LG Display: 2022 Benefits: Decline in 1H, Rise in 2H
The author is an analyst at KB Securities. He can be reached at firstname.lastname@example.org. — Ed.
Revise TP down by 10.7% to KRW 25,000
We maintain the buy but reduce our 12m TP by 10.7% from KRW 28,000 to KRW 25,000 for LG Display, as we have revised down 2022E/2023E NP (attributable to majority stakes) by 11 .2%/9.1% taking into account the drop in LCD panel prices. . We attribute the downward trend in LCD panel prices to the intensification of imbalances between supply and demand, with supply outstripping demand; Chinese panel makers have increased utilization rates since 4Q21 despite slowing demand for TVs and PCs. Global LCD panel shipments in 1Q22 are expected to have increased by 2.4% QoQ (vs. +0.2% QoQ in 4Q21) due to increased production from the Chinese BOE (10.5G panels). As such, LCD TV panel pricing in 1Q22 reached near cash cost levels, and the decline in computer panel ASP is expected to accelerate amid slowing demand.
1Q22E OP of KRW135.1bn, below market consensus
We expect LG Display to post Q1 22 revenue of KRW 6.8 billion (-22.6% QoQ, -0.9% YOY) and an OP of KRW 135.1 billion. KRW (-71.8% over one quarter, -74.2% over one year; 2.0% OPM), the OP missing the market. consensus (KRW246.0bn). It’s since:
(1) for computer LCD screens (for PC use), profitability is expected to decline as the price of LCD TV screens has reached levels close to cash costs and ASP continues on a downward trajectory; and
(2) for OLED panels, lower shipments and utilization rates during periods of low demand should weigh on the cost structure (share of revenue by product, according to 4Q21 figures: IT panels 42% , TV panels 27%, mobile 31%) .
OP 2022E from KRW1.2tn (-46% YoY)
For 2022, we expect revenue to decline by 5.8% YoY to 28.1 tn KRW, and 45.5% YoY to 1.2 tn KRW (4.3% OPM). Despite Samsung Display’s exit from the LCD business in 2Q22 (40% QoQ decline in LCD panel shipments), global LCD panel shipments in 2022 are expected to grow 9.7% YoY, Chinese panel makers LCDs increasing their capacity and keeping utilization rates unchanged. The 1H22 slack season should therefore see the supply glut intensify. As such, we expect LG Display to reap the bulk of its OP 2022E – 82% (KRW994.0bn) – in 2H22.