[Click eStock] LG Display, Earnings Volatility Eased "OLED Business Structure Transition"

[Asia Economy Reporter Lee Seon-ae] On the 15th, KB Securities announced that it has lowered the target price for LG Display to 30,000 KRW, reflecting a downward revision of the expected earnings estimates for 2021 to 2023 due to the decline in LCD panel prices, but maintained the investment opinion as 'Buy'.

KB Securities analyst Kim Dong-won explained the reason for maintaining the buy rating as follows: "① The sales proportion of LCD TV panels (20%) is rapidly decreasing due to the transition of the OLED business structure, and the earnings volatility caused by the decline in LCD TV panel prices is expected to be lower compared to the past; ② The large OLED panel segment, which started operations in 2013, is expected to establish a profit-making trend after the second half of this year."

LG Display's third-quarter earnings are estimated at sales of 7.7 trillion KRW (+11% QoQ, +15% YoY) and operating profit of 754.9 billion KRW (+8% QoQ, +359% YoY, operating margin 9.8%). Although losses in the OLED segment are expected to significantly decrease due to increased shipments and improved cost structure, the decline in LCD TV panel prices, which peaked in the second quarter, is expected to act as a limiting factor for earnings improvement. However, prices of IT-use LCD panels, which account for a large portion of LCD operating profit, are expected to remain firm through the third quarter due to strong demand for B2B monitors and laptops. Therefore, LG Display's operating profit in the second half is expected to be 1.28 trillion KRW, similar to the first half (1.22 trillion KRW).

Sales in 2021 are expected to increase by 20% year-on-year to 29.2 trillion KRW, and operating profit is expected to turn positive to 2.5 trillion KRW compared to the previous year. However, operating profit in 2022 is estimated at 2 trillion KRW (-17% YoY) due to the impact of panel price declines caused by the LCD down cycle. The continued decline in LCD TV panel prices is likely to affect IT-use LCD panel prices as well, and global LCD panel manufacturers are continuing to expand production capacity for IT panels, which are relatively more profitable compared to LCD TV panels. Therefore, the downward trend in LCD panel prices is expected to continue until the first half of next year. However, LG Display's transition to an OLED business structure is rapidly reducing the sales proportion of LCD TV panels, so the impact of earnings decline due to falling LCD panel prices is expected to be limited compared to the past.