LCD TV Panel Prices to Continue on Downtrend
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
LCD TV panel prices turned downward in April amid the spread of COVID-19, ending the upward streak since December 2019. TV makers have recently revised down LCD TV panel demand projections by 16-20% for 2020. May ASP of 32-inch panels came to USD33 (-8.3% MoM), 55-inch USD107 (-4.4% MoM), and 65-inch USD166 (-3.4% MoM). The downtrend will likely continue through June. For 2Q, LG Display is forecast to post operating loss of KRW340bn (-6.0% QoQ, -7.9% YoY) on sales of KRW4.87tr (+3.0% QoQ, -9.1% YoY), slightly steeper than market expectations for a KRW325bn loss.
Earnings to improve gradually on normalization of OLED business in 2H
Shipment of smartphone-use POLED panels to strategic clients is projected to start at end-2Q. With sales of smartphone-use POLED panels seen to increase more than threefold YoY in 2020, we expect overall operating loss from POLED panels to decrease by KRW696bn YoY. For 2021, POLED panel operations should turn profitable on growth in sales from automobile-use panels as well as smartphone-use ones.
LG Display is likely to adjust the capacity utilization rate of its OLED TV panel line in Guangzhou after confirmation of 3Q order flows. Given that Japanese TV makers recently expanded their OLED TV lineup in the domestic market, we cautiously expect demand for OLED TV panels to improve in 2H20. Normalization of OLED panel operations in 2H will be able to drive a turnaround in overall operating earnings for 4Q.
Retain BUY and lower target price by 13.8% to KRW12,500
Our target price for LG Display is revised down by 13.8% to KRW12,500 in view of: 1) downtrend in LCD TV panel prices continuing through 2Q; and 2) 2020F operating loss of KRW779bn. Nevertheless, we retain our BUY rating on forecasts for normalization of OLED panel operations in 2H20. The display market outlook remains mired in uncertainty caused by the COVID-19 pandemic. Despite cheap valuations (2020F PBR of 0.35x), LG Display shares should have limited upside in the near term. The shares may turn upward if OLED panel operations normalize as expected in 2H20.