Mirae Asset Securities lowered its target price for LG Chem (KOSPI: 051910) on July 31st from 480,000 won to 440,000 won, while maintaining a "buy" recommendation. At the stock's closing price of 258,000 won on the same day, the implied upside stands at 70.5%.
The principal reasons for the target cut are a deteriorating earnings outlook in the chemicals division and rising net debt. Mirae Asset projects LG Chem's net debt will reach 25 trillion won by the end of 2027—a consequence of years of heavy capital investment in battery materials and petrochemical capacity. With interest rates still elevated, concerns over the balance sheet are acting as a structural drag on the share price.
The broker nonetheless maintains its buy rating, pointing to a recovery in the advanced materials division as its key justification. LG Chem reported consolidated operating profit of 599.6 billion won in the second quarter of 2026 (April–June), beating the market consensus of 422.4 billion won by 42%. Excluding the contribution from LG Energy Solution—the battery subsidiary in which LG Chem holds a 79.4% stake—operating profit from the core business was 486.3 billion won. A notable driver was the chemicals division turning in two consecutive quarters of profit for the first time in four years.
The chemicals unit booked operating profit of 427 billion won in the second quarter. Mirae Asset estimates that more than half of this was attributable to favourable inventory lagging—an effect that arises when raw-material prices fall and producers benefit from using cheaper feedstock purchased earlier, widening margins. Some improvement in product spreads also contributed, though the broker judged the impact of refunds from American reciprocal tariffs to be relatively modest.
The advanced materials division returned to profit in the second quarter, recording operating profit of 20 billion won. A reduction in battery-materials losses—driven by higher cathode-material selling prices and increased separator shipments—was the main factor. The battery division (LG Energy Solution) also swung to profit, posting 113.3 billion won on the back of higher electric-vehicle battery volumes and expanded production of energy-storage systems (ESS) in North America.
The third quarter looks considerably less favourable. Mirae Asset forecasts consolidated operating profit of just 180.2 billion won for the July–September period, a sequential decline of roughly 70%. Excluding LG Energy Solution, the core business is expected to swing to an operating loss of 43 billion won.
The chemicals division is the main culprit. The inventory lagging that inflated second-quarter results is expected to reverse in the third quarter—a phenomenon known as reverse lagging—whereby producers must work through older, cheaper inventory before absorbing higher-cost feedstock, compressing margins. The difficulty of passing rising raw-material costs through to customers compounds the problem. Rising ocean freight rates are expected to add further cost pressure in the second half of the year, leaving the chemicals unit facing an estimated operating loss of 36.1 billion won in the third quarter. The episode underlines how the lagging effect can amplify earnings volatility from one quarter to the next.
The advanced materials division, by contrast, is expected to continue improving. Cathode-material shipments are forecast to more than double quarter-on-quarter in the third quarter, which should ease the burden of fixed costs. Shipments of upgraded 2170-format cylindrical cathode materials are set to begin during the quarter, with meaningful revenue contributions expected from the fourth quarter onwards.
A recovery is anticipated from the fourth quarter. Cathode-material utilisation rates are projected to recover to between 70% and 80%, with growing sales of separators for ESS applications underpinning profitability. Mirae Asset estimates full-year 2026 operating profit at 1.884 trillion won—a 59.5% increase on 2025's 1.181 trillion won—before what it projects will be a sharp rise to 4.449 trillion won in 2027.
That optimistic trajectory hinges on the normalisation of capacity utilisation in the advanced materials division. LG Chem aggressively expanded cathode-material production capacity during the electric-vehicle boom of 2022–23, only to see utilisation rates fall sharply as EV demand subsequently cooled. Without a sustained recovery in utilisation, fixed costs will continue to suppress profitability.
Several risks merit close attention. Net debt of around 25 trillion won, if sustained over an extended period, could limit the pace of earnings recovery by inflating financing costs. The company's net profit attributable to controlling shareholders is still forecast to be in the red in 2026, at a loss of 23 billion won. The price-to-book ratio of 0.6 times is close to historic lows—a reflection, in part, of lingering doubts about the speed of any profitability rebound.
Competition from Chinese cathode-material manufacturers is another variable. Against a backdrop of aggressive low-cost Chinese competition, how quickly LG Chem can establish a premium product position will be critical to its medium- and long-term margins. Progress in scaling up 2170 cylindrical cathode supplies and expanding separator sales for ESS applications will be the key indicators to watch.
The 440,000-won target price was derived using a sum-of-the-parts valuation. Mirae Asset applied an EV/EBITDA multiple of 6 times to the petrochemicals division, 24.5 times to advanced materials, and 24 times (with a 20% discount) to life sciences. LG Energy Solution's contribution was valued at 2.819 trillion won, reflecting LG Chem's 79.4% stake discounted at 75%.