Electrification And Decarbonization Will Expand Sustainable Battery Supply Chains

Key Takeaways

• Synergistic realignment and regulatory tailwinds could drive faster-than-expected profit recovery and upstream margin expansion across chemicals and advanced materials.
  
• Strategic dominance in EV supply chains, rapid growth in green chemicals, and innovation in life sciences position the company for sustained high-margin revenue growth.
  
• Weakening demand, regulatory risks, and rising competition threaten LG Chem's core businesses and margins, while major investments and supply chain shifts elevate execution and profitability risks.

Catalysts

Engages in the petrochemicals, energy, advanced materials, and life science businesses in Korea, China, Asia/Oceania, the United States, Europe, and internationally.

• Analyst consensus points to improved profitability from streamlining, but the pace and scope are likely underestimated-LG Chem's synergistic alignment with government-led restructuring and support for Korean chemicals could supercharge its upstream repositioning, supporting a far sharper recovery in net margins and cash flow than currently modeled.
  
• While consensus expects volume growth from high-value advanced materials, it may underappreciate the magnitude of the 2026 inflection: aggressive customer diversification, major contracts ramping with Toyota and others, and non-China supply chain dominance could drive outsize revenue acceleration and sustained net margin uplift as regulatory tailwinds and multi-year supply pacts crystallize.
  
• LG Chem is uniquely positioned to dominate the North American and European EV supply chain, leveraging its local battery materials and cathode manufacturing footprint to capture market share as OEMs scramble for regionally compliant, high-quality supply-this could yield structural revenue and operating profit outperformance as demand for electrification soars.
  
• Beyond batteries, the company's rapid scaling of eco-friendly bio-materials and sustainable aviation fuel capacity-backed by first-mover advantage and regulatory alignment-sets the stage for disproportionate growth in green chemicals, driving both premium pricing power and superior net margin expansion as markets shift toward decarbonization.
  
• Intensifying focus and investment in next-generation oncology and obesity treatments, combined with a disciplined approach to pipeline M&A and external licensing, have the potential to transform the Life Sciences division into a global leader, unlocking high-margin recurring royalty flows and step-changes in earnings visibility.

LG Chem Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on LG Chem compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming LG Chem's revenue will grow by 14.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.5% today to 9.1% in 3 years time.
• The bullish analysts expect earnings to reach ₩6720.5 billion (and earnings per share of ₩85317.48) by about August 2028, up from ₩-1724.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.7x on those 2028 earnings, up from -12.9x today. This future PE is lower than the current PE for the KR Chemicals industry at 12.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.13%, as per the Simply Wall St company report.

LG Chem Future Earnings Per Share Growth

Risks

• The prolonged demand weakness in both the petrochemical and advanced materials divisions-driven by U.S. reciprocal tariffs, the impending end of EV subsidies, and shifting regulatory policies-raises the risk of significant revenue contraction and worsening profitability through at least 2025.
  
• LG Chem's heavy reliance on petrochemicals and plastics, amid global decarbonization efforts and intensifying anti-plastic sentiment, threatens long-term core revenue streams and could result in margin compression due to falling demand and higher compliance costs.
  
• Increasing global competition in battery materials, particularly from cost-competitive Chinese players, along with falling cathode material average selling prices and shipment declines, signals pressure on earnings growth and the risk of further net margin erosion.
  
• Execution risk remains elevated around large-scale capital investments (such as the U.S. Tennessee cathode plant and bio-oil projects), which-if market conditions deteriorate or subsidy/regulatory frameworks shift-could depress returns on invested capital and cash flow, limiting future earnings growth.
  
• Supply chain realignment requirements in response to stricter U.S. IRA content rules and efforts to reduce exposure to China may increase input costs, disrupt existing arrangements, and result in loss of competitiveness in global markets, thereby impacting revenues and profitability over the long term.

Valuation

• The assumed bullish price target for LG Chem is ₩433458.17, which represents two standard deviations above the consensus price target of ₩344481.48. This valuation is based on what can be assumed as the expectations of LG Chem's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩500000.0, and the most bearish reporting a price target of just ₩280000.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₩73945.6 billion, earnings will come to ₩6720.5 billion, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of ₩283500.0, the bullish analyst price target of ₩433458.17 is 34.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.