According to Palliser founder and Chief Investment Officer James Smith, LG Chem trades at a 74% discount to its net asset value, as investors continue to view the company primarily as a struggling petrochemicals firm while overlooking its robust battery business. Shares have fallen 20% over the past 12 months and lagged peers in the sector. “This thing is crazy, crazy, crazy cheap,” Smith said at the 13D Monitor Active Passive Investment Summit in New York.
Unlocking Hidden Value
Palliser, which holds a long-term stake of over 1% in LG Chem, highlighted that the company owns 82% of LG Energy Solution, a leading supplier of batteries for automakers including Toyota and Tesla. Smith attributed the steep valuation gap to weak corporate governance, poor capital allocation, and a lack of alignment with shareholders.
“LG Chem has a tremendous opportunity to unlock value by closing its deep valuation discount,” Smith said. He urged the board to formally evaluate the LG Chem Value Enhancement Plan and support President Lee Jae Myung’s KOSPI 5,000 vision, aimed at lifting South Korea’s benchmark index to 5,000 within five years. The KOSPI has risen 42% since Lee took office in June 2024, currently trading around 3,800.
LG Chem declined to comment on Palliser’s remarks. Under its November 2024 corporate value enhancement plan, the company indicated it may consider raising its payout ratio once new investments in batteries and other emerging businesses generate profits.
Calls for Governance and Strategic Changes
While acknowledging LG Chem’s recent strategic moves—such as the sale of its polarizer business two years ago and a non-core water filter business this year—Smith said more action is needed. He recommended refreshing the board with directors experienced in advanced materials, electric vehicles, and life sciences, noting that current directors are primarily academics lacking practical business management and capital allocation expertise.
Additionally, Palliser suggested the company conduct share buybacks and maintain appropriate net debt levels to bolster investor confidence and unlock shareholder value.
Track Record of Activism
This is not Palliser’s first engagement with South Korean conglomerates. The firm previously proposed changes at SK Hynix’s holding company, while Smith’s former firm, Elliott Management, has previously challenged major companies including Samsung Electronics and Hyundai Motor.
Smith’s interventions highlight a growing focus on governance reform and shareholder value creation among South Korea’s large family-controlled conglomerates. With LG Chem at the intersection of petrochemicals and electric vehicle batteries, Palliser sees a major opportunity to convert undervalued assets into measurable gains for investors.