LG Display Co., Ltd. Q4 FY2023 Earnings Call

Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2023 Fourth Quarter Earnings Results by LG Display. This conference will start with a presentation followed by a divisional Q&A session. Now we shall commence the presentation on the Fiscal Year 2023 Fourth Quarter Earnings Results by LG Display.

Good afternoon. This is Brian Heo in charge of LG Display's IR. On behalf of the company, let me thank all the participants at this conference call. Today, I'm joined by the CFO, Sung-Hyun Kim; Seung Min Lim, Senior Vice President of Corporate Planning; Keuk Sang Kwon, Vice President of Auto Marketing; Ki-Yong Lee, in charge of Business Intelligence; Sung Joon Bae, in charge of Large Display Marketing; Won Jae Lee, in charge of Medium Display Marketing and Myoung-Kyu Kim, in charge of Small Display marketing. The conference call will be conducted in both Korean and English. Please refer to the provisional earnings release today or the IR Events section in the company's website for more details on the financial results of Q4, 2023. Before we begin the presentation, please take a moment to read the disclaimer. Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. I will start with Q4 business results. Revenue increased 55% Q-o-Q to KRW 7.396 trillion, driven by increased shipment of OLED panels for mobile and medium and large panels for IT and TV to meet the seasonal demand. Our work on the business structure upgrade is now showing visible impact with a higher share of OLED centered high-value-add products. Profitability improved, thanks to continued activities on cost innovation and operational efficiency. The company turned to profit in Q4 for the first time in 7 quarters, posting an operating profit of KRW 132 billion. Next is area shipment and ASP per square meter. Area shipment in Q4 was 5.6 million square meters, up 17% Q-o-Q. ASP per square meter rose 32% to $1,064. Next is revenue breakdown by product segment. Mobile and others took up 44% of the total revenue, up 16 percentage points on the back of increased panel shipment for new mobile products. The surge in the mobile segment relatively lowered the revenue mix of other product groups. TV panels revenue mix was 18%, down 5 percentage points from the previous quarter and IT was 31%, down 9 percentage points. Auto was 7%, down 2 percentage points. OLED products revenue mix was 57%, up 15 percentage points from the previous quarter owed to growth in panel shipment from mobile and TV. Next is on the financial position and key metrics. Inventory was KRW 2.528 trillion, decreased by KRW 821 billion Q-o-Q as the company kept up efforts to minimize inventory and expanded seasonal sales. Cash and cash equivalents stood at KRW 3.163 trillion. The debt-to-equity ratio was 308%, lower by 14 percentage points from the previous quarter. Current ratio and net debt-to-equity ratio were unchanged from the previous quarter. Cash flow at the end of the quarter was KRW 3.16 trillion, decreasing by KRW 924 billion from the KRW 4.087 trillion Q-o-Q due to investment execution and repayment of borrowings. Next is on Q1 guidance. With panel shipment expected to decline across the products Q-o-Q due to seasonality, area shipment is projected to decline by 10% level with ASP per square meter falling by mid-20% level. Last, let me turn to the December 18th, 2023, decision on capital increase to explain the background, purpose and future steps. The company decided on a paid-in capital increase with the objectives of strengthening our OLED competitiveness, solidifying the foundation for sustainable growth and enhancing financial stability. Total number of shares currently outstanding is 357,815,700 and the number of new shares to be issued is 142,184,300, which will bring the total number of shares after a capital increase to 500 million shares or the authorized stock under the company's articles of incorporation. The capital increase rate corresponding to the rights issue is 39.74%. The capital increase is a decision to enhance the competitiveness of our small and medium OLED business and operational stability of our large OLED business, while responding to the rapid growth of the OLED market and to strengthen our financial security. Funds raised from the capital increase will be KRW 1.43 trillion based on the first indicative subscription price, which is planned to be used for facilities, operations and debt repayment. First, the company plans to invest approximately KRW 416 billion in facilities and technology to strengthen the basis for future growth of small and medium OLED, namely, it will be for finalization of the IT dedicated OLED fab, expansion of plastic OLED line for mobile and expansion of automotive OLED facilities. Another KRW 622 billion will be used for operating expenses, including the purchase of raw materials in preparation for new OLED products for global customers and increased customer volume. A sharp increase in raw material procurement is expected this year, as the OLED revenue mix is expected to rise with growing OLED volume across all products. We will strengthen the stability of our production and operations by proactively securing financial resources needed for OLED business expansion. And the remaining around KRW 394 billion will be used to repay debt and strengthen our financial stability. With the scale of financing we currently anticipate, the company's debt-to-equity ratio is projected to fall from 308% at the end of Q4, or before the capital increase, to around 260% afterwards. And about the timeline, the offering method is allocation to shareholders, followed by a public offering of forfeited shares. The first indicative subscription price has been determined at 10,071, as of January 23rd, applied with a 20% discount. The second indicative subscription price will be determined on February 29th, and the definitive subscription price will be determined on the same day at the lower of the first and second indicative subscription prices. Existing shareholder subscription will be held from March 6th to 7th, followed by public subscription from the 11th to 12th of the same month. New shares will be listed on March 26. For more details, please refer to the already disclosed material event report and the securities registration statement. Next, CFO, Sung-Hyun Kim, will walk us through the key highlights.

Good morning and afternoon. This is the CFO, Sung-Hyun Kim. Thank you for joining our conference call. The industry as a whole is facing a challenging time due to macroeconomic uncertainties and market volatility. Despite the external challenges and market conditions, the company is relentlessly working to improve our business performance. We are reviewing our business strategy against changes in the environment, our internal capabilities and future risks in each of our business segments. We have been, in particular, trying to upgrade our business structure for several years now, focusing on cost innovation, and the results are becoming increasingly visible. We will keep strengthening our competitiveness and business foundation in all areas of OLED, including TV, IT, mobile, and automotive to secure a stable revenue structure and enhance corporate value. By business, in large OLED, we plan to further expand our position in the premium TV market and improve profitability by boosting our customer portfolio centered on ultra high-resolution and ultra-large products, as well as cost innovation in yield, productivity, and material costs. In IT OLED, preparation continues on schedule for mass production and supply structure using tandem OLED technology that provides outstanding durability and performance such as long life, high luminance, and low power. Once mass production starts within the year, it will significantly strengthen our fundamentals by upgrading our business structure. In mobile OLED, the revenue mix of high-value add products has grown based on increased production capacity. The company will keep expanding our market share in high-end smartphones this year. Next is auto. We continue to improve business performance driven by differentiated products and technological competitiveness, including P-OLED and ATO using Tandem OLED technology and high-end LTPS LCD. In particular, our expansion is accelerating in automotive OLED, having secured 10 global premium OEM brands as customers in just 4 years since the first mass production in 2019. We will solidify our position as the world's #1 by building up our customer base, as well as orders and sales. Last is on our investment activities. CapEx last year was KRW 3.6 trillion, reduced by KRW 1.6 trillion from 2022. This year, under the principle of strengthening financial soundness, CapEx is planned at KRW 2 trillion level on a cash-out basis, focusing on essential recurring investments and projects agreed upon with customers. While market volatility is expected to linger due to the prolonged macroeconomic instability, we are going all out to create customer value and achieve profitability by strengthening our OLED business competitiveness and growth foundation. We will also keep driving company-wide cost innovation and operational efficiency to secure financial soundness and enhance business stability to improve our performance over the past year. Thank you very much for your attention.

That brings us to the end of the earnings presentation for Q4, 2023. We will now take your questions. Operator, please commence with the Q&A session.

Now the Q&A session will begin. The first question will be provided by Dongwon Kim from KB Securities.

I have one question about the market outlook. What is the company's expectations of the demand and the ASP per square meter for each of the products?

Now, this is Ki-Yong Lee in charge of Business Intelligence responding to your question. Let me explain about the overall expected trend in display demand. During the COVID-19 pandemic, demand has been quite volatile, but we expect demand to be more stable in 2024. In terms of TV, demand for the over 70-inch ultra-large TV is on the rise, which also bodes well for the demand for set panel area. In terms of supply, we see that the panel makers are trying to stabilize prices by adjusting the production capacity based on the real demand and adjusting the supply as well. Due to the recent earthquake in Japan, there might be some disruptions in the supply of the necessary parts and components, which is also expected to drive up the prices slightly in the first half of the year. In terms of IT, the macroeconomic environment is expected to remain uncertain, meaning that the negative growth in IT demand is expected to continue, but it is also expected to narrow. We are expecting gradual recovery in demand, especially in the second half of the year because during the COVID pandemic period, demand for PCs had increased, and now such PCs are coming upon the replacement cycle starting in the second half of the year. In addition to that, there are preparations for replacement with the upcoming expiration of the support for Windows 10. There is also growth in the AI PC market as well. As a result, for the IT panels as well, just like TV, we believe that the prices are going to remain flattish based on real demand. In addition, the company's targets in the high-end smartphone market, as well as the auto display, are expected to remain on the rise.

We will take the next question.

The following question will be presented by Sung Eun Kim from Meritz Securities.

I have some questions about the company's financial structure. In 2023, the company's net borrowings have topped KRW 13 trillion. Of course, the company is now successfully going through the capital increase. But then afterwards, I'm wondering about the company's plan on managing the financial structure and also managing overall financial soundness. So if you could also explain a bit more about some of the details of the financial structure, for example, some of the borrowings or the debts that are coming to maturity within the year, as well as the expected interest rate burden.

This is the CFO responding to your question. In terms of the question on debt management, I would take it that it is more focused on the borrowing side, so I will also focus my response on borrowings. Looking at the overall picture, the company went into a capital increase under various circumstances. We also realize that this was not pleasing to everyone, especially in the stock market. But looking at the overall market, we believe that this was an important step in recovering trust from the market. It has always been true, and it is still today that the company has never suffered difficulties in raising funds from the financial market. For the company to become an even better company, we also believe that it is vital to improve our financial soundness and reduce our financial cost burden. One of the conditions of becoming a better company, as I have mentioned earlier, is to go into a capital increase, which we have decided to do. Another step would be to quickly become profitable and also to have a completely positive cash flow. Other efforts would involve ongoing activities to improve and upgrade our business structure and to reduce costs. These activities, I assure you, will continue throughout 2024 so that in the end, we will have a healthier structure. In terms of debt management, fundraising or financing can be done from the financial department or the financial organization. In terms of repayment or maintaining or managing the debt, that can be borne by business results. That was a bit of a long-winded introduction leading to the response to your question. Now, our borrowings are quite simple. The lifetime of our borrowings is less than 4 years, usually about 3.8 years. So all you have to do is divide the outstanding borrowings by 3.8 years, and you will get the borrowings that come into maturity every year. We plan to abstain from increasing our borrowings as much as possible this year, which also means that we will try to reduce our borrowings as much as possible within the year.

We will take the next question.

The following question will be presented by Kyuha Lee from NH Investment & Securities.

Now I see there are a lot of news reports about the IT OLED, and we believe that IT OLED is also going to be an important pillar for the company in improving your overall business results in 2024. So can the company share with us the outlook on the IT OLED market this year?

This is in charge of small display marketing responding to the question. For the IT OLED, the preparation for mass production is underway on schedule. The double-stack based Tandem technology to be applied to IT OLED boasts the advantages of low power consumption and long life. The company has been accumulating leading technologies, as well as mass production competitiveness. If we are to go into mass production within the year, we will have stable operations and expansion afterwards, which will be very helpful in strengthening our business fundamentals, especially in terms of upgrading our business structure.

We will take one last question.

The last question will be presented by Won Suk Chung from HI Investment & Securities.

There have been a lot of news reports about the large OLED showing negative growth, so news reports coming last year about large OLED showing negative growth. What is the company's target in terms of the large OLED shipment in 2024? Are there any changes to the existing customers or the new customers? Can you provide an update on the overall customer base?

This is in charge of large display marketing responding to your question. In terms of the overall market, as was explained by the BI department, yes, there has been negative growth last year and it is likely to continue. Because of the easing of the overstocking that started in the latter part of last year, we believe that the negative growth is going to narrow down considerably. The macroeconomic uncertainties and external environment volatility are also likely to continue into 2024. However, we believe that overall, the TV market is also going to see improvement in demand. We are targeting the high-end market, and the company's expectation is that the high-end market would also gradually improve this year. We showcased the META 2 Technology at CES, and we see that OLED adoption is increasing overall in high-end products. Together with the META 2 Technology as well, we believe that overall, there is going to be an improvement in the market. In terms of the gaming market, which we entered last year, we are also showing good results. Overall, we believe that for this year, the OLED shipment is going to increase. As to the latter part of your question, please understand that we cannot mention specifics about our customers, but we are maintaining strategic relations with many of the global TV set customers. Based on this, we believe that our projection for OLED shipment is to see an increase of 20%.

We will now close the Q4 2023 earnings conference call. Thank you once again for joining us today. Please do contact us at the IR team for any additional questions. Thank you.