Title

Presentation

LG Display Co., Ltd. misses on earnings expectations. Reported EPS is $-0.44339 EPS, expectations were $-0.39.

Brian Heo : Good morning, and good afternoon. This is Brian Heo, 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 Lim, Senior Vice President of Corporate Planning; [Joo Dong] Kim, Vice President of Finance; Ki-Yong Lee, in-charge of Business Intelligence; [Joo Dong Kim], Vice President of Large Display Planning and Management; [Won Jae Lee], in-charge of Medium Display Planning and Management, [Jong-Seok Park], in-charge of Small Display Planning and Management; and [Moon Tae-Hyoung], in-charge of Auto Planning and Management. The conference call will be conducted in both Korean and English. 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 for Q2 2024.

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 Q2 business results. Revenue in Q2 was KRW 6.708 trillion, up 28% Q-o-Q and 42% Y-o-Y. Shipment increased in all product categories with a notable growth in shipment and mix of OLED products where the company has differentiated advantage. Operating loss posted KRW 94 billion, representing a significant decline Q-o-Q and Y-o-Y. The company’s effort for a business structure upgrade continues to produce tangible results, including the full-fledged mass production of IT OLED panels and growth in production of large OLED panels.

Favorable foreign exchange conditions also contributed to earnings improvement. Next, on area shipment and ASP per square meter. Area shipment of notebook, PC and LCD TV products was slightly lower than planned, but Q2 area shipment was up 23% Q-o-Q and 37% Y-o-Y to 6.5 million square meters, largely in line with the guidance from the previous quarter. ASP per square meter slightly outperformed on the guidance, which projected a slight decline by a low single-digit percent. With increased shipment of small OLED panels such as mobile panels, ASP per square meter was $779, almost flat Q-o-Q. Next is product revenue mix. The revenue mix of TV panels was 24%, up 3 percentage points from the previous quarter, with increased shipment of OLED and LCD panels.

IT was 44%, up 3 percentage points Q-o-Q with a full-fledged mass production of IT OLED. This pushed down the relative revenue mix of mobile and others to 23%. Auto was 9%. Overall, the revenue mix of OLED products was 52%, up 10 percentage points year-over-year and 5 percentage points Q-o-Q, showing visible impact of business structure upgrade. Next is on the financial position and key metrics. Cash and cash equivalents stood at KRW 2.342 trillion. Inventory was KRW 3.082 trillion, down Q-o-Q, driven by shipment growth. Debt-to-equity ratio was 282%, and net debt-to-equity ratio was 151%. Next is Q3 guidance. Area shipment is expected to grow by mid-single-digit percent level Q-o-Q from increased panel purchase for medium and large products like TV and IT as well as growth in seasonal demand.

ASP per square meter is expected to remain flat without much volatility. Shipment of OLED panels, including mobile panels, is expected to expand, but shipment of medium and large products is also expected to grow. Next, CFO, Sung-Hyun Kim, will walk us through the key highlights.

Sung-Hyun Kim : Good morning, and good afternoon. This is CFO, Sung-Hyun Kim. Thank you for joining our conference call. The company is posting better earnings than the previous year and strengthening financial stability through business structure upgrade, cost structure improvement, and cost innovation as well as operational efficiency enhancement. Nevertheless, external situations remain highly volatile. So we believe that there are still several factors that may affect our performance, including foreign exchange situations and the downstream industry circumstances for each application such as TV and IT. Against this backdrop, the company will strive to improve business results through business structure upgrade focused on OLED, while responding to market uncertainties through efforts like operational efficiency.

As for the company’s plan and strategy per business area in the second half of the year, in the small mobile business, we aim to achieve a Y-o-Y increase in shipment based on the expanded infrastructure and production capacity, which is expected to bring about meaningful improvement in our revenue and profit. In the IT OLED segment under medium IT, we increased shipment in Q2 after the start of stable mass production based on Tandem technology leadership. As for IT LCD, while the market is slow to recover and competition among panel makers is intensifying, we are confident in the company’s differentiated competitive edge. Our portfolio strategy focused on stable customer relationships and high-end B2B product is expected to produce differentiated outcomes when the market is fully recovered after the second half of the year.

In large OLED, our priority is to secure profitability. To this end, we’re expanding differentiated and high-end lineup that reflects market and customer needs through close cooperation with our global strategic customers and pursuing product competitiveness and innovation in operational structure. Next is Auto business. There are some elements of short-term volatility in the downstream market, mainly due to reduced incentives for EVs, but we are carrying out activities to win orders as planned across both EVs and ICEs based on differentiated product and technology portfolio involving OLED and LTPS LCD and through stable and close customer relationships. We will continue to expand into larger market segments by raising the mix of OLEDs and using competitive ATO product, which is Advanced Thin OLED.

Our more diversified product portfolio will help sustain the growth momentum. Last is on our investment activities. We are focusing on essential investments in projects that can secure results early based on the careful consideration of external environment and demand growth. Investment this year is planned at KRW 2 trillion level, a significant reduction from the previous year. Although the market and external environment are likely to remain volatile in the second half of the year, we are working to continue the earnings improvement trend by expanding outcomes of business structure upgrade and conducting profitability-centered business management supported by gains in operational efficiency. Thank you.

Brian Heo : That brings us to the end of earnings presentation for Q2 2024. We will now take questions. Operator, please commence with the Q&A session.

Operator: [Operator Instructions] The first question will be provided by Dongwon Kim from KB Securities.

Dongwon Kim : I’d like to post questions on your overall business performance and projection. In the first half of this year, for 2 quarters in a row you have posted earnings that exceeded market expectations. So, what is your outlook on the likelihood or probability of making a turnaround in the third quarter? And what is your estimated size of profit in the second half of the year?

Min Lim Seung : I am [Lim] Seung Min, Senior Vice President for Corporate Planning. Thank you for your questions. The company is currently focusing on making a turnaround, and we have posted positive results in the first and the second half of — second quarter this year. However, we still believe that there are many elements of volatility in the market, so we need to take caution in making any projections going forward. However, we see that the external circumstances are still quite volatile and there are several factors that may impact our business performance, including the demand in the downstream industry for major product categories, and there’s quite a lot of uncertainties in this regard. When it comes to making an outlook on the third quarter business performance, we are currently going through the voluntary retirement program for production workers, and there will be some headcount adjustment, and this will have some impact on our business performance in the third quarter.

Across the company, we have been implementing initiatives for business structure upgrade as well as implementing activities to improve the cost structure and cost innovation and improve operational efficiency, and such efforts will continue into the second half of the year.

Brian Heo : We will take the next question.

Operator: The following question will be presented by Sun Woo Kim from Meritz Securities.

Sun Woo Kim : I’d like to ask questions regarding your plans for the sell-off of the Guangzhou TV fab. Recently, there have been some specific rumors and speculations that there have been some decisions on the timeline and the size and the potential buyer for this fab. And so there was some news that the deal would soon be closed. So if you could provide us with some updates on this matter, we would appreciate that. And I would also like to know your plans on how you’re going to use sales proceeds from this transaction and any plans for expansion of the CapEx? And if you do plan to expand the CapEx, in what areas are you going to increase your spending?

Sung-Hyun Kim : This is CFO, Sung-Hyun Kim, responding to your questions. Indeed, we have received similar questions in the past. However, I have not mentioned anything about a sell-off or sales in the past. But the message that I’ve been communicating to the market so far was that we are thinking about how we’re going to utilize nonstrategic assets, and there are many options that we are considering. And even though I made these remarks, the news and the market seem to conclude that efforts are going on for the sale of this fab. So let me make that once again clear, and I’m going to deliver the same message that efforts are underway in many different ways, and there has been some progress and there have been some more specifics coming out, and that is the current situation.

Regardless of one option we ultimately take, it will take quite some time before we can strategically utilize the assets under target. So, whatever actions we take going forward, the final outcome of such actions will become materialized at a later time than what you expect. Of course, in the process, we will actively communicate with the market to provide you with updates. And you mentioned that there’s some news that the deal is soon to be closed, and I would like to know the definition of soon. But anyhow, we are going to continue to update you. So if you stay patient, we will come back to you. The second part of your question, as many people may be wondering that when we liquidate non-strategic assets, they will produce some proceeds, and you’d like to know how and where we are going to use these proceeds.

And upon that question, we’re going to address this question once we have everything settled out.

Brian Heo : We will take the next question.

Operator: The following question will be presented by Won Suk Chung from HI Investment & Securities.

Won Suk Chung : I’d like to ask a question about the mobile market situation. Unlike the past 2 years, earlier this year there were some news reports that LG Display will have gotten the early approval and will start mass production as scheduled. And there was some investment for capacity expansion last year, and there’s high expectations for the growth of AI-related demand in the market. So, if you could provide us with some color on the smartphone OLED shipment in the first and the second half of the year, we would appreciate that.

Unidentified Executive: I am [indiscernible], in-charge of Small Display Planning and Management. First, I’d like to ask you for your understanding that we will not be able to provide you with any specifics on plans for mass production and shipment because of our customer situation. However, based on the current market situation, what I can say is that the overall smartphone market growth will be slow and competition among the smartphone makers will continue to intensify. However, according to a research institutions reports, the plastic OLED-based smartphone market is expected to grow by a small margin. This is where we are focusing on right now. For the past 2 years, we had some issues in the early supply of OLED panels for smartphones.

However, this year, we already put in place plans and infrastructure for a tiny mass production and stable supply. So we believe that we will be able to produce positive outcomes. And we’re planning to increase our panel shipment compared to the previous year based on the strengthened production capacity and expanded production infrastructure, which is expected to bring about positive improvement in our revenue and profit.

Brian Heo : We will take the next question.

Operator: The following question will be presented by [indiscernible] from [indiscernible] Securities.

Unidentified Analyst: My questions are concerning IT LCD. You’ve been focusing on high value-added products. And I’d like to know if you still believe that the high-end product portfolio is your differentiating area? I would also like to understand your overall projection for the strategy and the profitability of IT LCD going forward? And what is your projection on the market situation for each IT application product in the first and the second half of the year?

Unidentified Company Representative: I am [indiscernible], in-charge of Medium Display Planning and Management. We are seeing the delay in the recovery of the IT industry and intensifying competition among the panel makers. But we are still very confident in the differentiating aspect of the product portfolio that LG Display has and the potential of the IT industry. We boast stable and close customer relationships and a portfolio strategy focused on high-end and B2B customers, and these are going to lead to differentiated outcomes when the market is fully normalized. We are operating based on the assumption that external environment will continue to be uncertain for a long time. And we are implementing various measures to cut cost in terms of production, operation and fab optimization.

And these are our initiatives to transform our business structure to one that can be profitable even under the current market situations like what we have now and we will make sure to produce positive results going forward. Moving on to the market situations for IT applications, they vary by IT application category. As for the monitors, the movement may be different by B2C and B2B as well as the leading products by brands. But overall, on the annual basis, we see that the set and the panel is going to grow by a slight margin. Compared to the monitor, notebook, PC is expected to be rather sluggish. The — on the set area, there is a negative growth expected by a slight margin, but the panel demand is expected to grow compared to the previous year.

However, the high-end market is likely to be slow in its recovery. This is where we have competitive advantage. So we are carefully monitoring the demand trend in the market. And finally, the panel price for IT applications is expected to remain flat on a year-over-year basis.

Operator: The following question will be presented by Kyuha Lee from NH Investment & Securities.

Kyuha Lee : I’d like to ask questions about your large display business. So in the medium to long-term, what is your expected timeline of making a turnaround for large OLED business? And what kinds of specific strategies are you implementing to make it a profitable business?

Unidentified Company Representative: I am [indiscernible], Vice President of Large Display Planning and Management. Responding to your question, we expect that there will be structural sluggish growth in the TV market that includes both large OLED and LCD TV sets and we believe that there will be continued volatility in the market for some time. So against this backdrop, rather than just expecting that the market situations will improve, we have been implementing various measures internally to improve our business performance. These efforts are focused on 3 main areas: product, operational efficiency enhancement, and close cooperation with our strategic customers. In terms of product development, we are currently developing and preparing for differentiated products that have better performance and better cost competitiveness compared to the previous — compared to the existing products.

And as for operational efficiency, we are working to enhance operational efficiency of the manufacturing fabs as well as reducing costs. And finally, we are working closely with our strategic customers to expand the differentiated and high-end lineups that reflect market and customer needs. So, we will continue to make efforts in these 3 main areas. And at the same time, the different — the amortization and depreciation of the investments that we made so far will be finished in the second half of next year, from which point we are expecting a meaningful improvement in our profitability.

Brian Heo : We will take the last question.

Operator: The following question will be presented by Hyon NamKung from Shinhan Investment & Securities.

Hyon NamKung : You mentioned about the EV business in your presentation, and there’s currently some chasm in the EV market, and there are some sluggish or struggling performance of the global EV makers. So, I’d like to understand your overall annual projection on the revenue and the growth rate for 2024 for your auto business and the remaining order balance?

Unidentified Company Representative: I am Moon Tae-Hyoung, in-charge of Auto Planning and Management. With respect to the current chasm in the market, as was mentioned in the presentation, there were reduced incentives for EVs, and there’s lack of infrastructure for EVs currently. So we see that there are many elements of volatility in terms of EV demand in the short-term. However, for LG Display, we have differentiated product and technology portfolio focused on OLED and LTPS LCD. Also based on a very stable and tight customer relationships, we are carrying out activities as planned to gain revenue and win orders. I will not be able to give you any specific numbers when it comes to our revenue target, but our target for revenue on an year-over-year basis is to grow the revenue by mid-10% level. And our outstanding order balance growth rate is targeted to be similar as the growth rate of the revenue.

Brian Heo : We will now close Q2 2024 earnings conference call. Thank you once again for joining us today. Please contact us at the IR team for any additional questions. Thank you.