LG Display Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2023

There are 2 speakers on the call.

Operator

Good morning. This is Brian in charge of LG Display's IR. On behalf of the company, let me thank all the participants at this conference call. Today, I'm joined by the CFO, Sung Hyun Kim, Seung Min I'm, Senior Vice President of Corporate Planning Kyuhan Seon, Vice President of Auto Marketing Kyung I, in charge of Business Intelligence Wonjae Yi, in charge of Large Display Strategic Marketing and MinHyung I, in charge of medium small display strategy. The conference call will be conducted in both Korean and English.

Operator

Please refer to the provisional earnings release today or the IR Events section in the company's website for more details on the financial results of Q3 2023. Before we begin the presentation, please take a moment to read the disclaimer. Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. I will start with Q3 business results. Revenue was almost flat Q o Q in the midst of intense inventory correction continuing in the downstream industries as demand is slow to recover due to macroeconomic uncertainties with the impact being felt differently by product category like TV, IT and mobile.

Operator

Revenue in Q3 was KRW 4.785 trillion, up 1% There was operating loss of KRW662,000,000,000, narrowing QoQ and Y o Y, maintaining the improvement trend. As the company continues with business structure upgrade, it has also remained on the path of cost innovation and operational efficiency. Next, on area shipment and ASP per square meter. Q3 area shipment was up 1% QoQ to 4,770,000 square meters. ASP per square meter was $804 up $1 QoQ.

Operator

In terms of revenue breakdown by each product segment, TV panels revenue mix was 23%, almost flat QoQ. IT accounted for 40%, down 2 percentage points QoQ due to delayed recovery in B2B demand. Mobile and others took up 28%, up by 5 percentage points following the seasonal increase in mobile panel shipment. Auto business revenue mix was at 9%, down by 2 percentage points QoQ as a result of some shipment adjustments. OLED revenue mix remained unchanged at 42%.

Operator

Next is on the financial position and key metrics. Company's cash and cash equivalent was KRW 4.087 trillion. Inventory value was KRW 3.349 trillion, up by KRW 667,000,000,000,000 to prepare for seasonal demand. Key financial ratios were up QoQ, resulting from activities to strengthen liquidity as well as net loss in the quarter. Debt to equity ratio was 3 22% and net debt to equity ratio, 151%.

Operator

Cash flow at quarter end was KRW 4.087 trillion, up by KRW 235,000,000,000 from the KRW 3.853 trillion in the beginning from activities to strengthen liquidity. Next, on Q4 guidance. With increase in TV panel shipment to respond to year end demand as well as expansion in the previously delayed IT panel shipment, shipment area in Q4 is expected to grow by high teen percent Q o Q. Shipment of panels for smartphones with high ASP per square meter is expected to grow, likely to drive up ASP per square meter by mid-twenty percent level Q o Q. Thank you.

Operator

Next, CFO, Sung Hyun Kim, will walk us through the key highlights. Good afternoon. This is CFO, Sung Hyun Kim. The company was able to narrow the loss in Q3 again following Q2 despite the challenging market environment where downstream demand remains sluggish by focusing on upgrading the business structure and innovating cost. In Q4, panel inventory adjustment will ease in the downstream industries and shipment of mid- and large sized products and panels for new mobile products will grow to respond to the year end seasonality.

Operator

Profitability improvement continues as the company keeps up its cost innovation and operation efficiency activities and turnaround is expected in Q4. The company will keep strengthening key businesses to respond to market demand and changes in the business environment and improve its profit structure by persisting with the enterprise wide cost innovation. Allow me to explain more about the OLED business strategy, which I understand to be of high interest in the market. In large OLED, we will broaden our position in the premium TV market and improve profitability by boosting customer portfolios centered on ultra large products and by innovating cost, for example, cutting material cost in key components. In small and medium OLED, we are driving shipment of mobile products by fully utilizing the new ramped up capacity.

Operator

We are also preparing for volume production and supply of IT OLED in 2024 equipped with the technology marked by higher durability and performance like long life and high luminance. Over the mid- to long term, the pace of OLED penetration is likely to differ by IT product like monitor, notebook PC and tablet as well as by consumer acceptance. And it is important to efficiently utilize the existing infrastructure and respond wisely to varying customer needs and market opportunities. In automotive business, the company will keep solidifying its world number 1 position by expanding orders 1 and revenue based on our unique technology competitiveness that encompasses tandem OLED to high end LCD as well as rigorous quality control and stable supply capability. With little visibility into the future trajectory of real demand, the company plans to push ahead with intense restructuring of the revenue structure so as to achieve more meaningful performance next year.

Operator

Thank you very much for That brings us to the end of earnings presentation for Q3 2023. We will now take questions. Operator, please commence with the Q and A session.

Speaker 1

Now Q and A session will begin. The first question will be presented by Sunwoo Kim from Merit Securities. Please go ahead with your question.

Operator

Thank you. I have a 2 part question. I would like to ask my first question, then follow-up with the second after the response. Now the first question is about the issues of delay in the second half of the smartphone panel shipment. So I wonder what have been the changes in the smartphone panel shipment in the second half for the company compared to the plan?

Operator

And also what would be the impact on the company's business performance? Now this is the CFO responding to your first question. And of course, I do realize that this kind of question is important and perhaps necessary, but then I also would have to ask your understanding that I must give you a stock response, meaning that we are actually not at liberty to discuss issues that are related to certain customers. And this also is, I would say, related to the limitations of the nature of the industry itself. Now having said that, yes, it is true that as the market is already aware, there have been some disruptions in our production in, let's say, in a form that is different from the production in, let's say, in a form that is different from the past, but then we were able to overcome the issues.

Operator

And then now going into the Q4, you would know that there have been improvement or ramp up in our production capacity. So we are going we plan to fully utilize, Then my next question is, as was the guidance in the previous quarter, it is the same communication, meaning that the company is looking forward to a turnaround in the Q4. So that is, as I understand, on the back of the recovery in the mobile industry. But so I wonder whether the assessment or the projection by the company still valid. And does the company believe that there is now some visibility into the achievement of this goal?

Operator

And of course, if there is a turnaround that is achieved, then perhaps things might improve. But still, I would say that the environment is still challenging. For example, the rates remain high, borrowings appear to have gone up again throughout the quarters again. So that would also bring up the interest expense as well. So this is by no means an easy environment for the company.

Operator

And I wonder whether there are any financing activities planned for the company to strengthen its liquidity? And also how does the company plan to repay its borrowings? Regarding the turnaround, yes, it remains as our target for Q4 and we keep working very hard toward it. And I would like to ask for your patience and support as we continue to work toward this, which remains as a valid target for us. And yes, it is true that the market environment is not easy.

Operator

But throughout this, what we have been focusing on is to drive cost innovation so that we will be able to improve our profitability to the level of the market. So again, the company has been focusing its capabilities on doing this. And once the market improves, I must say that, of course, there have been these ups and downs in the past, but I must say that at this time around, this, let's say, the tough time is quite long and perhaps a bit more challenging than before. But once this is over, then I believe that all the activities that we have persisted with during that time are going to come back to us with quite a lot of benefits. So in the meantime, the company intends to strengthen its key businesses and also continue to drive ahead with the cost innovation, so that we will be able to improve our so in line with the market environment.

Operator

Thank you. And as we have been going through this tough time for about 2 years now, and as you would know, this is the kind of business or industry that requires quite a lot of investment with not so much return in the beginning, which is something that you all know. Anyway, so as we have gone through this tough time for some time, it is also true that it has had an impact on our financial strength. And so of course, there are various options in financing, but then we tend to keep to the traditional approach, which means that we still are maintaining stability. So rather than the stock market now going to the financial market, we can sense that there is still quite a lot of trust in the company.

Operator

So we have been working to get financing from government run banks as well as large commercial banks. So indeed, most of the major financial institutions are working to finance low interest and long term instruments.

Speaker 1

The following question will be presented by Hyunsoo Kim from Hana Securities. Please go ahead with your question.

Operator

Thank you for giving me the opportunity to ask my questions. I also have 2 questions, one on LCD TV and another on OLED TV. Now for the LCD TV, there have been reports lately that main major set makers will be increasing their purchasing of panels. Then I wonder what the company's direction is in terms of the LCD TV business, including the Guangzhou LCD fab. And the second question is there was earlier guidance on the increase in shipment of medium to large size panels in Q4.

Operator

And the question is then whether it is reflecting the expected seasonality at the year end with expected demand recovery. And also, if that is the case, then what would be the projection or the outlook for the large OLED shipment for the year? And also, what is the company's plan for the medium- to long term operations? And also, what is the company's projection for the longer term profitability? Now as has been the question, yes, it is true that there have been quite a lot of questions about the from the set makers about their sourcing of the LCD

Speaker 1

TV panel.

Operator

Now there has been there is quite a geographic concentration of the LCD TV production capacity. And also because of the U. S.-China friction due to inconsideration of the CSM stability, it is true that many companies are now trying to diversify their sourcing strategy and as a result are also increasing their inquiries to the company. But within the larger direction and the larger framework of upgrading the business structure, the company's strategy on LCD TV business remains unchanged. Having said that, we would have to wisely and flexibly respond to the request coming from the set makers so that we can strategically respond with varying options so that we will be able to enhance the value of our LCD fab.

Operator

And this is Wonjae Lee in charge of large display marketing. Now it is expecting that panel shipment in the panel shipment is expected to grow over the Q3, thanks to seasonality. But then the actual sales are not going to be as strong as the ordinary seasonality due to macro impact and also the demand for high end remains sluggish. Now having said that, we are also seeing intensifying product competition for the ultra large LCD sales coming from the Chinese region. And also with the continuation of the inventory correction policy among the set makers as well as the retailers, we expect that the panel shipment for the year is going to be under the set shipment at around 5,000,000 units.

Operator

But now from 2020 4, there has been negative growth in demand for high end products. And then also so from 2024, there is going to it is expected that there will be a negative demand for high end products. And also the inventory will go back to normal. And so based on our stable customer base, the company believes that we will be able to strengthen our position in the high end market. And also the set makers' profitability is improving.

Operator

And based on the profitability is improving and based on the higher volume and larger sales, the company expects to keep improving its profitability. And this year, our efforts for cost innovation continued by trying to lower the materials cost, especially in key components and materials. And then going into next year, we will be running our fab in linkage to the real demand, so that we will be able to optimize the labor costs and also the fixed costs and variable costs. And we will try to improve our revenue per production capacity or production area, especially in non TV businesses, so that we will be able to improve overall profitability.

Speaker 1

The following question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

Operator

Now I have two questions about the auto display business. Now given the recent sluggish demand for EVs, then in the previous quarter, in the previous conference call, the company gave the guidance of about 15% revenue growth for auto business over the medium to longer term. And I wonder whether this guidance remains still valid for the company. And then also, what is the auto for the medium to longer term, what is the order backlog for the auto business? And out of that, what is the share of the OLED business?

Operator

And then what would be the overall and also based on these circumstances, does company believe that it will be able to turn around the auto display business next year? And also what is going to be the overall auto shipment guidance for the medium to longer term? This is Kyuhan Son, Vice President of Auto Marketing. Now first about revenue, the revenue for the year will be within 10% of the company wide revenue. And then for the next 5 years, we are looking forward to revenue growth in the mid teen percent level.

Operator

And as for the order backlog, it is in the low KRW20 1,000,000,000,000 for this year, and it is set to grow by approximately 30% until 2025. And in terms of the share of the order backlog for the high end tandem OLED panel, it will be in the low 40% for this year and will top 50% from 25% and on. And given the fact that the stable revenue growth continues for OLED, it is expected that its profit contribution will also continue to grow. And then moving on to the next question, which is about the opportunities and risks or threats in the automotive business. Now first, about the opportunities.

Operator

We see that the auto market itself is gradually moving toward EV and STV, meaning that it is becoming more and more the vehicle for lifestyle. And that means that the presence of the auto display is going to become even more important. And this is going to drive further demand for OLED as well as large display. And in terms of risks, now because of the continued sluggish demand in TV and IT, there is actually heightened competition around auto display. But then, thanks to the company's tandem OLED technology as well as its superiority in LCD and other technology and also based on our strong relations and cooperation with global partners, the company will be able to continue to strengthen its competitiveness in winning contracts.

Speaker 1

The following question will be presented by Ki Ho Lee from NH Investment and Securities. Please go ahead with your question.

Operator

Thank you. My first question is, according to the LCD panel price that have been announced by a research organization early this week, there are signs that the panel prices are falling among the small and medium sized LCD TV? Then what does the what is the company's outlook for the ASP in the second half and also in for the longer term? And the second question is, again, what is the company's outlook for the demand per application in 2020 4? And compared to this year, what does the company believe will be some of the meaningful changes next year in the market?

Operator

This is Ki Yong Lee in charge of Business Intelligence, and I would like to answer the two questions at once. Now first about the TV panel price, it has been on the rise since October last year and has been on an upward trend for the past 1 year or so. And then going into the latter half of October, it began to slightly fall led by the small and mid sized products. And it is believed to be the result of the set makers' conservative management and conservative policy, given the fact that we are not yet in a structural recovery of real demand. And also we are going into the seasonality in the first half of next year.

Operator

And it is expected that the panel makers will continue to flexibly adjust the utilization based on demand so that we can minimize the price volatility and continue to try to stabilize the volatility and continue to try to stabilize the ASP. Looking ahead, there might be some ups and downs depending on the seasonality, but then the company believes that the ASP will remain at the level that would be higher than the industry's production cost. And now about the price for the IT panels, it has been it has remained flattish for some time now. But now over the medium to long term, there are concerns of intensifying competition with expectations of demand recovery as well as the stronger supply capability of Chinese makers. So given that there are a combination of both positive and negative factors, the IT panel price is likely to remain flattish going into next year as well.

Operator

Next is on the demand outlook. Now in terms of TV, it seems as if the structural slow demand has been established. So it appears as if the demand is going to remain flat into next year as well. But there appears to be a strong demand for ultra large products. So then in terms of the area, then it is likely to achieve about mid single digit growth.

Operator

And for panel demand, thanks to the healthier inventory, we expect a slight growth in panel demand compared to this year. Now in IT, overall, negative growth continues led by B2B and high end. It is also true that macroeconomic uncertainties remain like high interest and inflation, but then the negative growth has slowed down in 2023, and now there are expectations of recovery from the second half and on. And likewise for IT, the panel demand is expected to achieve positive growth as the set inventory has become healthier. And last is on the smartphone.

Operator

In terms of the smartphone, the market is generally in saturation. So we see that the it continues to remain sluggish. Now having said that, it is a positive factor that the OLED market, which is the target market for the company, is maintaining positive growth. And looking into 2024, we look forward to similar positive growth in both set and panels.

Speaker 1

The last question will be presented by So Won Kim from Kium Securities. Please go ahead with your question.

Operator

Thank you very much. I have a question about the preparation on the IT OLED, which you said to go into volume production in 2024. So it was mentioned earlier that the preparation is underway smoothly, but then I wonder whether there are any changes to compare to the previous plan. And also what is the outlook for the market size and competition? So if you could if the company could provide us with further update, please.

Operator

Thank you. Thank you. This is Minhyung Lee in charge of medium small display strategy. Now for the IT OLED, as has been disclosed, the plan is to continue to invest into the Q1 of next year. And after the investment is completed, then we will go into mass production and the preparation is well underway.

Operator

We will apply the technology that has been accumulated in auto as well as the large OLED business so that we will produce high end panels that have the advantage of low power and long life. And over the mid- to long term, in terms of the pace of OLED penetration, we believe that it is going to differ depending on the characteristics of the IT product as well as the consumers' acceptance. So it is important for the company to wisely respond to varying customer needs and market opportunities by utilizing the existing infrastructure. We will now close Q3 2023 earnings conference call. Thank you once again for joining us today.

Operator

Please do contact us at the IR team for any additional questions. Thank you.

Powered by Quartr

Key Takeaways

  • Q3 revenue was nearly flat at KRW 4.785 trillion, with an operating loss of KRW 662 billion that narrowed both sequentially and year-over-year thanks to ongoing cost innovation and business structure upgrades.
  • For Q4, the company forecasts high-teens percent growth in panel shipment area and mid-20s percent increase in ASP per square meter, driven by year-end TV and IT demand plus higher-ASP mobile panels.
  • In OLED, large-screen efforts focus on expanding premium ultra-large TV sales and cutting material costs, while small/mid panels are ramping smartphone output and preparing for IT OLED volume production in early 2024.
  • The automotive display business targets mid-teens percent revenue growth over the next five years by leveraging tandem OLED and high-end LCD orders to solidify its #1 global position.
  • Balance sheet highlights include KRW 4.087 trillion in cash, a debt-to-equity ratio of 322%, and ongoing reliance on low-cost bank financing to navigate a prolonged market downturn.
AI Generated. May Contain Errors.
Earnings Conference Call
LG Display Q3 2023
00:00 / 00:00