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LGD’s Q121 Financial Report Redux
LG Display reported sales of KRW6.883t, up 46% Y/Y, down 8% sequentially OP of KRW523b (swing to profit Y/Y; down 24% sequentially), and NP
of KRW266b (swing to profit Y/Y; down 57% sequentially). 2Q guidance mainly calls for
Large LCD: The P7 (G7.5) plant closing was postponed until end-2022 due to strong TV demand (from LG Electronics). Inputs increased from 100,000 units/month in Q420 to 150,000/month by end-Q121 and 170,000/month by Q221. P8 will be extended (to end-2022) and converted to serve IT applications, and for input increased again (from 100,000/month to around 140,000/ month). Shipment surface area in 1Q was 8.5m sqm (up 21% Y/Y, down 2% sequentially. Blended ASP per square meter fell to $736/sqm from $790/sqm in 4Q, mainly due to a seasonal decline in OLED shipments for mobile devices. In 1Q, production capacity increased to 11.2m sqm from 10.8m sqm in 4Q.
The breakdown of panel sales by application in 1Q was TVs at 31% of total sales (29% in 4Q), IT (monitors, notebook PCs, tablets) at 40% (37%), and mobile and others accounting for 29% (34%). On a value basis, sales rose 46% YoY and fell 1% se sequentially for IT applications, and up 32% YoY and down 21% sequentially for mobile/other applications. The inventory level at end-1Q edged up to 36.5 days (34.4 days at end-4Q) on a turnover time basis (average of levels at start/end of term; CoGS basis). The total value of inventories at end-1Q was up 2% YoY and 8% sequentially. The company recognizes that tight supply-demand conditions for components are structural rather than short-term and is working to build up key components and materials.
Samsung Display (SDC) expected to postpone the closure of its T8 plant (going from October or December to end-2022) and production capacity will rise 9.6% in 2021 and 12.1% growth in maximum production volume (surface-area basis) and surface area demand growth of 8.0%. Although this means supply exceeding demand, panel shipments are likely to grow less than expected (about 10%) due to a severe shortage of driver ICs and tight supply/demand conditions for glass substrates and polarizers. Recent TV and PC demand has been much stronger than expected due to the impact of additional stimulus cash payments of $1,400 in the US, which is expected to result in tight supply-demand conditions and continued rising prices
until June. As the rise in panel prices affect TV prices, demand beginning in July could see some reductions, when panel stop rising and gradually decline
a major decline beyond 30% is unlikely. Lower panel prices should
guarantee demand, as there is less downside risk to component maker earnings.
Production capacity is forecast to increase by 9.3% in 2022, which is higher
than our demand growth forecast of 3.8%. If LG Display and Samsung Display do not close their LCD plants and supply of materials is sufficient to
meet this year's level, the supply/demand balance could start to ease in
2022.
Table 1: OLED TV Shipment Forecast By Brand
LG Display reported sales of KRW6.883t, up 46% Y/Y, down 8% sequentially OP of KRW523b (swing to profit Y/Y; down 24% sequentially), and NP
of KRW266b (swing to profit Y/Y; down 57% sequentially). 2Q guidance mainly calls for
- a mid–high-single-digit percentage increase sequentially in shipments on a total surface-area basis.
- a mid–high-single-digit percentage decline sequentially in blended ASP.
Large LCD: The P7 (G7.5) plant closing was postponed until end-2022 due to strong TV demand (from LG Electronics). Inputs increased from 100,000 units/month in Q420 to 150,000/month by end-Q121 and 170,000/month by Q221. P8 will be extended (to end-2022) and converted to serve IT applications, and for input increased again (from 100,000/month to around 140,000/ month). Shipment surface area in 1Q was 8.5m sqm (up 21% Y/Y, down 2% sequentially. Blended ASP per square meter fell to $736/sqm from $790/sqm in 4Q, mainly due to a seasonal decline in OLED shipments for mobile devices. In 1Q, production capacity increased to 11.2m sqm from 10.8m sqm in 4Q.
The breakdown of panel sales by application in 1Q was TVs at 31% of total sales (29% in 4Q), IT (monitors, notebook PCs, tablets) at 40% (37%), and mobile and others accounting for 29% (34%). On a value basis, sales rose 46% YoY and fell 1% se sequentially for IT applications, and up 32% YoY and down 21% sequentially for mobile/other applications. The inventory level at end-1Q edged up to 36.5 days (34.4 days at end-4Q) on a turnover time basis (average of levels at start/end of term; CoGS basis). The total value of inventories at end-1Q was up 2% YoY and 8% sequentially. The company recognizes that tight supply-demand conditions for components are structural rather than short-term and is working to build up key components and materials.
Samsung Display (SDC) expected to postpone the closure of its T8 plant (going from October or December to end-2022) and production capacity will rise 9.6% in 2021 and 12.1% growth in maximum production volume (surface-area basis) and surface area demand growth of 8.0%. Although this means supply exceeding demand, panel shipments are likely to grow less than expected (about 10%) due to a severe shortage of driver ICs and tight supply/demand conditions for glass substrates and polarizers. Recent TV and PC demand has been much stronger than expected due to the impact of additional stimulus cash payments of $1,400 in the US, which is expected to result in tight supply-demand conditions and continued rising prices
until June. As the rise in panel prices affect TV prices, demand beginning in July could see some reductions, when panel stop rising and gradually decline
a major decline beyond 30% is unlikely. Lower panel prices should
guarantee demand, as there is less downside risk to component maker earnings.
Production capacity is forecast to increase by 9.3% in 2022, which is higher
than our demand growth forecast of 3.8%. If LG Display and Samsung Display do not close their LCD plants and supply of materials is sufficient to
meet this year's level, the supply/demand balance could start to ease in
2022.
- Large OLED: LG Display projects shipments of OLED panels for TVs at 8m units in 2021, which is the upper limit of its previous 7m–8m projection, Production capacity at Guangzhou plant has already increased by 30,000 units/month since April and should reach 90,000 units/month by Q321. In response to higher-than-expected LCD prices and strong OLED demand, LG Display shifting from continuous price cuts to price hikes. The company will raise prices for 65", 55", and 48" panels by 5%–10%. The price increase will have a positive impact on the LG Display’s earnings in the short term.
- Samsung Visual Division (VD) and OLED TVs. VD needs a minimum of 2m units/year, SDC would have to make additional investments to boost capacity by at least 30,000 units/month. Despite the quality evaluation for TV brand QD-OLED samples being extremely high, SDC has been slow to make investment decisions due to poor visibility on profitability from high technological and cost hurdles. If SDC were to abandon additional investment and shift to preparations for QNED mass production in 2023–2024, it could increase the likelihood of LG Display supplying OLED panels to Samsung’s VD division. If that were to happen:
- Additional capacity investment at the Guangzhou plant (+30,000–60,000 units).
- Converting P7/P8 to OLED panel production.
- Resumption of G10.5 investment may look more realistic. Over the longer term, OLED could be a boon for equipment and component manufacturers, but even an even bigger boon for LG Display’s suppliers.
- Small/medium-sized OLED: The company shipped around 22m panels for the iPhone 12 (6.06") in 2020 from the effectively Apple dedicated E6-1 and E6-2 plants (30K units per month). Q121 shipment volume was around 12m units, still trending firm. For this year’s iPhone 13, total shipment volume will be 47m units, including orders for the 6.06" (13), 5.4" (13 Mini), and existing models, and earnings should improve. The iPhone 13 requires Y-OCTA compatibility on the OLED side, and the company will boost capacity, particularly for TFT front-end processes (e.g., lithography systems), due to an increase in the number of processes. For the iPhone 13 Pro/Pro Max, TFT will use LTPO, but the company still has no G6 production capacity, so all orders go to Samsung Display. The company is working on addressing this ahead of 2022 models and is targeting shipments from the iPhone 14. For the iPhone 14, the Mini model will likely be discontinued, and two models launched for both 6.7" and 6.06" screens, with no allocation to panel makers yet. The company is targeting shipments of 60m-70m units in 2022 by investment and mass production in the third line (E6-3) in 2022 and increased module production capacity in Vietnam (around 7.5m units/month from 3Q 2021). In addition, there is a possibility that the company will invest in E6-4 for IT applications (tablets, laptops). For LTPS-LCD (AP3), it will focus on automotive applications and smartphones. LCD supply for the iPhone will be halted around September 2021 and the company will no longer participate in any further new models.
- Takeaways from guidance.
- Total shipment surface area up mid-to-high single digits sequentially
- Blended ASP down mid-to-high single digits sequentially
- Large OLED (White-OLED) -- timing of adding 30K/month of capacity at the Guangzhou plant in China (current capacity 60K/month), based on market (customer demand) in 1Q. It currently expects to make a decision in 2Q or 3Q. Shipments of large OLED panels for TVs remained strong at 1.6m units in 1Q (flat sequentially).
- Capex -- The company did not comment on the amount of its capital investment. When announcing 4Q results, the company indicated that its 2021 capex plans were within the range of EBITDA (KRW2.3t in 2020). No particular comments were made regarding investment in E6-3 production lines. With regard to existing LCD plants, P8 (G8, Paju) production capacity for TVs has mostly been converted for IT applications. For P7 (G7, Paju), the company continues to produce panels for TVs, but said it could continue production if demand continues in 2022.
Table 1: OLED TV Shipment Forecast By Brand
Figure 1: LG Display OLED Capacity (m units)
Figure 2: QD-OLED TV Unit Forecast
