Q3 2021 LG Display Co Ltd Earnings Call (English, Korean)
In terms of a share out of revenue I G panel maintained its highest portion at 45% T.
E V. Pannose came in next with 32% down six percentage points from the previous quarter.
Mobile and others accounted for 23%.
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Next is the company's financial position and ratios.
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The company's cash and cash equivalent at the end of Q3 was $4 two trillion won.
Inventory was 3.58 trillion won increasing by 857 billion, one Q O Q, owing to deferred shipment in Q4 and buildup of safety stock to prepare against supply chain uncertainties, such as power shortage at the production side and continued parts supply issues.
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Financial ratios kept showing improvement.
The ability to equity ratio was one 157% improved by seven percentage points current ratio was 95% net debt to equity ratio came in at 63% improved by six percentage points Q O Q.
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Next is cash flow cash and cash equivalents were 4.2 O. Nine trillion won at the end of the quarter down by 108 billion. One from 4.317 trillion won at the start of the quarter.
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In Q4 area shipment is expected to grow by mid single digit Q O Q.
The shipment decrease in Q3 coming from parts supply issue is expected to recover in Q4.
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Area prices expected to rise in low single digit Q O Q, even with continued drop in LCD TV panel price. Thanks to shipment growth in mobile that has higher area price.
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Good afternoon. This is D. H sauce CFO of LG display let me. Thank the shareholders investors analysts and all stakeholders, who are participating in today's earnings release conference call.
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I will first brief you on the main performance and operation strategy for each business in Q3.
Our Q4 outlook.
I know I'm going to just help go through some questions.
First is main performance of each business in Q3.
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There were a meaningful results in Q3, such as solid performance in I T and strengthening of large OLED positioning in the high end.
TV market, despite the volatility in L. C D market.
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In a T. There was some shipment delays due to supply disruption of some components.
But the company was able to achieve consistent performance, thanks to our differentiated competitiveness and customer base.
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And large OLED business as well demand for OLED panel.
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<unk>, 90% growth year to date in Q3 Y O Y despite the globally weak demand for television set.
Able to further consolidate its positioning.
The end market.
The company began capacity ramp up in Guangzhou by 30000.
Profitability also improved Q O Q and is not expected to turnaround to profit for the year.
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Although volatility in the LCD market keeps growing.
He has continued to make preemptive preparation and strength and stability by focusing on competitive threat.
L C D business innovation.
Large and small to mid size OLED business has been stabilized after being deep in the Red last year, and we now have the basis to turnaround to more than.
This year.
From next year, we will focus on stable growth and profitability.
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As a result, we believe that should there be additional worsening of the LCD market. It can maintain stable business operation and absorb a considerable part of the market volatility based on a business structure built for a sustainable growth and profitability.
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By business large OLED shipment will increase in Q4, thanks to its stronger positioning in the high end TV market it.
It is expected to turnaround to profit for the year and achieved sales goal of 8 million units.
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And with the additional 30000 capacity in Guangzhou that started operation in Q3.
We'll build the infrastructure to produce 10 million units, a year, which will further help drive growth in OLED business.
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In terms of the market the mainstream market is contracting in the second half.
And keeps growing creating a wider gap in the market. This is due to the consumer's willingness to pay more for higher specification as TV increasingly becomes a multi use device with more time spent and higher quality content.
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Based on such change LG display intends to a segment of consumer market more finely and develop product offerings customized for each segment.
This will help build the basis for profitable growth for large OLED to keep growing and improve profitability at the same time.
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For small and medium OLED, we intend to turn it into another pillar of future profitability.
Italy, increasing its volume by strengthening matched production holiday competitiveness.
T J client relations we.
We will keep solidifying our partnership with clients to drive volume and new product development and improve our profit structure.
Broadening product portfolio into Wearables for example.
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Next is the direction of LCD business.
Have been improving our profit structure by preemptively converting part of the capacity from highly volatile LCD TV to I T.
And broadening high end production.
By downsizing the business that is directly linked to the market cycle.
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We also secured stability and longer term volume management in cooperation with strategic clients and continue to generate profit and differentiated business in I T and commercial.
Market volatility keeps growing but we will preemptively manage changes in the LCD TV market.
And maintain flexible fab operations.
The goal of profitability and competitiveness.
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Next is Q4 outlook.
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Demand growth in meat and shipment growth of mid teen percentage is expected in Q4.
Whereas shipments fell in Q3 due to component issues. It will recover in Q4 mobile.
Shipments will also increase thanks to seasonality.
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The company also believes that supply demand uncertainties could continue.
The worsening of the LCD market.
Issues with key components.
Power shortage in China.
And we'll try to minimize risk by strengthening market monitoring and ensuring zoro preemptive management.
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Next is on financial management activities.
Boeing was reduced two quarters in a row by about 370 billion won.
Capex for the year is expected at mid.
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Next year Capex is expected to increase Y O y.
New investment on small to medium OLED.
It was already announced.
Well, we will abide by the principle of Capex within EBITDA we.
We will stably manage our cash flow as you try to improve financial soundness.
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First allow me to respond to the question that was left at the time of registration and frequently received at the IR team the.
The most frequently asked questions are on OLED business performance profitability, LCD operation and dividend.
We'll explain about dividend, which is not covered so far.
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John and team.
As was explained at the last earnings release. The company is currently working on the policy that will ensure predictability and practicality.
Mid to long term.
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Operating profit year to date until Q3 was 175 three trillion won.
And net income was 1.1531 trillion won.
This is a meaningful ear for the company as we achieved a turnaround after three years of deficits.
Positively reviewing dividend for the year.
And as soon as we finalize the dividend amount, we will immediately communicate with the market.
I'm talking about.
Thank you very much for your attention.
Earlier, it was mentioned that in Q4 area shipment will grow by mid single digits, but let me make a correction.
Lee.
Jim.
So in Q4 area shipment is expected to grow by mid teens.
Thank you.
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Korean depth and they're protected limiter.
That brings us to the end of earnings presentation for Q3 2021.
Now, we'll take questions operator, please commence with the Q&A session.
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Now Q&A session will begin please press star one that is starting one if you have any questions questions will be taken according to the order you have Preston number star one.
For cancellation. Please press star two that is start and two on your phone.
In order to allow as many Q&A chances as possible within the restricted time.
We would appreciate only two questions per each participant.
Tom will accumulate J C Penny UBS said equal our so called Juanita.
Our first question will be provided by Nicolas <unk> from UBS. Please go ahead with your question.
First one is one RGB OLED profitability, you talked a about white OLED, but how.
How would you characterize the trajectory for RG <unk> profitability in Q3 and into Q4 and for full year and initial thoughts for next year.
And secondly on the <unk> side, you talked about running flexible operations would that imply that you would be a low rating.
Additional rates already are in.
For some of the lines or would you intend to do but suite or increase effectively.
Downtime for equipment for maintenance et cetera, and how is this oh.
Influencing the timing of closure of jumps up in capacity in Korea. Thank you.
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Now first about the RGB OLED or what we call the plastic OLED.
Plastic OLED profitability now we.
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And for the other.
There have been some reloading issues.
Compared to the past.
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And we're not able to follow up with proper utilization for some time.
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Combined we now have the basis.
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And going into next year.
We look forward to.
Going beyond that.
Profitability.
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Regarding your question about the LCD.
You are asking.
LCD Tvs.
And now.
Overall.
LCD fab.
Eight.
Oney.
Tony.
Capacity than compared to the end of 2018, because the LCD business.
That's our starting in the second half of 2018 compared.
Compared to the end of 2018.
This is Dan.
By 25%.
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For plant and we also reduced the capacity in some lines and also as you already know we converted.
Capacity.
And in this lawsuit in this process.
Some capacity loss.
And especially for the I T V converting mostly to the high end products like high resolution.
There was some capacity loss in any way to compare it to the end of 2018 today, we are down by about 25% in the LCD Gen eight capacity.
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But out of the 25% decrease in capacity between 2018 and now if you look at the capacity.
Product.
Our T V.
Down by 40%.
It is 30.
30%.
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Now for the T V.
We intend to become even more flexible in our response to the changes in the market.
Or the T V plants, we'd have to.
LCD fab in Guangzhou.
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Following question will be presented by Sean Kim from Hana Financial investments. Please go ahead with your question.
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I have two questions one each for OLED TV and LCD TV.
First about the OLED TV.
There have been talks from the beginning of this year.
The possibility of adding.
Domestic customer.
So the question is then what is the possibility of a car.
Domestic customer.
Sure.
So if you could share that information.
With us today.
And that is possible.
I appreciate it.
And then Oh it was mentioned in the briefing.
Capacity.
10 million under that assumption then.
Oh.
For it.
In terms of the operating profit.
It will remain similar to the guidance.
Mid single digits.
Operating profit.
Second question is.
No.
Yes.
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Yeah.
The business remains.
In the black.
And for the company to maintain.
Profitability.
How much further job.
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I mean right now.
Now regarding your first question about your OLED TV.
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Felipe.
Ah as you would understand it is difficult for us to disclose that.
Permission.
Now for the OLED TV business.
Very hard to.
Quality.
Thank you.
And also to secure the production capability and now that we have done.
And profitability.
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Somebody so instead, one quickly or whether they're hungry for millions of thought because most of them.
So from that perspective, and so far our customers.
For the White OLED had been traditional TV set makers.
Now are we are looking at the market in finer segmentation.
And we are already in talks with some of your potential customers, but we believe that we will be able to acquire new customers. Aside from the traditional TV set makers, so new customers, who would be able to deal with the white OLED and would also be able to appeal to the consumers utilizing right.
OLED.
It's all good.
And then some on the upswing in autumn will keep on doing it.
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Another six months or something.
Once a month.
So for next year as I mentioned earlier, we are able to sell a 10 million units and if things go as planned.
We believe that we will be able to achieve a single mid single digit growth.
In profitability.
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Two weeks ago.
And regarding the LCD TV. So your question was how much. So what is the extent of deferred the job and he pricing to LCD TV panel.
That.
That will allow the company to remain profitable.
If I may rephrase your question I take it as a hell of a how that's all it is.
If I may rephrase. Your question then what is the extent of the drop in the price that would still allow us to maintain our business operation.
Now for the LCD TV capacity as I explained earlier compared to the end of 2018. The capacity is almost half of it and most of it is for our commercial products commercial products, meaning that the specifications are discussed prior with the customers. So in this case the pricing is quite different.
From the market price and this gives us a room for maneuver in the S E T business and of course over the commodity products.
For both the Guangzhou plant and the Korea plant well are we have no further burden of depreciation and amortization. So I would say that the cost structure is quite different from our peers and also now than compared to the peers I would say that compression of D. C O P than it would be about five to 10.
10% that would allow us to stay at least at the VP level.
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Tom.
Cool.
The following question will be presented by and.
From Bank of America. Please go ahead.
Yeah.
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Oh first of all my question.
The news about Capex.
So as we're able to understand from the conference call.
For the OLED business Theres going to there has been the 30 K capacity ramp up in China.
China plant and then there was already ramped up in Gen six and I Wonder why you know the company still needs to have higher Capex next year as compared to this year.
So does this mean that the company's business model fundamentally shifted to one that requires higher maintenance costs I would like to follow up with my next question. After the response.
And then bigger picture.
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So you still got some does it cause any problems.
For the Capex next year as was disclosed already we have the investment plan for the 15 K for small to mid size OLED and that is the reason why there is going to be higher capex required.
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Following question will be presented by John Kim from Korea Investment Securities. Please go ahead your question.
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Now I also have two questions first is about the T V panel well actually the TV panel price of you have already discussed this but.
At some things, but then I do not believe they will discuss the I T panel price. So what is the company's view on the I T panel price trend down the road, because we see that for like P C or notebooks, but they said demand has been strong in the first half, but it started to slow down recently so they.
On this environment then what is the company's view on the I T panel price and the second question is about the depreciation and amortization schedule. So given that a V. So it's we see that it is almost certain that OLED will now be turning around to at least be P.
And perhaps on one hand, it is owed to the higher utilization rate, but perhaps it is also owed to the lower depreciation and amortization. So I wonder what so if you could explain despite and also for the L. C. D. What is is there also schedule for the depreciation and amortization for LCD to also go down.
Yeah.
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Now first about the I T panel price afford the LCD TV, yes. The market changes are also affecting the panel price and but then now for the I T relatively speaking.
It has so I mean, its growth has slowed down somewhat but still relatively speaking we believe that the price will remain solid into Q4.
But yes, it is true that the compared to the first quarter of this year then the AR increase rate has slowed down and is almost be kind of flattish.
Yeah.
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Oh my own take so long as our typical moves wuxi rule could be depreciating them on your partisan.
Many of them because you don't run a color there was something important that she is going to cause a stone throw stones on pause.
And for next year, we believe that much of the online demand that we had enjoyed is going to go away but of course, it's not that they will go away completely because that would still be some demand for it.
On a face to face business and remote education, and so forth. So.
Debased effects will remain for some time.
And also on the other hand much of T b to B market.
For which the demand had been much declined because of the need for non face to face. We believe that there is going to be recovery in the b to b might get next year.
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And for the Palo price, we believed that started at the a price correction would probably start from commodity monitors. So.
Or perhaps India first India first quarter of next year.
And for notebooks, the price correction is likely to start.
Time in the second quarter or the third quarter of next year.
But we see that the patterns of T. A price correction that going to be different between commodity products and high end products.
Because for the high end products are we discuss these specifications with your customers ahead of time.
And determined the pricing based on that meaning that for the high end products. The pricing is not closely linked with the market. So it actually does not depend on the supply and demand dynamics, but it is more affected by the clients of 10.
But then again for the commodities would be lifted depressed correction is likely to start in the first quarter of next year and for notebooks, a second quarter or the third quarter.
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So much interest.
And your question about the OLED TV profitability in other words, what are the factors that are driving up the profitability for the TV business is how I understood. Your question.
And that there are several factors behind this and the first and foremost I would say it is thanks to the company's internal capability.
We were able to achieve considerable improvement in India E. L F.
And of course I have to thank the employees for such hard work in achieving this because we were able to improve the yield at a much faster rate than expected.
Almost to a point of reaching the critical point of course, we have to do the exact calculation to determine that but I believe that we are almost there.
And another is the cost reduction thanks to cost innovation efforts.
And the fact that the sales have more than doubled. This also helped because it then allowed the leveraging effect of the fixed costs, such as the R&D or the marketing cost.
And also for the Apache plants, you would know that it has been built quite some time ago. So most of the depreciation and amortization has gone away.
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Because most of them.
And then your question about the depreciation and amortization.
For the L. C. D plant now of course, our 40 investment into any fiber plant then there would be a major investment or some additional investment frame truth monitor financial investment. So some of the others are types of investment might remain meaning there's some.
Depreciation and amortization might remain but depreciation amortization coming from a major investment for all of for most for all of our plans and thoughts that is almost completed.
Yeah, but I'm going to answer them in their top call got to the root cause I guess to me that.
Yeah.
To put it in.
Cool.
The last question will be presented by from Bank of America. Please go ahead with your question.
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So then I went back with my follow up question and this maybe as simple, but meaningful question I believe now for the fourth quarter. The company is projecting a volume increase of about 15%.
But then it would be a good if we can have the volume deferred from the third quarter actually be realized in the fourth quarter, but does this mean that the Oems might be trying to secure a excessive volume of panels or does the company believed.
There is real demand coming from the Oems have so despite the uncertainty in the macro environment. So perhaps the Oems are trying to make up for the lost production in the third quarter in the fourth quarter. So if that is the case and that is going to be a good sign but so more specifically then.
For the approximately 15% volume increase or the increase in the area shipment can you explain by application from which application you just going to come most perhaps not to LCD.
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Okay.
Now for the area shipment are there is not much of the area shipment increase will come from a T. So there is the volume deferred from the third quarter and as far as we understand them in not only the company, but also other companies have struggled with tea.
What each of our component supply.
So for the you said demand I still see supply fall short of demand.
So currently what we need to do is try to do our best to fulfill the customer's demand that continues and then also a part of it will come from the OLED TV because traditional need of Q3 and Q4 are worthy OLED TV volume is most concentrated in.
And given that.
The ramp up in Guangzhou is also going into operation. They believed that the OLED TV is also going to make a contribution to the increase in the volume.
And then for the plastic T V. Perhaps it contribution to the overall area shipment growth is not going to be much but in terms of the sheer percentage of its own growth. We believe that there is also going to be some that growth is coming from the plastic OLED in Q4.
And and so yes as you have mentioned are not much is expected from the LCD TV, but I would say that are in other applications, where there is expected volume increase coming from customer demand.
The floor.
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So look I guess to me that sounds like countries in Europe and get consulted a meal.
Mooney fishing, bundoran tomorrow or luxury should give out a meter in diameter.
We will now close the call.
Q3, 2021 earnings conference call by LG display. Thank you once again for joining US today. Please do contact us at the IR team for any additional questions. Thank you.
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