[Into the Stock] LG Display's Investment Reflects Confidence... Between Passion (OLED) and Rationality (LCD)

[Asia Economy Reporter Lee Seon-ae] 3.3 trillion KRW. This is the amount LG Display announced for new investment to expand production capacity in response to the small and medium-sized OLED market. The investment period is from August 13, 2021, to March 31, 2024. While some view this large-scale investment as reckless, the general consensus in the securities industry is that it should be interpreted as LG Display's strong confidence in the business. The investment was made with confidence in improving performance.

◆Investment Confidence Including Next-Generation Products= According to the financial investment industry on the 20th, LG Display's new investment of 3.3 trillion KRW in small and medium-sized OLED is estimated to be for one 6th-generation Flexible OLED line (15K/month), and it is reported to be an additional separate investment in Paju besides the existing 6th-generation Flexible OLED E6 fab (1 and 2 in operation, 3 under expansion). The purpose of the expansion is presumed to be to respond to IT product panels for North American customers, with mass production scheduled to start in the first half of 2024. After this expansion is completed, LG Display's 6th-generation Flexible OLED production capacity is expected to increase from the current 45K/month to 75K/month (E5 15K/month, E6 45K/month, new 15K/month).

The securities industry evaluated that the investment amount of 3.3 trillion KRW is sufficient to secure new production capacity of 15K per month based on the 6th generation, and considering the 31-month investment period, it is not a burdensome amount. Kwon Sung-ryul, a researcher at DB Financial Investment, said, "This line is presumed to have been decided with investment in mind not only for overseas strategic customers' smartphones but also for next-generation products such as tablets and foldable OLEDs," adding, "In the past, LG Display's large-scale investments were considered reckless when yield and technology were unstable, but now that mobile yields have risen above 80% and technology has been accumulated, this investment should be interpreted as confidence in the business." He added, "Currently, LG Display's POLED business is showing clear performance improvement due to increased utilization rates and yield improvements from increased volume from overseas strategic customers."

There is also an evaluation that this was a positive decision in the mid to long term. Kim Kwang-jin, a researcher at Yuanta Securities, said, "This decision is positive in two aspects: accelerating OLED conversion despite an increase in fixed costs (about 165 billion KRW increase per quarter) and expanding roles within North American customers." He added, "Since the LCD price increase that formed the basis for performance improvement since the second half of 2020 has ended, business transition to OLED is inevitable to secure mid- to long-term competitiveness," and "LG Display's OLED panel sales ratio is expected to increase from 38% this year to 45% next year, and this expansion can continuously increase it."

The aspect of expanding roles within North American customers is also noteworthy. From next year, the expansion of OLED adoption by North American customers (from existing mobile to tablets, notebook PCs, and other IT products) will begin, and due to the area effect (3 to 6 times the area required per unit compared to mobile), the demand increase effect is expected to be very large. Researcher Kim emphasized, "The part where new application response became possible through this expansion is very positive."

Kim Un-ho, a researcher at IBK Investment & Securities, also said, "By 2024, when the expansion is completed, it is expected to have production lines of 60K/month scale and be able to apply various products and technologies," adding, "In particular, since the reason for the investment is judged to be to respond to overseas clients' prototype lines, it is expected to strengthen its position within overseas clients."

◆OLED Profit Increase vs LCD Profit Decrease... Stock Price Holds Up= LG Display's stock price has fallen more than 10% in the past month. Although this is partly due to the domestic stock market entering a correction phase, fundamentally, the stock price has not rebounded at all due to concerns about the LCD industry. As of 10:50 AM on that day, the stock price was 20,100 KRW. Compared to the high of 27,600 KRW recorded on April 25, it is almost a vertical drop.

Kwon Sung-ryul, a researcher at DB Financial Investment, analyzed, "Concerns about LCD price declines have been reflected in the stock price as caution toward the cyclical industry, but the fact that stable performance can be achieved due to the competitiveness of the OLED business has not been considered at all."

Kim So-won, a researcher at Kiwoom Securities, also pointed out, "LG Display's stock price is reflecting concerns about the slowdown in the LCD market in advance," adding, "Currently, the valuation is at a level that is not burdensome."

Performance improvement is expected in the third quarter. DB Financial Investment forecasted LG Display's third-quarter operating profit to improve to 774 billion KRW compared to the second quarter. Although signals of TV LCD price declines have appeared, the decline is expected to proceed moderately within the anticipated range. Large OLED is expected to turn profitable in the second half, POLED performance is also greatly improving, and IT LCD is better than initially expected.

Kiwoom Securities also forecasted that the third quarter will be a quarter in which the WOLED and POLED divisions both turn profitable, marking the start of profitability improvement in the OLED division. Researcher Kim said, "Third-quarter sales are expected to be 7.8 trillion KRW (+12% QoQ, +16% YoY), and operating profit 805.6 billion KRW (+15% QoQ, +390% YoY), meeting the heightened market expectations," adding, "Shipment area (m2) is expected to increase by +4% QoQ as shipments expand across all business sectors including TV, IT, and mobile, and the average selling price per area (ASP/m2) is expected to rise by +6% QoQ due to the seasonal peak effect of POLED panels, which have relatively higher prices."

Concerns about LCD profit decline next year exist. Kiwoom Securities expects LG Display's performance this year to be record-breaking with sales of 29.9 trillion KRW (+24% YoY) and operating profit of 2.8 trillion KRW (turning positive YoY), but in 2022, operating profit is expected to decrease to 2 trillion KRW (-27% YoY) due to the slowdown in the LCD market.

Researcher Kim emphasized, "I expect a revaluation when more active changes toward an OLED company appear, such as OLED line expansion and LCD exit strategy implementation."

This content was produced with the assistance of AI translation services.