The author is an analyst for NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com -- Ed.
Concerns over OLED shipments to North American client appear overblown
LG Display (LGD)’s share price has recently tumbled on concerns over a possible delay in shipments of OLED panels for a new smartphone model at its North American client. However, this is attributed to issues at a Chinese company’s assembly line rather than LGD’s panel production yield issue, and the assembly line problem has been resolved. Accordingly, LGD is likely to post OP in 4Q23, and the recent share price plunge looks exessive.
Business conditions and earnings set to improve in 2024
As for display business conditions, despite Chinese LCD makers’ production adjustment efforts to control supply, panel prices have turned flat, after steadily rising, amid sluggish demand for TVs and IT devices. Sales of OLED TV panels to a new domestic client were originally expected to amount to a minimum of 2mn units, but more recent data shows the volume is more likely at around 1.2mn units.
That said, we still have high hopes for 2024 in terms of industry conditions and LGD’s earnings, noting that: 1) global IT device demand should improve y-y, albeit moderately; 2) new OLED tablet products should start to roll-out from end-1Q24; and 3) cost burden should also ease with the depreciation period for E6 production lines (#1 & #2) slated to end in 1H24.
Valuations at historical lows
LGD’s shares are currently trading at a 2023E BPS of 0.56x, a level close to the lower end of its historical valuation band except for when the stock plunged in the early days of the Covid-19 pandemic. Although interest cost burden exists due to a recent interest rate rise, we believe that the firm’s share price will quickly recover once its 4Q23 profit achievement becomes visible.