retained earnings rather than current profits.
*February 2024 — Government launches the Value-Up Programme.* South Korea's Financial Services Commission formally unveiled the corporate value-up initiative, encouraging companies trading below one times book value (price-to-book ratio, or PBR) to publish voluntary improvement plans. With a PBR of roughly 0.6–0.7 times, LG Chem was an obvious candidate. The market expected a substantive response.
*May 2024 — Internal review signals.* Through investor relations channels, LG Chem indicated that an internal review of value-up options was under way. Cancellation of treasury shares, setting an explicit dividend pay-out target, and portfolio restructuring to narrow the NAV discount were all reportedly on the table. The absence of hard figures left investors underwhelmed.
*September 2024 — Petrochemical restructuring announced.* LG Chem announced the suspension of some production capacity at its Yeosu and Daesan petrochemical complexes. The move was interpreted not merely as a cost-cutting exercise but as a strategic pivot — shedding low-margin commodity capacity to concentrate resources in higher-value advanced materials. Most analysts viewed it as a constructive step towards longer-term value creation.
*November 2024 — Medium-term shareholder return framework outlined.* At an investor day, management sketched out a direction for 2025–2027: a conditional commitment to raise dividends and consider share cancellations, contingent on a return to profitability, alongside preparations for a formal value-up disclosure. The absence of specific numerical targets disappointed the market.
Unresolved Problems
Several structural tensions continue to obstruct progress.
The most fundamental is the earnings constraint. Without a recovery in profitability — requiring a simultaneous upturn in petrochemical margins, a restoration of cathode material economics, and meaningful monetisation of the life sciences portfolio — meaningful shareholder returns remain financially implausible.
The subsidiary discount shows no sign of resolving itself. As long as LG Energy Solution is separately listed, LG Chem's share price will be anchored to — and constrained by — its subsidiary's valuation rather than its own operating fundamentals. Options mooted to address this, including a partial sale of the LG Energy Solution stake or a distribution of those shares in kind to LG Chem shareholders, have not been pursued.
The buyback programme lacks credibility. Repurchasing shares without a clear and binding schedule for cancellation means the treasury stock could in principle be reissued for employee compensation or other corporate purposes. Until cancellation is made explicit, buybacks carry limited weight as a shareholder-return tool.
Capital allocation tensions are acute. LG Chem faces sustained capital expenditure demands across cathode material expansion, biopharmaceutical R&D, and petrochemical conversion projects. Management's argument that investment must take priority over distributions is commercially defensible but sits in direct conflict with what investors are demanding.
Finally, disclosure remains thin. Global institutional investors have repeatedly called for quantitative targets — specific ROE goals, return on capital employed relative to the cost of capital, and a clear roadmap for narrowing the NAV discount — and have not received them. The company's communications on value-up have tended towards the aspirational rather than the operational.
Assessment
LG Chem's value-up effort is directionally sound but practically incomplete. The company has avoided cutting its dividend to zero, has begun to rationalise its petrochemical portfolio, and has engaged publicly with the value-up agenda. These are genuine, if modest, achievements in a difficult environment.
Yet the share price ended 2024 more than 70% below its 2021 peak of approximately ₩1,000,000. Whatever shareholder-return measures have been deployed, they have not interrupted a prolonged destruction of equity value. The physical spin-off of LG Energy Solution left a scar on retail investor trust that has not healed, and may not for some time.
The summary data capture the trajectory:
Year | DPS (₩) | Buyback | Operating Profit | PBR | ROE
2019 | 4,000 | None | ₩1.05trn | ~1.1x | ~4.2%
2020 | 6,000 | None | ₩1.74trn | ~2.8x | ~9.1%
2021 | 10,000 | None | ₩2.42trn | ~3.5x | ~17.4%
2022 | 5,000 | ~₩300bn | ₩1.37trn | ~1.0x | ~-1.7%
2023 | 5,000 | Partial | ₩0.47trn | ~0.7x | ~-8.3%
2024 | 5,000 | Under review | ₩0.31trn | ~0.5x | ~-11.2%
*Note: PBR and ROE figures are subject to revision based on share price movements and accounting treatments; some figures incorporate market estimates.*
LG Chem's value-up story is unfinished. South Korea's government is pushing hard to close the gap between Korean equity valuations and those of comparable companies elsewhere; LG Chem is one of the most visible test cases of whether that agenda can move from policy intention to corporate reality. Two tasks must be accomplished more or less simultaneously: restoring profitability across a sprawling and cyclically challenged business portfolio, and dismantling the structural discount that has made the parent permanently cheaper than its most valuable child. Until both are credibly addressed, the company's shares are likely to remain a source of frustration for those who hold them.