2H22 Outlook: Lack of Turnaround Momentum
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Downgrade to HOLD; cut target price to KRW17,000
We downgrade to HOLD for LGD and cut our 12m TP from KRW22,000 to KRW17,000 (12m fwd BVPS x 0.5x target P/B). We revise down 2022-23 earnings estimates on anticipated losses in 2Q-3Q22 amid (1) contracting TV/PC demand and (2) plunging LCD panel prices. We see panel prices falling as Chinese panel makers (e.g., BOE, CSOT) continue to lower prices in their attempt to capture market share despite LCD prices dipping below cash cost.
2Q22 forecast: Operating loss at KRW270.6bn (vs. KRW59.0bn market consensus)
Given slumping LCD/OLED panel demand and a growing fixed cost burden due to declining utilization rates, we forecast 2Q22 revenue at KRW5.9tn (-10% QoQ, -16% YoY) and operating loss at KRW270.6bn, which is higher than the operating loss consensus of KRW59.0bn. For 3Q22, we expect LGD to remain in red with operating loss of KRW51.9bn. TV/PC demand should continue to slow in 2H22 given increasing TV inventories at the world’s top five TV makers and shipment cutbacks by PC makers (e.g., Dell, HP, Lenovo).
2H22 outlook: Lack of turnaround momentum; limited improvement in supply-demand dynamics
In 2Q22, the global LCD panel market faced (1) aggressive price cuts by Chinese panel makers looking to gain market share and (2) a decline in TV/PC demand due to rising inflation. As such, we failed to see any momentum that would improve panel supply-demand dynamics or curb price declines. The cost burden for panel manufacturers grew, as slowing IT panel demand pushed LCD panel prices down, with the cost of core parts (supply shortage in 2021) and foundry/logistics costs either significantly increasing or sustaining high levels.