LCD TV Panel Prices to Remain High through 1H21
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Diversification of OLED business
Display plans to expand the production lineup at its large-size OLED plant from panels for TVs to premium monitors. OLED monitors are ideal for gaming thanks to superior color reproducibility and response time. The company also plans to supply automobile-use POLED panels to a German automaker. In terms of price per unit area, POLED panels produced for use in automobiles are more expensive than those used in smartphones due to higher spec requirements. The diversification of large-size OLED and POLED product portfolios will likely help to improve profitability of OLED operations. Operating earnings from the OLED business should swing to profit of KRW88bn in 2021 from loss of KRW981bn in 2020.
LCD TV panel prices to remain high through 1H21
The price of 32-inch LCD TV open cell panels rebounded in June 2020 and continued to rise by 97% through December. We expect the uptrend to continue in 1H21 on: 1) supply shortages for parts such as DDIC, worsened further by the recent power outage at Japan’s Nippon Electric Glass; and 2) growing demand for 65-inch and larger panels on the addition of mini-LED TV models to the product lineups of all TV makers.
In the late 1990s, cathode-ray tube (CRT) prices remained steady thanks to the reshuffle of the CRT TV industry. LCD TV panel prices are likely to follow a similar pattern with domestic display makers now focused on reshuffling their LCD TV panel production lines. Unlike in the past, risks of display makers playing chicken in the large-size LCD business are seen limited.
Retain BUY and raise target price by 19% to KRW25,000
We raise our target price for LG Display by 19% to KRW25,000 on 2021 forecasts for: 1) a turnaround in earnings from the OLED business; and 2) positive swing in company-wide operating earnings to a profit of KRW1.11tr. Our revised target price is based on the 2021 BPS forecast of KRW31,156 and a target PBR of 0.8x (past 10-year average). LG Display shares are currently trading at a 2021F PBR of 0.63x, close to the PBR low recorded during the 2008 financial crisis. We see ample upside for the shares given: 1) the high correlation coefficient between the company's share price and LCD TV open cell panel price trends; and 2) normalization of new OLED businesses.