2H21 Earnings to Jump to Five-year High
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Stock to gain steam
— LGD stock fell 10.9% over the past week (May 10-May 14) and 18.7% over the past three weeks (KRW27,050 on Apr 23→KRW22,000 on May 14). We attribute the sharp pullback to:
(1) potential delays in OLED swinging to the black; and
(2) excessive concerns over 2H21 operating conditions such as the prospect of lower LCD panel prices.
However, we expect OLED to swing into an operating profit of KRW417.0bn in 2H21, driven by:
(1) greater-than-expected shipments for large OLED panels (2021E shipment of 7.88mn units; +77% YoY) and more than a doubling in orders YoY (2021E: 52.0mn units; +117% YoY) for small-/mid-sized OLED panels for iPhone 13 (launch slated for 2H21); and
(2) a continuation of the modest uptrend in LCD panel prices into 2H21 (unlike our initial forecast of a downturn after 2Q21), as we believe TV/PC upgrades should cause a 20% supply shortage in 2H21.
We believe such excessive concerns have been prematurely factored into the recent pullback and expect the stock to gain steam going forward.
2H21 earnings to jump to highest level in five years
— We estimate 2H21 OP to reach KRW965.3bn, jumping to the highest level since KRW1.2tn in 2H16. We believe there will be superior qualitative growth compared to 2H16 performance, although the absolute size of OP should be lower. This is because, unlike in 2016, when the entirety of OP came from a highly volatile LCD business, 2H21 should see 43% of company-wide 2H21 OP derived from the OLED business, placing LG Display ahead of its rivals in China and Taiwan in terms of profit structure.
SEC’s foray into OLED TV business to expand OLED TV ecosystem
— There has been a spate of media reports claiming that LG Display may supply OLED TV panels for Samsung Electronics (SEC). According to the Daily Hankook (May 14), SEC is highly likely to procure panels from LG Display. The deal presents a potential win-win situation, as it should:
(1) enhance SEC’s ability in challenging the pricing power of Chinese LCD panel makers, which are seeing profitability improvements via product diversification; and
(2) lead to OLED TV lineups with various merits, such as LGD white OLED panels’ superiority in luminance and Samsung Display QD OLED panels’ superiority in color gamut. Meanwhile, we expect LGD to contribute to the expansion of the global OLED TV ecosystem and help propel OLED TV panel shipments higher.