Q1 2022 LG Display Co Ltd Earnings Call
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Next is the company's financial position and ratios the company's cash and cash equivalents at the end of Q1 was $4. One one trillion won.
Inventory was 4.23 trillion won increasing by 880 billion to one kill Q D.
The inventory value was higher than usual due to increased portion of OLED and high end LCD products.
Overall inventory level also increased with the buildup of buffer stock to prepare against supply chain, uncertainties like materials and logistics issues.
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<unk> to equity ratio was 159% almost flat Q O Q net debt to equity ratio came in at 67% and current ratio was 90%.
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Next is cash flow the company's cash and cash equivalents at the start of Q1 was 4.28.
Five trillion won.
It decreased by 174 billion, one ending up at 4111 trillion one at the end of Q1.
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Next is presentation by the company's CFO sung hyun Kim on guidance for Q2, 2022 and strategy.
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Let me now move on to guidance for Q2, 2022 and the company's operation strategy first is Q2 guidance.
Individual panel price is expected to fall in large and medium segment area prices expected to fall by around 10% Q O Q due to continued seasonality in mobile panel.
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But area shipment in Q2 is expected to increase by low to mid 10% Q O Q ship.
Shipment of large Oh that is expected to surge with recovery and part of the volume affected by logistics and parts issues in Q1 and T V set makers preparation for seasonality and new product launches.
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In the first half there are concerns of persistent external factors, such as demand and supply chain uncertainty due to seasonality.
In the second half, we look forward to improved performance to come from increased supply of large OLED and new small to medium OLED models and stable operations in high end I T.
The company will keep an eye on demand uncertainty and persistence and supply chain issues and strengthen risk management to help achieve our targets.
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Next is operational strategy for each business, although market volatility has recently gone up.
Company will keep improving performance with OLED and high end LCD products that have differentiated competitiveness.
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The company continues to secure stability and business operation by minimizing volatility.
We are gradually reducing the portion of the supply demand businesses susceptible to market conditions, while increasing their businesses that can produce consistent results in strategic collaboration with customers.
And based on our OLED technology will keep upgrading our business structure to expand businesses that create new demand and market.
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As a part of this strategy the company plans to run the ever competitive L. C did business with focus on areas, where the company has a competitive advantage.
Part of LCD business that maintains competitiveness like high end I T will be strengthened in L. E. D. T V. The noncompetitive products will be gradually adjust it.
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Next is an update and plan on large OLED business, although the TV market saw a negative growth of 10% in Q1 and continuation from last year sales of OLED TV set.
Over 40%, thanks to a technological and product differentiated strengths.
Driving the expansion in high end TV market in general.
The high end TV market grew at a 10% level Y O y.
The company's large OLED business is expected to see significant growth in shipments from the second half of the year as more consumers recognize their value.
Profitability is also expected to improve on their face by face basis.
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For large OLED the company intends to keep expanding its customer and product lineups to keep growing its performance life.
Life display area will also focus on exploring new markets to keep broadening its performance.
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In the case of small and medium sized OLED, we aim to further improve profitability from last year by increasing supply to a new smartphone models in the second half.
We will strengthen our business competitiveness with focus on high end product.
Based on our automotive competitiveness and leadership in the wearable market, we will broaden the achievements of small OLED business, we will.
Also try to preempt the premium mid sized OLED market.
Bridging our unique competitiveness such as tandem.
The company will keep highlighting its differentiated technological competitiveness in small and medium OLED as well.
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Last is our investments on Capex. This year will grow Y O Y with the start of investment execution in medium or that fab that was decided last year.
But it will remain around EBITDA.
Suppose an implementation of investment will strictly focus on growth and profitability.
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We will spare no effort to continuously create higher market values, while leveraging our unique difference. Thank you.
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I guess to me the operator isn't a Chilean goodbye now put up three meter.
That concludes the earnings presentation for Q1, 2022 we will now 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 he started.
If you have any questions questions will be taken according to the order you have pressed the stark number one were cancellation. Please press star and number two that is star and number 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.
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The first question will be presented by <unk> Kim from Kb Securities. Please go ahead with your question.
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So I have.
Two questions one each for OLED and LCD now in the first quarter and we see that shipments for large OLED underperformed expectations. Then does this mean that there would also be some changes in terms of the large OLED revenue for the year as well as the profitability.
And also the shipment.
And also will this mean that there would be some changes in the company's plans for capacity ramp up for large OLED as well as the customer diversification and what would be the company's mid to long term strategy for white OLED and.
And the second question is about the L. C D and we see that the LCD panel price continues to fall and I missed it. So there is also more fierce competition coming from the Chinese panel makers and the market situation continues to appear to worsen then what is the company's outlook for.
The LCD demand as well as the price in the second half and also what is the company's approach to secure profitability.
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Thank you very much I would like to respond from D. A large marketing team.
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Now first of all it is true that shipment of OLED in the first quarter underperformed our plan, but then on the other hand, we see that whereas the TV market in general.
Hunk by 10% the sales of OLED TV grew by over 40% and now looking at the trend from April then we see that the shipments of all that is likely to pick up from the second quarter and alongside the profitability as well.
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And as for our medium to long term strategy for large OLED now as was explained by the CFO earlier based on the principles of profitability and growth. We will continue to make preparation for the investment and communicate with the market when they're ready.
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Okay.
And with regards to the continued drop in the LCD panel price now when we were coming up with the business plan for this year now last year, we had expected that the Chinese makers would also become more disciplined given the market situation at the time, but today, we see that even asked.
The market is shrinking by over 10% they are offering very aggressive pricing.
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Remember when it comes into our thoughts was only five minutes on this call.
You can find.
So in response to this as the CFO had explained earlier rather than trying to directly respond to the market price. What we will do is try to adjust our business structure. For example, reducing the portion of the noncompetitive products. For example, the general TV that are produced.
The fab so that we can continue to manage risks.
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And I would Ah d'souza from D. A medium marketing team and I would like to respond to your question about the L. C D and 19.
So in terms of I would like to respond in two perspectives from demand and price now for demand in terms of D. B to C. No with the waning of the COVID-19 boom D. B to C is also expected to fall.
For the B to B, we had initially expected a slight improvement, but then the improvement has been slower than expected because of the macro situation.
Not that the demand levels still will be higher than the pre pandemic level.
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Now next is from depressed perspective, no for the price. It has started to decline from late last year and the decline has continued into this year, but for the company. We have a very high share in the high end market. So out over an eight year revenue D. High end portion is over 70%.
So high end, meaning that it is less susceptible than the pricing and so it just means that for the company. It has a more stable structure. So we will continue to strengthen our positioning in the high end, so they will be able to secure profitability.
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You may now disconnect.
Can you sort of need to me that the next question will be presented by Tony Kim for marriage. Please go ahead with your question.
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I have two questions regarding investment.
First is that I understand the company's investment policy, meaning that the capex would be kept within EBITDA and of course that that would be advisable. But then also at the same time looking at the current environment, where there is a surge in demand and then also the lockdowns in China as well as the geopolitical risks.
It appears as if the uncertainties in the profitability are growing so given the situation. Then is the company also opened two more flexible operation of your policy or perhaps better than four it turned to be more conservative in terms of the investment policy.
And the second question is no I also understand that the company has been making investment for strategic customers in the Americas and so when does the company for C. D. Cook the completion of the Fab and also when will the revenue start to arise from this stuff and what is the company.
Expectations for the Oreo I see for this fab and also for the OLED and we see that the applications are quite broad. So for example from mobile to I T and also even a motor.
And so with the broad applicability of how does the company believe that this will affect the profitability of this business and also the Chinese makers are continuing to increase their presence in this business as well so how does the company plan to respond.
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Now this is the CFO responding to your question about investment.
And of course over the years, we have maintained our policy and emphasize the policy. That's capex would be kept within EBITDA and this is because we want to make sure that investment will not be detrimental to our financial structure or financial health at least are we do not want to increase the burden.
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And now when the company comes up with a plan of investment for the ear than a lot of factors with particularly into consideration for example, when do we need to make the investments. So in other words when would be the timing that would be the best for making the investment what is the importance of the investment and also.
What would be the relevance in terms of the revenue or the <unk> market presence and so forth and based on these different factors. We would also defined the phases of the investment and now along the course of the investment if the market situation where to sour. So if things were to change then of course.
The company will remain flexible in its investment plan to make sure that it will not become too burdensome.
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Yeah.
And the risks that you have pointed out for example, the Chinese lockdowns and the geopolitical risks and profitability uncertainties of course, we see them as the characteristics of the market. This year, but what we look for when we look forward with Capex is.
Profitability for the future. So this means that for the current constraints or the earnings or a cash.
Cash flow, let's say their cash flow constraints, then of course, if we would take them into consideration and I tried to be flexible, but then for investment for the future. We plan to continue with it.
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And this is senior vice President and he and Kim of corporate strategy group. So responding to your question about the small to medium OLED and of course, you would understand that a we are not able to name specific customers, but regarding the revenue at the timing of the revenue that's being generated.
And we were making the disclosure last year for the investment we specified 'twenty 'twenty four.
And the plan currently is on track.
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And you also asked about the company's expectations for the Oreo I see and I take this question to mean, how does the company.
Verify the visibility of the investment so allow me to respond along that line now indeed during the days of D. L. C. D. Then at that time, there were expectations of high growth.
So the investment decision, making was based on the high growth expectation and it was made despite the possibility of fluctuations in the supply and demand.
But that was then and today there is a slowdown or even a let's say a stagnation in growth and also the new growth would have to come from penetrating the existing products. So this means that we cannot just go for high growth.
Without the expectations.
Our profitability.
So the investment today, we'd also have to be based on having visibility into profitability and that is also how our decision making is being done. So we also have safeguards.
Making process to make sure that there would be a profitability and I believe that the challenge for US down the road is to continue improving the visibility of the profitability in our investment decision making.
But Tim I know that through I guess to me.
Tom will go to midnight.
It hasn't gone into the following question will be presented by junior Joe from Hyundai Motor Securities. Please go ahead with your question.
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No my question is about the.
Trying to vacation of auto and we see that globally, the automotive industry is going through electrification and electrification.
Electronic vacation and I wonder what the LG displays positioning would be a in this trend. So in terms of the products, where a technological competitiveness.
And also about your medium to long term strategy and what would be your position or the role within the LNG group as the group our response to this trend in the auto industry.
And second question is of course Soviet understanding accompanies our competitiveness, but vision, but so for this type of competitiveness and vision. If you could help us with the investors understanding. So if you could give us some more details as much as possible about let's say the order backlog for both the L.
C D and all of that as well as the outlook for the two businesses as well.
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Hello, Doug.
Okay.
You're talking to.
This is 201, vice president of auto market in responding to your question.
No, yes, we believe that the auto electrification and autonomous driving trend present, great opportunities to utilize large size display and especially T. A OLED premier technology.
So for LG display we have the world's only technology the tandem technology that can fulfill the automotive reliability requirements. So with this technology as well as the Intouch L. T. P. S. L. L C D.
We intend to strengthen our market dominance.
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Okay.
And in terms of the synergy among the different group companies of course, each company is competing and its own area or its own business under a fair competition, but we can also of course cooperate in order to strengthen our customer portfolio. So for example, we can have.
Co promotion to provide a total solution to the customers.
For example between our batteries infotainment sensor camera and display and by doing so we will be able to create the kind of synergy that can enhance the customer's overall value.
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And that is about the order backlog and the outlook for the orders and please understand that I am not able to give you the specific number for the order backlog, but I would like to tell you about the portfolio.
So we have we are continuing to receive the the OLED orders for premium auto for the past couple of years and as a result, the OLED orders is now over 30%.
And down the road, we believe that the orders will continue to increase so would that mean, you will be able to continue to strengthen our OLED business.
Yeah.
But remember through August .
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Now I have questions about the OLED TV and the XR. This thing now for the OLED TV ads have been reported by the media. So far I understand that there are negotiations underway with a new domestic customer. So when does the company believes that the negotiations can be concluded.
And more importantly than afterwards, then for the years 2022 and 2023.
The company believes that this is going to change the supply volume for the T V. OLED panel and also what does this mean that there will be possibility of the ramp up and the second question is about the XR market.
In the display market. What we are seeing is that rather than any company is our immediate earnings performance. The stock prices are reacting more sensitively to XR related demand or ask a related orders and this is because there are quite a lot of expectations about the potential growth in this market. So.
What is the company's a preparation for the XR and what is the company's expectation of the potential revenue to come from XR.
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Yeah.
Okay.
No first of all about your question about a D. A potential transaction with Samsung electronics, No I would have to say that there is nothing to say for certain at this time.
And when there is then we will of course communicated with the market and our positioning regarding this is the same as the previous quarter, meaning that the possibility to sell are the possibilities are open and the needs between the two companies have to be aligned.
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She's telling you there so maybe a week will seek some of them will be on chrome with maybe until your kitchen yet.
But I mean.
Oh, but it gets in the press he mentioned blue chip companies.
Okay.
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Okay.
And for the XOR devices of course, so we are very closely watching the market at this time.
And when never we believe that the profitability and the volume are up to our standards. Then we will be ready to enter the market as soon as possible because we are making the preparation for it. So in terms of R&D and also preparation whenever the market is ready to take off so the company is.
Is getting thoroughly ready and we.
We will make sure that we respond to this market accordingly.
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From a merchandising I took a little one time demand because people don't like us and you're done.
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Jim from corporate strategy group I'll, just like to add a few more things to D. C. S Lewis comment.
Okay.
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And so I sound like I don't know if that indeed, that's all I have seen he says talking a peculiar you'll kind of have wash it out well probably do that.
Yeah.
No as we all know for the XR market. There are high hopes indeed, but also at the same time. This is the market where there is a very high level of grievances and pain points are for the display. So this means that there would be a lot of potential opportunities.
So we believe that LG display has T technological leadership to overcome the display pain points and also let's say for the large OLED auto OLED or the ideal that so all the core technologies that we use for these different prototypes. We believe that these are the technologies.
Can help open up and lead in the etc market.
You don't have you don't know how he says they'll give you those should keep on nickel, how probably don't do most of them, whether it's hung up he knows how long you need a timeline keeps it of course isn't going to be selling price premiums you Bernie She's done is really dampened down even though we know even when they have no I'll get tightened.
So she doesn't have talked to them I think that'll give us either.
So based on such market outlook.
And technological leadership.
We are now company gauging the timing as well as the size of the companies are entrants into this market and when we can start our business in this field, but also at the same time you have to look at the other factors for example, the price premium and also the pace of the market growth.
So considering all of these different factors, we will make sure that we are ready to respond to the market in a timely manner.
Yeah.
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I'm going to tell them when theyre topic going back to I guess to me that.
Let's now go to tumor that you didn't put in fuel agent Connie We don't and you got the last question will be presented by Simon Woo from Boa Securities. Please go ahead with your question.
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That's how long your personnel have me on.
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Oh, Hi, Natalie Conatus Schmidt.
Yeah.
Okay.
Now my question is it might be a bit redundant from the previous ones, but no I would just like to ask about the managements views about the LCD market or they all see the cycle now in retrospect, when we look at the LCD boom last year that that probably was thanks to the shutdown Indeed Jen <unk>.
Process and also the Ah.
High demand driven by the Covid pandemic then looking ahead, what does the company believe would be the assumptions for both the supply and demand for the LCD cycle to improve again.
And the second question is about the OLED TV, so there our expectation.
Spectation so profitability for all that he would be improving we see that the Chinese are of factory capacity has gone over 90000 and also the now the company is set to really try.
Try to reduce the production cost, but then also at the same time it appears likely that the.
Improvement in the OLED is going to coincide with the drop in the price of the high end LCD.
So then what does what is the company's view or the guidance for the pricing and also for the cost caused a reduction and not just for the second half of the ear, but then for the OLED TV panel. So in terms of the cost reduction and also the.
The pricing.
Then what does the company foresee for the next few years and also does the company believe that the operating profit margin of a high single digit like around 5% is going to be doable in the near future.
Yeah.
So do you think Chris looks like returns.
Sometimes it's a little hard for me, though.
Now first regarding D. L. C D cycle I would like to respond from the business intelligence.
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We can do that.
No I would mention two conditions first is demand in terms of demand or we see that the COVID-19 boom has created a lot of pull in demand, meaning that for this year are quite a large extent of negative growth as expected.
Go get sometimes a little macro parameters.
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Yes, I would have wished me though.
And given the current situation as well as the risk factors, we believe that the demand uncertainty is going to remain for some time.
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From the cricket talking about Costa Rica.
So this means that for the LCD supply demand cycle to improve then we would have to have a.
Improvement more from the supply side.
I mean, you don't want it all gets on Butler.
Khartoum periodicals throughput you go sometimes you deal with that.
Uh huh.
Some of them are going to pick the data comes out with me that you don't commentary.
Yesterday.
Floating it up and do something that's all I'll say crinone hypocrisy that will end up with me that.
So for example for the short term.
There is a need to adjust the utilization rates across the industry and then for the longer term than there are quite a number of old fabs over 15 years old. So for these noncompetitive fabs are where you might have to close down some of them or and make adjustment in order to improve the LCP cycle.
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To go to get them in that order.
So I couldn't give them hopefully pool and don't see oil production. So it has a lot on cost side towards all my comments I'll turn it over.
Today with me, though.
No.
Okay.
To sum up given that the demand uncertainties are not likely to go away anytime soon.
And this means that the there is going to be some downcycle, continuing this year and moving into next year than perhaps some of the demand uncertainties will be lifted and there could be some adjustment on the supply side and combined with.
With these factors and E L T two cycle could improve next year.
All of them or whether it's marketing as I'll talk to him that he got some stuff.
So if you wanted to ship there you guys, who can go through them all.
Understood.
We don't have that number from Pasadena off of them didn't even get some truth to be starting students forgivable OLED somebody the other day.
Oh, Oh, why why why or what does it mean I should pause and take some time for.
So where does the money pool yoga akshay, it's things like enjoying workweek at different at a car could go down from Newfoundland from gets a little bit without you know Oh, sorry, yeah.
Because we know how she thought we'll come out with some stuff.
Okay.
And this is Daniel Lee from large display market in responding to your question about OLED now it is true as you have asked earlier I thought that you also have to be mindful of the competition with the high end LCD, but at the same time as I explained earlier, we have seen that even as the TV market continues to shrink.
In the first quarter, we saw the OLED TV grew by 40% Y O y.
Means that the OLED a specific value is increasingly being recognized in the market. So I believe that it is going to see less price volatility and we believe that we will be able to run the business. According to our plan.
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It doesn't at.
Oh, gosh I'm familiar with knows how long.
Okay.
Okay, but I assure you.
So I won't go to the Colorado River.
Cause recovery School you don't go from the research of what or where do those excellent format I'm going to go to them and gets a little bit because I'm very comfortable with.
And in terms of the cost well are there art.
Persistent factors that can actually drive up costs for example, the rising commodity prices, while still logistics crazy.
But then we continue to make improvement on our materials cost and also the developments here. So that we can improve on our cost as well. So it is all of these efforts are to produce results and we believe that the OLED profitability did he can be reached on a phase by phase basis.
Okay.
Yeah.
There is plenty of challenges.
I guess to me that sounds like you're just simply not there anymore.
Ill talk about anyone your fishing business.
You should get better.
We will now close Q1, 2022 earnings conference call. 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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