The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
LG Display (LGD) is likely to record a 1Q20 operating loss, as expected. With the spread of Covid-19 resulting in unstable operations at the firm’s new 8G OLED plant in China, the effects of full-scale operation at the new plant are to become visible only from 2Q20. Upon an easing in the Covid-19 situation, we expect to see rapid business normalization across the board.
Expect normalization at 8G OLED plant in Guangzhou, China
We lower our TP for LG Display (LGD) from W19,000 to W16,000, as our earnings forecasts are revised down to reflect the impact of delayed operations (March~April) at the new 8G OLED plant in Guangzhou (China) due to the spread of Covid-19.
However, we maintain a Buy rating on the play. First, we believe that LGD’s current share price is already reflective of the likely impact on earnings of Covid-19-caused disruptions to operations at the 8G OLED plant in China. Recently, the company is reportedly considering a variety of strategies (such as the use of charter airplanes) regarding normalization at the Chinese OLED facilities. Once the Covid-19 situation is alleviated, we expect operations at the Chinese OLED plant to ramp up rapidly.
In addition, LGD’s recent strategies to improve its financial and cash flow soundness (efficient allocation of assets, reduced capital expenditure, etc) look positive. Therefore, we believe that expectations for BPS improvement from 2021 remain valid. Trading at a P/B of 0.37x (based on 12-month forward BPS), LGD’s shares are currently at the bottom of their historical P/B band.
1Q20 preview: To record operating loss, as expected
We size LGD’s 1Q20 sales at W5.1tn (-21% q-q, -13% y-y) and operating loss at W380.6bn (RR q-q, RR y-y).
At the LCD business, the benefit of rising LCD panel prices likely proved limited, as the effects of shipment volume decline due to reduced production capacity at domestic LCD facilities (P7, P8) likely outweighed that of price expansion. We note that according to OMDIA, LGD’s shipment volume for LCD panels (9-inch and above) in January and February both fell by more than 20% y-y/q-q. Impacted by weak seasonality, the small/medium-sized OLED business likely saw sluggish facility utilization rates. Meanwhile, in light of the lack of operations at the new 8G plant in China, signs of improvement at the large-sized OLED business are unlikely.