Profitable for First Time in 7 Quarters
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
3Q20 outlook: Turnaround to OP of KRW102bn
LG Display is expected to post operating profit of KRW102bn (positive swing QoQ, YoY) on sales of KRW6.67tr (+25.6% QoQ, +14.5% YoY) for 3Q20, turning profitable for the first time in seven quarters.
The turnaround in earnings should be attributable to:1) increases in 32-inch (+24% QoQ) and 55-inch (+15% QoQ) LCD TV open cell panel prices; 2) KRW241bn QoQ decline in operating loss from the POLED panel business; and 3) ramp-up of the new OLED TV panel line in Guangzhou.
4Q20 outlook: 211.8% QoQ growth in OP to KRW326bn
Strong earnings momentum should continue into 4Q20, with operating profit to come in at KRW318bn (+211.8% QoQ, positive swing YoY) on sales of KRW7.21tr (+8.2% QoQ, +12.3% YoY). Key drivers should include: 1) solid price trends for LCD TV open cell panels; 2) KRW51bn QoQ decline in operating loss from POLED panels; and 3) turnaround of the OLED TV panel business.
For the full-year, LG Display is expected to report a KRW909.3bn YoY decline in operating loss to KRW450.1bn in 2020 and a turnaround to an operating profit of KRW883.1bn in 2021 as POLED and OLED TV panel operations return to normal.
Retain BUY and raise target price by 11.1% to KRW20,000
We raise our target price for LG Display by 11.1% to KRW20,000, with: 1) earnings likely to turn around in 3Q20; and 2) POLED and OLED TV panel operations returning to normal. Our revised target price is based on the 2021 BPS forecast of KRW31,889 and a target PBR of 0.63x (5% premium to the PBR low recorded during the financial crisis of 2008).
After incurring massive losses over the past two years, the POLED panel business has been recovering from 2H20 and is expected to generate operating profit from 2021. In addition, operating profit from the OLED TV panel business is forecast at KRW341bn for 2021 with the Guangzhou line to reach full capacity. With strong price trends for LCD TV open cell panels to continue in the near term on brisk demand expected for large-size TVs in developed markets through the year’s end, we see further upside for LG Display shares from current price levels.