Q2 2022 LG Display Co Ltd Earnings Call
With down's concerns of economic downturn led to a slowing demand in the downstream.
Said makers to minimize inventory reduced their purchase resulting in less shipment of both large and medium display products.
ASP per square meter was $566 down, 14% Q O Q ship.
Shipment of P. OLED smartphones decreased due to seasonality and LCD panel price continued to decline.
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The company's production capacity in Q2 decreased 5% Q O Q, owing to active adjustment in general use LCD production as well as new product development and maintenance.
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Next is revenue breakdown by product segment.
<unk> panels accounted for 31% of up 5% up five percentage points Q O Q.
Even as the LCD panel price continued to decline shipment of OLED TV panels increased thanks to its positioning in the high end TV market.
I T panel took up 45% down three percentage points Q O Q with a significant impact from shipment disruptions, resulting from Chinese lockdowns move.
Mobile and others were 24% flat Q O Q.
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Next is the company's financial position and ratios the Companys cash and cash equivalent was $3 669 trillion won inventory was $4 722 trillion won increasing by 492 billion one Q O Q.
The inventory was prepared against shipment disruptions from Chinese lockdowns and to be ready for a high end product shipments in the second half such as new P. OLED models.
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Liabilities to equity ratio was 162% and net debt to equity ratio came in at 71%, increasing Q O Q.
There was increase in borrowing to invest in OLED to preempt the future market.
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Next is cash flow the companys cash and cash equivalent at the start of Q2 was 4.111 trillion won.
It decreased by 442 billion won and stood at 3669 trillion won at the end of Q2.
There were investments in OLED payout of annual dividends for 2021 and net loss in Q2.
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Let me now move on to guidance for Q3 2022.
In Q3 area shipment will increase by mid single digit Q O Q shipment of I T panels affected by Chinese Lockdowns will recover.
And shipment of large OLED and P. OLED smartphones is expected to grow.
In response to the seasonal demand.
But recovery in Q3 is likely to be limited due to demand slowdown caused by macro instability and weaker consumer confidence as well as customers attempt to minimize inventory.
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ASP per square meters is also expected to rise to a 20% level things to increased shipment of peel that smartphones and wearable products as well as OLED TV panels.
Her product price is expected to keep declining for a T panels.
All four LCD TV panels, the price decline is expected to gradually moderate as panel makers adjust production such as utilization rate.
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Good afternoon shareholders investors and analysts. This is the CFO sung Kim game. Following the briefing on Q2 business performance allow me to explain to you the company's operational strategy.
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As economic downturn Nunes consumption is expected to generally slow down except for essential goods set makers and retailers in general are becoming more conservative in their business operations.
Assuming that the trend will continue for some time the company will strengthen risk management, while actively seeking to identify new growth drivers for the future.
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Let me first share with you the company's current focus on risk management.
We will remain unwavering in our business realignment initiative more so now to reduce volatility and ensure stability in operations.
Under the principle that and sufficiently competitive and thus unprofitable businesses will be quickly realigned we will further accelerate internal decision, making and execution.
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One example is LCD TV panels, where differentiation is deemed to be limited.
It is currently being downsized in phases with the goal of discontinuing domestic production of LCD TV panels sometime next year.
We will now speed up this process, given the worsening market and competitiveness.
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The company will strengthen operational efficiency to respond to the highly volatile environment.
We are revisiting the optimum capacity for each fab and finalizing how to enhance cost efficiency, such as reducing fixed cost.
We will also ratchet up activities for cost innovation and efficiency Asti and secure supply chain and inflationary pressure have driven up volatility in production cost.
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Next is strengthening inventory management there.
The company intends to focus more on minimizing inventory given the uncertainty and market outlook.
There was the specific issue of Chinese Lockdowns in Q2, but in the second half we will focus on recovering the shipment disruptions and proactively and flexibly adjusting production to minimize inventory by the end of the year.
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Last we will further improve investment efficiency, while remaining steadfast in investment to upgrade the business structure and secure future competitiveness, we will revisit all adjustable investments, including current investment to review their size and timing as well as execution speed.
Annual Capex will be adjusted to the level of depreciation and amortization to secure financial soundness, we will keep strictly managing investment discipline.
Even as uncertainties remain high in the global economy and business environment. The company intends to preemptively control risks by flexibly responding to changes enabled by stronger internal operation activities.
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While the company is also actively implementing activities to create unique performance that is unaffected by the market and to discover future growth engines.
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First is to strengthen our dominance in the large OLED and <unk> segment, where the company already has differentiated competitiveness.
I'll, let T V is showing meaningful performance growing and actual sales even when the overall TV market is showing negative growth.
We will continue solidifying our market dominance in large OLED based on our fundamental competitiveness as large OLED increasingly becomes the mainstream.
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In a T. Even as the market in general is slowing down I T devices have now positioned themselves as essentials due to post pandemic change in lifestyle.
Company will keep consolidating its positioning in the market based on our customer base and competitiveness in high end products and generate differentiated performance.
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Second the company will actively develop make to order business to establish more consistent business operations.
As business volatility keeps rising the company is accelerating our push to increase the portion of make to order business based on alliance with key customers.
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In mobile we plan to ensure profitability with differentiated P OLED products and establish the basis for a new technology businesses in collaboration with strategic customers.
We will also expand our product portfolio and solidify high end leadership through mid sized OLED, where investment is ongoing.
We will make differentiated preparation for the future based on existing infrastructure and customer basis.
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In auto the company continues to broaden its market dominance by providing differentiated solutions to global customers with our lineup ranging from OLED to high end LCD.
We remain global number one in auto display in terms of sales.
It will strengthen activities to win contracts from global OEM customers with the goal of exceeding 30% market share in the next three years.
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Third we will accelerate rollout of market, creating businesses and aggressively explore markets.
We will focus on broadening new businesses to prepare for a differentiator future.
Where are we are already seeing visible results in large OLED.
Our market trading businesses include gaming and transparent OLED as we are actively trying to open up or brought in new markets and life display.
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Last is preempting future businesses and building the base for our business development similar.
Similar to OLED, TV and high and a T. The company plans to broadly utilize our differentiated technologies to more diverse applications.
We will actively open up new display areas and build up competitiveness.
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Although volatility remains high in today's business environment. The company will continue to differentiate and create value through preemptive risk management and operational efficiency improvement, while preparing for the future and ensuring growth. Thank you very much for your attention.
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That brings us to the end of earnings presentation for Q2 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 is <unk> and one if you have any questions.
Questions will be taken according to the older you have pressed the numbers don't want.
For a cancellation. Please press star two star and two on your phone.
In order to allow as many Q&A chances as possible within the with duty time, we would appreciate only two questions per each participant.
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The first question will be provided by once lockdown from Hi investment Securities.
Please go ahead with your question.
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I have two questions.
One for each L C. One for LCD and another for OLED now for the LCD, we see that the set makers that utilize LCD display are also seeing demand decline. So then my question is what is the company's plan for the LCD lines. So how will they be.
Wrapped or will they be converted to OLED production and related to this it appears as if the domestic companies realignment of the LCD business has been a bit delayed or a bit delayed.
The fact that the LCD market sluggishness has already been predicted since COVID-19, So I wonder what the specific reasons or causes our four there's a lack of flexibility in the LCD line operations.
And the second question is about OLED now the overall the demand for television continues to fall and also we see that the LCD panel prices are also declining.
So this does not bode well for the OLED TV market in general either so what is the company's plan for shipment for the remainder of the year.
Yeah.
Thank you Linda good community that incident, I know, who you're mining and then somebody somebody asked me that.
This is he and James Senior Vice President of corporate strategy group responding to your question about the operation of LCD lines.
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No because of the lesser competitiveness.
LCD Tvs fab capacity has been gradually been reduced since 2019, but we have been utilizing the existing capacity to the fullest extent possible to respond to the demand rising during the pandemic period.
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And now for the domestic LCD business, well for where the competitiveness is weak.
Business will be downsized and we are planning for an earlier exit.
So where are we are aligned with the customers and we will begin to discontinued production and we will be reducing our capacity into the first half of next year.
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But for the LCD TV fab in China, where we do have cost competitiveness, we will.
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Now, India Korea, and key seven fab the capacity is 150000, and we will be reducing 60000 in the second half of the ear and another 30000 in the first half of next year. The Chinese fab, we have 200000 capacity and of the.
This 10% has already been converted to a T and the remaining 170000, a day will be converted as I explained earlier to either commercial or a T. Whichever is more whichever has a bigger competitive edge. So.
By the second half of next year about 40% of the TV capacity would have been reduced.
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And aside from the TV capacity D I T capacity, well for which we have about 200000. So the I T capacity will remain depending so based on the cost competitiveness as well as the product competitiveness.
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Yeah.
Next our this is Daniel Lee in charge of large display marketing responding to your question about the OLED shipment and the plan for the remainder of this year.
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As has been duly noted by the question or the display market in general is struggling so for the TV market there was negative growth of 24% in 2021.
And another negative growth of 10% in the first half of this year.
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But in the first half of this year, what we have seen is despite the challenges the OLED TV. The actual sales of OLED TV has increased by about mid 20% Y O Y and we believe that this is a quite a meaningful performance that has been achieved in cooperation with our customers.
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And now in the second half of the ear now unlike the market in general we still expect the actual sales of OLED TV to continue to grow having said that because of the economic downturn as well as the sluggish demand in the downstream we believe that they offer.
Real estate sales are also going to slow down compared to the first half. So it is a.
Projected to be in the mid teen percent.
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Cost of the difficulties the retailers as well as set makers have been quite conservative in their inventory management. So the company will keep monitoring the market situation and we will run our own operations and inventory. According based on the assumption that the downside risks are going to materialize.
And so overall the shipment a Y O Y is going to grow slightly.
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Now I also have two questions.
First question is about the OLED.
As D. C. S. O. As has also pointed out earlier now the company is quite strong in terms of technology in a T. In automotive and then also there are there are the new M. I devices. So the company appears to be strong in terms of technology for new applications. So if you could.
Elaborate bit elaborate a bit further on your technological advantage compared to other players. So for example, what are the differentiating factors and what is the extent of the technological gap with other players and the second question is about the LCD outlook.
So up until July it appeared as if the LCD TV price decline has slowed down but more recently, we see that the pace of decline has picked up again. So based on the latest developments then what is the company's view regarding the market outlook in the second half as well as the price trend for.
LCD in the second half.
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This is Q1 Zorn Vice president of auto marketing responding to your question about the OLED technology.
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No for the automotive OLED because of the nature. It is very important for this product to withstand extreme environmental conditions and because of this the LG display has been developing long living OLED.
And also the tandem OLED technology. So we have been developing dependable devices since 2015 and as a result in 2019, we were able to launch the tandem OLED for automotive application.
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And now this type of tandem OLED technology. This can also be applied to a tee products because of a thanks to its high brightness as well as longevity and there is also a good in terms of low power consumption. So this means that that day.
It would also be good for us.
Latest technologies like AI. So we believe that the technology that we have developed for automotive purposes are also appropriate for I T products as well.
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This is Kim <unk> in charge of business intelligence and I would like to respond to your question about the second half market outlook as well as the LCD price trend.
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No first of all about demand for it in the second half.
Cost of the sluggish actual sales for the set makers their inventory level at the end of the second quarter range from four weeks to seven weeks, meaning that they have an excessive level of inventory.
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And that is also the reason why the panel makers have started to adjust their utilization rate in the second quarter and such as adjustment is likely to become broader in the third quarter.
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So against this backdrop than looking toward depressed trend in the second half.
It appears as if the price decline is likely to continue into the third quarter, but then now in the fourth quarter as a result of diesel play adjustment the price trend is likely to at least partially stabilize.
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Following question will be presented by Kim from Hyundai Securities. Please go ahead weird questions.
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I have one question on the L. C D. A T. Another question on OLED TV now first about the LCD business.
It's assumed that the profitability in the second quarter I would've.
Deteriorated.
So what was the extent of the profitability declined in the second quarter versus the first quarter and also if you could if the company could also give us a guidance on the I T profitability in the second half of the ear.
And the second question is about the OLED TV and that the company was in negotiation with a new customer a domestic customer. So is there anything that the company can share with us at that point regarding the negotiation and also regarding the OLED TV is there any update on potential ramp up.
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This is 10, one game in charge of medium display marketing and I would like to give you a response regarding the I T market as well as the profitability and profitability outlook.
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Okay.
Now as has been mentioned several times by other speakers already.
The I T market is now in a downturn and because of the demand for most of the products, including monitors and notebooks is also declining.
And that is why we also see that overall in the market are there also is a quite a high level of inventory and this also translated into lesser purchasing of panels as well.
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So we see that overall the market is struggling and slowing down.
But then now as you would also know the company is mostly engaged in the high end segment.
Where the volatility is less.
So in the between the first quarter and the second quarter compared to the overall decline in the market in general I would say that the company has a profitability impact has been lesser than the average market level.
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And then in terms of the outlook for the next quarter and on that although the other players are adjusting their utilization rate, which is also going to affect the overall demand and supply dynamics. The company will keep focusing on the high end segment.
To generate consistent performance.
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Okay.
Bill.
Wow.
Hum.
<unk>.
Okay.
Sure.
Okay.
So ananda.
Two weeks ago.
From Canaccord, we saw similar.
And you could get Geek snobbery.
So I won't go through them.
No.
The only issue.
She's on the call.
I'll get tissue.
Okay. If I remember once you know you saw similar trends.
From the island.
Do you think the womens.
Oximeter.
Now this is the CFO .
And the questioner asked for an update on the negotiation in the OLED business.
Now as you would also know that the company had been focusing on solidifying the position of OLED panels in the market to make it the norm in the market and I would say that the company has been making strides in that direction, so far and in this process a new potential customer expressed intent.
To use our panels.
And the market also became aware of it so negotiations had been underway, but now at this time there is nothing in progress.
Our pro two.
Sure.
Eastern time today.
Promotional utilization pattern.
Okay.
Sure.
Uh huh.
And down the road, we will be cooperating with any potential customers.
Synergy effect as long as they recognize the value of OLED and are willing to work together to create new markets.
The Domtar Moon Petro against me, though.
How old are the Immunogenicity opinion comes Homegoods cornerstones on muni meter than that.
Next question will be presented by <unk>.
Tony Chang from Samsung Securities. Please go ahead with your questions.
Yeah.
Okay Bill.
Before turning the telco.
You can get your question.
One of them.
Tim when you talked about some shingles.
Okay, I think I wouldn't go to chicken and you can get a catch up which can go uhm.
And this unit.
Check, which coupled with the times.
And then just Antonio.
Quite honestly tell you that.
Can you tell if at some point it at each of them each of them.
Sure.
Sometimes people rather than to.
Ooh.
Yeah.
For example in the Recompete over its own financing.
You've Warner channels, although it is still my husband and I like to do it.
Dr. Smith.
Now in terms of the inventory it became higher in the second quarter and in the presentation. It was explained that this was a preemptive preparation for the demand to come in the future.
So I would just like to ask for further clarification of the higher inventory level. So was this a.
The result of a deliberate a buildup in the inventory for plan or is it also at least partially due to the changes in the end demand.
And another question is now in the financial statements. It seems as if the short term borrowings has increased significantly to about the six trillion one level.
So I would imagine that that it was probably due to investments in the company probably needed some financing for investment, but if you could give us an explanation about the increase in the short term borrowings.
Yeah.
Uh huh.
Because it wasn't goes along.
Yeah.
This is seen in vice president of corporate planning and I would like to respond to your question about the higher inventory level.
Good.
Uh huh.
Hum.
How long.
<unk>.
Correct.
Uh huh.
Paul.
Some got in Peru.
Some of them are moving.
Oh I'm.
I'm sorry.
Zero.
I T.
<unk>.
So let's forget the M&A.
We will pay down.
Or how long the year Gabon.
Yeah.
Hum.
Perhaps a little.
So people are working groups.
Now for the inventory increase.
A considerable part of the increase is owed to our plan to respond to the higher demand for our P. OLED <unk> in the second half and then another part of it is because of the lockdown in Shanghai.
And as a result, the inability to produce modules. So we also have a buildup the panels to make up for the shortfall from the first half of the year.
When you come on so I won't be where it is and I'm going to touch on Oh.
So we know what we call <unk>.
Oh Wow.
Oh.
That's all.
Hum.
Hmm.
Okay great.
Okay.
But in terms of the specific inventory level, we will be running it. According to a strict funding. So in the second half are according to the sale of situations and changes in the demand of the plan to normalized inventory level.
Oh, yes.
<unk>.
Hum.
European Division go come into current countries.
Yeah.
Our children.
Hum.
So.
Yeah.
So long as you go to China.
<unk>.
Me forgive any time soon.
Cause.
E.
Pushing the case.
Total criticism.
Cool.
Well can you tell you based on CRU.
Yes.
Hey, Bill.
We are English.
When do you think are kind of in Cologne and guitar.
Okay got it.
Remove umbrella.
Got to get them on them.
I'll try to keep her warm country.
Yeah.
Got it.
Hum.
And this is the CFO and you have the question also asked about the increase in the short term borrowings, but I must clarify that this is not the type of short term borrowings that are you would know or it's probably not the same.
Short term borrowings are in under the conventional definition now.
On one hand, the long term borrowing is not acceptable in the market. These days and also the interest rate for a long term borrowings has gone up considerably.
In the case that you have mentioned that is actually where are we set up credit line based on mutual agreement and then we would draw a we would continue to roll over in the form of short term borrowings. So that is why I said that it is different from the type of.
Short term borrowings that we know.
And also because of the but then also because of the higher inventory level. For example, the materials cost or other costs, probably would become something cost.
So that probably has partially affected our borrowing level as well.
The children are getting too many oxygen golf meet up.
What do you do differently at Chinese opinion, even just to talk through.
I guess to me that some.
Okay.
It comes out that email.
And when you're fishing Mandarin.
I'd love to hear about a meter diameter.
It appears as if there are no further questions and we will now close Q2 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.
<unk>.
[music].