LG Display Co., Ltd. Q4 FY2024 Earnings Call

Good afternoon. I am Brian Heo, in charge of LG Display's IR team. On behalf of the company, thank you to all the participants for joining us today in our Q4 2024 earnings call. Today, I have with me our CFO, Kim Sung-Hyun; Lee Ki-Yong, who is in charge of Business Intelligence; Kim Chun Deok, Vice President of Large Display Planning and Management; Kim Jeong Dong, Team Head of Medium Display Business Strategy; in charge of Small Display Planning and Management and Son Ki Hwan, VP of Auto Marketing. Today's conference call will be conducted in both Korean and English. And for more details, please refer to the provisional earnings, which we disclosed today or the IR Events section on the company's website. Also before we begin, please take a moment to read the disclaimer. As a reminder, today's results are based on consolidated IFRS standards prepared for your benefit and has yet to receive an audit by an outside auditor. Now allow me to begin with our fourth quarter earnings for 2024. With continuing OLED-centric business structure upgrade, smartphone panel shipment in Q4 showed a sizable expansion resulting in revenue increase of 15% Q-over-Q and 6% year-over-year, reporting KRW 7,832.9 billion. Coupled with smartphone panel shipment expansion, rigorous cost savings and operational efficiency supported continuous earnings improvement, driving a turnaround in operating profit of KRW 83.1 billion. Absent any notable changes in the end user demand and in the relevant downstream market, we were able to drive year-over-year profit improvement of around KRW 2 trillion on a 2024 full year basis. In Q4, we had around mid KRW 100 billion one-off expense, including ERP-related severance pay for clerical workers, which is similar to the levels of previous quarter. EBITDA in Q4 recorded KRW 1,306.5 billion and on a yearly basis, KRW 4,565 billion. EBITDA margin rate in 2024 was 17%. Next is area shipment and ASP per square meter. Q4 area shipment was up 5% Q-over-Q on shipment expansion driven mostly by TV panels. And also on year-over-year basis, there was a 19% increase as TV panel shipment expansion drove overall area shipment growth. ASP per square meter also increased 6% Q-on-Q, reaching USD 873 following volume growth for smartphone panels. Next is product revenue mix. In Q4, mobile and others accounted for the biggest portion of the revenue mix at 42%. It's quite positive to see sustained uptrend in panel shipment every year, supported by stable supply capacity. IT segment revenue was down 28% Q-on-Q on prolonged sluggishness in the downstream demand, and we are seeing varying volatilities in shipment across different quarters by product segments and customers. Following OLED TV panel shipment expansion, TV segment revenue posted Q-on-Q and Y-o-Y growth, accounting for 22% of revenue mix, which is mostly flat due to overall increase in total revenue. Auto segment revenue also increased mid-10% Q-on-Q and Y-o-Y, while its share of the mix staying at 8%, same as last quarter. OLED share out of total revenue was up 2 percentage points Q-on-Q and year-over-year, reaching 60%, which is record high, further solidifying the outcome from the company's OLED-centric business portfolio transformation. Next is on the financial position and key metrics. Q4 cash and cash equivalent was KRW 2,021.6 billion while inventory assets declined to KRW 2,671.2 billion, on the back of shipment expansion in time for the peak season during Q4. Debt-to-equity ratio and net debt ratio recorded 307% and 155%, respectively. In terms of Q1 guidance, we project area shipment to see a decline in TV panel shipment impacted by seasonality, reporting a decline of more than mid-single-digit fall Q-over-Q. ASP per square meter is expected to fall by around mid-10% range Q-on-Q, due to it being a slow season for smartphone panels. However, with loading rate increase based on volume growth, and diversification in smartphone models, we expect performance to be quite strong compared to a typical first quarter season. Next, I will invite our CFO, Kim Sung-Hyun, to run through the highlights.

Good afternoon. I'm Kim Sung-Hyun, the CFO. Thank you for joining our earnings call today. Against the macro headwind of delayed demand recovery in the downstream market, we are seeing signs of changing global trade environment leading to ever-heightened business volatility. We, therefore, continue to drive OLED-centric business structural upgrade in order to sustain the business performance up trend and are focusing on rigorous cost innovation and operations activities to improve profitability of our business, which is the company's priority as we push ahead with stronger execution capacity. As a result, despite uncertain market backdrop, 2024 annual revenue was up 25% year-on-year and despite mid-KRW 100 billion level of one-off expense in Q3 and Q4, respectively, last year, we drove meaningful outcome of reporting around KRW 2 trillion of profit improvement on an annual basis. Excluding the impact of one-off factors, earnings results since Q3 of last year have been very stable, and we expect such trend will continue into the first half of this year, which is typically the offseason, allowing us to constrain the fluctuations and ensure a more steady trend without the dramatic changes that we've seen in the past. This year, we will endeavor to not only achieve a turnaround in annual results, but also meet market expectations, underpinned by OLED panel shipment expansion across different product segments. Next, I will run through the business plan and strategies. OLED for mobile will secure a competitive edge by preparing for future technologies required by the market and the customer. Also, we will drive utilization in the first half supported by shipment expansion and diversification of product offerings based on stronger production capabilities to grow the top line and to strengthen profitability. For the medium IT segment, underpinned by global customer base and differentiated technologies, including IPS Black and NEO LED, we will respond effectively to the competitive landscape. Although the global IT market has been sluggish for an extended term, we are carrying out various internal activities that can drive profitability, including innovating our cost base. As such, we believe in the second half if we start to see signals for demand recovery and many other opportunities, we can sufficiently have an upside compared to the target set at the start of the year. For IT OLED, although the market situation does not favor the sale of high-end products, we expect to see year-over-year growth in 2025 since there clearly exists unique value offering of tandem OLED, such as the lower power profile. Also, in step with market changes, we are looking at various ways to scale up operational efficiency such as maximizing the use of production infrastructure. In large OLED business through diversification of product lineup, including ultra-large TV panels and a more solid portfolio as well as expansion into differentiated and high-end lineup, such as gaming OLED monitors that better caters to consumer needs, we plan to drive shipment expansion. At the same time, we plan to sustain quality-driven growth and bring profitability enhancements as well through efficient production strategy underpinned by the end-user demand and cost savings and other operational innovations. Next is the auto business. Recently, the automobile market is starting to recover gradually, but there are uncertainties lingering around EVs as countries are scaling down on subsidies. LG Display has a close and stable relationship with our customer base, and we have a portfolio of customers spanning from premium to the mass market. Because we have a portfolio of distinct product and technology offerings, which are tandem-based plastic OLED, ATO, advanced OLED, and high-end LTPS LCD, we will continue to endeavor to win orders and grow the top line from not only EVs but also internal combustion engine vehicles as we operate our business under a solid footing. Last point is on CapEx. Since uncertainties persist and with higher demand volatility, we wish to keep to a conservative stance when it comes to making investments. Hence, our priority is to strengthen business fundamentals and financial soundness and secure stable profitability. Therefore, we will fully utilize the infrastructure that we currently own whilst maintaining prudence when it comes to CapEx for new expansion. Last year, CapEx spend amounted to KRW 2.2 trillion. For this year, we estimate low to mid KRW 2 trillion of CapEx. Investments will be focused on what's needed for the business structure upgrade and spending will be from cash flow generated based on profitable operations as we plan on enhancing investment efficiency.

I would like to ask you two questions. The first one is in response to your mid to small size POLED business. With regards to your North America-based strategic customer, I understand that there is heightened competition across different suppliers to gain share of wallet of that specific customer. Would like to understand as to what your strategies are in order to further improve on your profitability and for you to maintain your share of wallet and market share in the smartphone panel business against that specific customer? And related to that, I also understand that for that company, there is going to be the introduction of the most mass-market-level entry-level model that is going to be introduced into the market. I would like to understand whether that will help you mitigate the impact from seasonality and also what impact would that have on your bottom line? Second question is with respect to the exclusive supply of foldable panels to your strategic customer. I would like to understand what LG Display's position and strategies are to cater to that need.

That is correct that against the backdrop of more heightened competition across different suppliers. We are very much focused on making preparations for future-proof technologies and also to gain our mass production competitiveness so that we can further reinforce our company's competitive edge. At the same time, we have plans to further improve on continuous productivity as well as more strengthened at a high level of quality and also engage in innovation, cost innovation activities, which will help with strengthening and reinforcing the business competitiveness of the company. Now looking at the smartphone business, as of today, we continuously see growth in terms of the panel shipment, and we are strengthening the product mix centering around the new models and also through diversification of the models, we are able to increase the volume, which helps us to minimize the gap between the loading rate for our production lines between the first half and the second half of the year. As a result, we are looking forward to around 20% on a year-over-year basis growth in terms of shipment. In terms of the small panel business, the revenue mix has moved from 26% in 2021 to 33% in 2024. So you can see that continuously, we've seen an uptrend. Going forward, we would actively utilize the existing infrastructure in terms of that is production infrastructure that we have. We will fully utilize them so that we can push for a more expanded shipment and further facilitate diversification of models as well as improve our revenue mix and product mix focusing on the new models so that we may ensure a top line growth and secure bottom line profitability. Within the market, there is a certain level of demand for different types of form factors. However, we are working under a continuous backdrop of macro uncertainty, and we expect there to be quite a bit of volatility when it comes to end-user demand. But LG Display has a firm foundation of offering foldable products on the notebook segment, which we are, at this point, mass producing and supplying to a global customer. Based upon that know-how in the smartphone business as well, we will be fully mindful of the acceptance level in the market with regard to such unique and differentiated product and also be mindful of the pace at which the market is growing and in line with which we will come up with a basic structure in terms of supplying of those differentiated products and accordingly expand on the business opportunity.

I just have a single question relating to your IT OLED business. We see that compared to what was originally projected, your tablet OLED panels really underperformed the expectation. Compared to the actual shipment number that you've seen on a quarterly basis for 2024, what is your outlook for 2025?

You are correct because of the sluggishness in the global IT market compared to what we had planned and expected, the actual sales at OLED were not up to par. So the current macro environment does not favor sales of high-end products, but because we have a distinct differentiation in terms of low power and the tandem technology, which is best fit for IT devices, we expect that in 2025, we will be able to drive year-over-year growth. Now having said that, with regards to a specific target in terms of supply as well as market share, these are some detailed information that we would not be able to share with you because they are closely related to customers. Now for your information, basically, under this backdrop where there is limited panel shipment for tablet OLED, the company is looking at various different ways that will help us further increase and maximize operational efficiency of the fab.

I am NamKung Hyon from Shinhan Securities. I have one question relating to especially your large-panel OLED business. From the second half of the year, a lot of the depreciation will come to an end. I would like to understand as to what the company's strategies are in terms of your bottom line if you were to compare '24 versus '25?

The TV market in general, we expect the uncertainties to persist in 2025 as was the case in 2024. The company under such a constraint in terms of demand recovery at its internal efforts on improving and enhancing the portability. In 2024, we had rigorous innovations based against the cost base and we've done a lot of efforts to improve on the operational side, and such efforts will continue on in 2025. As you've also correctly mentioned, yes, in the second half of the year, the Quantum fab is going to see its depreciation come to an end, which obviously works as a positive for us. So going forward, we are going to continue to strengthen the cost competitiveness that we have based on we will make sure that we operate our fab in the most optimal way possible. And also going forward, we will further strengthen our operations with our strategic customers also expand on the focusing on our depreciating products such as the gaming monitors at the same time, continue to work on our base, all of which will help us bring about meaningful results in terms of profitability.

I am Chung Won Suk from iM Securities. I have two very simple questions. There is a lot of changes and uncertainties in the downstream market. So the market considers your conservative stance on investment as something being positive, especially with regards to the eighth generation IT OLED business. I'd like to understand what are some of your technologies and product segments that you will focus on to drive future growth? Second question is, you've mentioned depreciation. I would like to understand as to aside from last year and this year, I would like to understand what the mid- to long-term depreciation trend would look like?

This is the CFO responding to your question. Our main perspective on the macro environment is that there are still external uncertainties and a significant level of demand volatility that have persisted for a long time. I understand you are asking about potential new investments, particularly regarding the eighth generation IT OLED. In light of this, we have consistently stated that our company's top priority right now is to improve business fundamentals, enhance our financials, and establish a stable bottom line profitability. This is why we have maintained a conservative capital expenditure or investment approach. When it comes to the eighth generation IT OLED, we believe the market still faces a high level of uncertainties. LG Display is prepared to respond to market changes as soon as we identify clear signals of improvement and gain confidence in a positive direction with visibility. Regarding depreciation, we anticipate it to remain around KRW 5.1 trillion to KRW 5.2 trillion for 2024. Looking back at the end of last year, some of our smartphone POLED fab lines finished their depreciation periods. Additionally, in the second half of this year, there will be a conclusion to the depreciation for our large OLED fab in Guangzhou. Therefore, we are expecting depreciation to decline to around KRW 4.3 trillion, which represents a KRW 0.3 trillion decrease.

My question relates to your auto business. As mentioned during the presentation, the auto market as well as the EV segment has experienced quite a bit of slump. Would like to understand what Display's assessment is of the overall auto market, also particularly regarding the auto display market and what your projections are in terms of the market going forward and what your objectives and strategies are for this business?

In terms of the auto market, there are both negatives and some positives, negatives being a global economic slump as well as sluggishness that we see in the EV market, but there are also positives which are interest rate cuts and stronger CO2 emissions regulation that was adopted in Europe for 2025. So the mix of factors coexist. In 2025, we think that the auto market, in general, will be about flat on a year-over-year basis at around 90 million cars. On the other hand, if you look at the auto display market, it continuously is showing a growth. It is providing not just a driving or mileage-related information, but the display works to provide information, entertainment and a key function in terms of safety as well. As such, we are seeing the adoption rate per vehicle increase and we think that number will surpass 200 million units of cars. As a result, OLED is expected to grow by more than 70% year-over-year, while LTPS LCD growing on a Y-o-Y basis more than 20% growth. It's just to note that above 200 million is sales in the number of auto display units. Now so based upon the Tandem OLED technology, we have a variety of product portfolio offerings including tandem OLED-based POLED, ATO, LTPS-LCD, and oxide LCD. So we are able to cover the mainstream as well as the premium OEM customers. We have the basis of customer base of major companies. And also, we operate our autoplay business that is well balanced between growth and profitability. Our key competitiveness is the strong and close relationship that we have with our customer base who include the European premium companies as well as Korean and Japanese incumbent auto powerhouses as well as a global EV maker based in the U.S. Based upon that, vis-a-vis the OEM customers, we are looking to a growth rate of about 100%. Supported by such differentiated technology offerings mid- to longer term and variety of product portfolios and cost savings and a very solid customer base, we will make sure that we maintain a market share #1 position that is based off of the revenue, and we'll continue to further strengthen our market leadership going forward.

This brings us to the end of the fourth quarter 2024 earnings conference call of LG Display. Thank you all for joining us this afternoon. And if you have any unanswered questions, please feel free to contact us at the IR team. Thank you very much.