3Q20 OLED Panel Shipments to Determine Earnings
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain HOLD and raise target price to KRW15,000
We raise our 12m TP for LG Display to KRW15,000 (12m fwd BVPS x 0.49x target P/B) but maintain HOLD because of limited upside. Our TP was raised to reflect an increase in ROE (3.2%→3.7%); 2021E/2022E earnings were revised up to accommodate improving yields and shipments for small-/mid-size panels (P-OLED) and large-size panels (WOLED). However, an earnings turnaround in 2H20 is unlikely, but improving margins for large-size LCD panels (for TVs and IT) and rising capacity utilization for P-OLED panels suggest 2Q20 earnings may have been a trough.
3Q20 forecast: operating loss to narrow to KRW36.4bn
We forecast LG Display to report 3Q20 revenue of KRW6.6tn and an operating loss of KRW36.4bn, which is in line with the market consensus of -KRW34.3bn. The loss represents a narrowing of KRW517.0bn QoQ thanks to climbing prices for large-size LCD panels and higher P-OLED capacity utilization: 1) The E6 line (30k units/month capacity) will see its utilization rate reach 85% by end-3Q20 as the North American client increases small-/mid-size OLED panel orders with the release of its new smartphone model; and 2) The expansion of telecommuting and online education is stoking IT panel demand.
3Q20 OLED panel shipments to determine earnings
In 3Q20, OLED panels will contribute more to revenue than LCD panels for the first time ever because of rising WOLED capacity (monthly capacity +130k units: Paju plant +70k, Guangzhou plant +60k) amid LCD line reductions. We forecast P-OLED capacity to reach 67mn units (assuming 75% yield; +37.5k unit/month increase: E5 line +7.5k, E6 line +30.0k). We think the only way that LG Display will achieve earnings growth in 2021 is if (1) LG Electronics’ OLED TV sales strategies are successful in 2H20 and (2) a significant amount of P-OLED panel orders are received from North American and Chinese clients in 2H20.