Bond Update: LG Chem 1Q26 Results - Emerging from Period of Setback

LG Chem, the largest comprehensive chemical enterprise in South Korea, with businesses covering petrochemicals, advanced materials, life sciences, Farm Hannong and LG Energy (battery manufacturing). The group has actively promoted cost management and business transformation over the past few quarters. However, 2026 first quarter results show that the transformation is still in a painful phase. This article will provide an in-depth analysis of the latest financial performance, developments in each business segment, changes in credit indicators, and their impact on bond investments.

Revenue declined slightly but profits dropped sharply, with petrochemical recovery becoming the main highlight

According to LG Chem's latest Q1 2026 results, group revenue fell 2.6% YoY to 12.2 trillion KRW, However, it rebounded about 6.2% QoQ. Operating profit turned sharply from KRW 43.8billion in the same period last year to a loss of KRW 5 billion (0.4% operating loss rate) and recorded a net loss of KRW 78.2 billion. Gross margin was 18.9%, slightly down from 19.7% in the same period last year, reflecting increased R&D and marketing expenses.

The main drag came from the energy solutions business, which recorded an operating loss of 208 billion KRW, mainly due to cost increases caused by the expansion of energy storage system (ESS) capacity and sales challenges facing the North American automotive battery product mix. However, the petrochemical business performed strongly, with revenue of KRW 4.4 trillion (accounting for about 36.5%), and operating profit turning positive to 16.5billion KRW, a significant improvement from the previous quarter's loss of KRW 239 billion, mainly benefiting from favourable inventory impacts, lower raw material prices, and a one-time EU anti-dumping duty rebate. Advanced materials revenue was KRW 84.3billion (about 6.9% share), with an operating loss of KRW 4.3billion, but IT Materials and other products remained solid, and the launch of new semiconductor material products helped ease pressure.

According to the group's sales and profit trend chart, the operating profit margin of the petrochemical business has clearly rebounded, indicating that past cost-cutting and inventory management strategies are yielding positive results. We believe that although overall earnings remain volatile, signs of business recovery are beginning to emerge due to non-structural deterioration.

Dynamic analysis of each business segment: Petrochemical recovery and energy solutions are still in a period of adjustment

LG Energy is the group's largest segment (accounting for 53.5%). Although there was a loss in the first quarter, we note that this is due to additional costs incurred by the group to increase capacity (such as establishing production lines and training personnel), which are not expected to continue for a long time. Notably, strong demand for ESS in North America and stable shipments of cylindrical cells are underway. The group is actively expanding orders and plans to maximize potential through global operational capabilities and cost competitiveness. We believe that with increased contribution from ESS business and stabilizing EV battery demand, coupled with a significant decline in capital expenditures (down 47% YoY to KRW 1.6 trillion), the sector's long-term growth momentum remains promising, and short-term pains should not be excessively exaggerated.

Regarding the petrochemical business, the group noted that the short-term downtime of the naphtha cracking unit NCC Unit 2 is limited, and future profits are expected to remain at a similar level, mainly benefiting from the ongoing impact of the naphtha oil price gap and cost-cutting measures. Other business segments of the group also performed well. The advanced materials segment in IT engineering materials is expected to maintain solid performance, and the cathode materials business is likely to turn profitable as production increases and new product contributions occur.  The Life Sciences segment has improved profitability driven by increased shipments of key products and lower R&D and marketing expenses, making future revenue growth expected.  The agricultural technology sector benefited from increased sales of domestic crop protection products in South Korea and fertilizer pre-order demand following the Middle East conflict, with both revenue and profit improving YoY. 

Credit indicator analysis: Leverage rising but liquidity buffers are sufficient

As of March 2026, the Group's total cash and cash equivalents amounted to KRW 9.7 trillion; EBITDA was KRW 1.4 trillion. Operating cash flow turned negative at 176 billion KRW, mainly due to operating losses and changes in working capital. The group's total debt is KRW 35.7 trillion (short-term debt KRW 13.1 trillion, long-term debt KRW 22.5 trillion). The debt-to-equity ratio slightly increased to 119.7% compared to the previous quarter, and the net gearing ratio edged up 5.4 percentage points QoQ to 54.0%. However, the group has also clearly stated that it will take a series of measures (including continued sales of LG Energy shares and wastewater treatment business) to secure sufficient liquidity to repay debts, keeping credit risk manageable.

The group's capital expenditure in the first quarter of this year (excluding LG Energy) was KRW 24.9billion, indicating that the group remains actively investing in future growth areas. Although leverage ratios and cash flow indicators have worsened compared to the end of 2025, cash reserves remain ample, and short-term debt pressure is manageable. The group has maintained credit stability through strict cost management and asset disposals. We believe that with the recovery of the petrochemical business and the landing of energy solution orders, cash flow is expected to gradually improve, with a significant short-term deterioration unlikely.

How should investors position LG Chem bonds?

Although LG Chem's earnings volatility and leverage increased in the first quarter this year, business diversification, petrochemical recovery, and long-term growth prospects for energy solutions provide buffers. The credit risk of US dollar bonds is relatively manageable, and Standard & Poor's maintains its 'BBB' credit rating, provided that net debt/EBITDA remains below 3.5 times for the next one to two years (around 4.1 as of 1Q26). With the company utilising LG Energy’s stake for liquidity paired with ESS profitability upside in the future, deleveraging could be happening. Currently, the market offers LG Chem and LG Energy USD bonds with maturities ranging from 0.1 to 5.1 years, offering relatively attractive yields. Investors seeking stability may prioritize ‘LGCHM 2.375% 07Jul2031 Corp (USD),’ which has a moderate maturity, a yield of 5%, and provides some support from the group's core business and cost control measures. Moreover, the duration will not be too long, so the impact of interest rate fluctuations on bond prices is relatively limited. LG Energy-related bonds can also serve as references, but attention should be paid to the impact of battery business fluctuations on overall credit.

Table 1: US dollar bonds Issued by LG Chem and LG Energy

Bonds	Issuer	Tenor	Ask Price	Net YTM
LGCHM 1.375% 07Jul2026 Corp (USD)	LG Chem	0.1	99.6	1.2
LGENSO 5.625% 25Sep2026 Corp (USD)	LG Energy	0.4	100.3	3.3
LGCHM 3.625% 15Apr2029 Corp (USD)	LG Chem	2.9	96.4	4.7
LGENSO 5.375% 02Jul2029 Corp (USD)	LG Energy	3.1	101.1	4.7
LGCHM 2.375% 07Jul2031 Corp (USD)	LG Chem	5.1	87.2	5.0
LGENSO 5.375% 02Apr2030 Corp (USD)	LG Energy	3.9	100.4	5.0
Source: iFAST Data as of May 19, 2026