LG Display Co., Ltd. Q1 FY2025 Earnings Call

Good afternoon. I'm Brian Heo, leading the IR team at LG Display. Thank you for joining our first quarter 2025 earnings call. I'm accompanied by our CFO, Kim Sung-Hyun, along with several other key executives. This call will be conducted in both Korean and English. For more information, you can refer to the provisional earnings recently disclosed or check the IR Events section on our website. Please also take a moment to read the disclaimer. Today's results are based on consolidated IFRS standards and have not yet been audited by an external party. Let me begin by discussing our business results for Q1 2025. Despite the typical seasonal trends affecting various product segments, our OLED-centric business upgrade and a $1 FX impact helped us achieve a revenue of KRW 6,065.3 billion, up 15% year-over-year. Along with an increase in the revenue share of our OLED products and ongoing cost-saving measures, we reported an operating profit of KRW 33.5 billion, marking our continued profitability since last quarter. This is an increase of KRW 509.2 billion year-over-year and KRW 1,131.8 billion compared to Q1 of 2023, which is significant as it's our first profitable first quarter in 8 years, excluding the COVID pandemic period. Our Q1 EBITDA was KRW 1,231.3 billion, with an EBITDA margin rate of 20%, the highest since Q3 of 2021. In terms of area shipment and ASP per square meter, Q1 shipments decreased 19% quarter-on-quarter due to seasonal effects on larger panels, but saw a 1% increase year-over-year from OLED TV and notebook panel shipments. The ASP per square meter was $804, down 8% quarter-on-quarter, though the decline was mitigated by strong OLED performance. Looking at the product revenue mix, mobile and others revenue fell 8 percentage points quarter-on-quarter to 34%, while the IT segment's revenue share rose 7 percentage points to 35% due to increased OLED panel shipments for IT. The TV segment revenue remained unchanged at 22%, and the auto segment's revenue mix increased by 1 percentage point to 9%. The OLED revenue mix climbed 8 percentage points year-on-year to 55%, reflecting the ongoing transformation of our OLED-centric business portfolio. Regarding our financial position, cash and cash equivalents as of Q1 were KRW 982.3 billion. If we include cash held by our Guangzhou LCD plant classified under assets held for sale, total actual cash and cash equivalents amount to KRW 2,372.8 billion. Looking ahead to Q2, we generally anticipate an upward trend in area shipments, but following the discontinuation of our LCD TV business, we expect a decline of around mid-20% in area shipments. Conversely, we expect the ASP per square meter to rise by about 20%. Now, I would like to invite our CFO, Kim Sung-Hyun, to share some highlights.

Good afternoon. I'm Kim Sung-Hyun, the CFO. Thank you for joining our earnings call today. Despite uncertainties in the downstream market, various factors are emerging, such as changes in the global trade environment. Although we are experiencing increased volatility in the business environment, we successfully maintained our profit-making streak in the first quarter, traditionally a slow season. This success is due to strategies that reinforced our fundamentals, including upgrades focused on OLED, enhanced cost innovations, and improved performance. While external uncertainties may linger, we are starting to see tangible results from our efforts to strengthen our core competitiveness. We will continue to strive for a turnaround in annual profit and aim to increase that profit further. Now, regarding our plans and strategies for each business area, we've gained more trust from customers in OLED for mobile, allowing us to expand our presence in the high-end market based on our robust production capabilities. Going forward, we plan to enhance our core competitiveness, including quality and cost, to support shipment growth, while also preparing for future technologies in a structured manner. For the medium IT segment, we will closely monitor the market and respond swiftly to downstream changes. In IT OLED, the distinct user value that tandem OLED provides, through its performance and durability features, suggests that we anticipate year-over-year shipment growth in 2025. Backed by our technological leadership and stable mass production experience, we will strengthen our market position and adapt to environmental changes. In the IT LCD segment, we will utilize differentiated high-end LCD technologies to deliver optimized products tailored to customer needs. Collaborating with top-tier global customers in the high-end segment, we will strive to respond to competition and drive results. Additionally, we will focus on cost-based innovations and operational efficiency to enhance our bottom line. Regarding the large panel business, following the sale of the Guangzhou LCD TV plant, we anticipate a decline in revenue starting in the second quarter as LCD TV revenue will no longer be included. However, this strategic decision allows us to focus more on OLED-centric structural upgrades. In the large OLED business, we are strengthening our market presence in the high-end segment through close collaboration with global customers to expand a unique and premium product portfolio, such as gaming monitors and Gen 4 OLED TVs, which have enhanced features like low power consumption and high luminance. We expect positive results to follow and will maintain an efficient operational strategy along with cost-cutting efforts to adapt to changing demand and drive medium- to long-term volume growth, accompanied by profitability improvements. Finally, regarding our investment activities, we invested KRW 2.2 trillion last year, and we expect investment in 2025 to be around mid- to low KRW 2 trillion, consistent with last quarter's communication. We remain focused on profit-oriented business operations. Being mindful of the changing external environment and resulting demand fluctuations, we will maintain a conservative approach to reviewing and conducting investments. We aim to maximize the use of our existing infrastructure and will be careful with capital expenditure, prioritizing profitability in future investment decisions. Thank you.

This ends the key highlights for the first quarter of 2025 earnings. We will now begin the Q&A. Operator, please proceed.

The first question will be provided by Dongwon Kim from KB Securities.

My first question, I would like to understand whether there are any changes that you are able to identify in the downstream market as well as in your customers with regards to the United States tariff that is quite hotly debated of recent. And also, would like to know how LG Display could respond to such development. Second question is, as per the disclosure made on April the 11th, there was a disclosure on the sales proceeds with regards to the sale of the LCD TV plant at Guangzhou. Is there any information that you could update us on?

This is the CFO. I will address your question. Regarding the United States tariff, it appears that future policies will lean towards imposing such tariffs. Tariff policies often encompass a range of issues relevant to international relationships. Essentially, there is a significant amount of uncertainty involved in how tariff policies will be implemented. Our products are not directly exported to the U.S. market, and the companies directly affected by the tariffs are the set makers. We are closely monitoring their production strategies. Currently, no set makers have altered their production base strategies, and the future impact of these policies remains unpredictable. Therefore, we are closely observing these developments and preparing appropriate responses to ensure we can capitalize on business opportunities while protecting our profitability. As for our supply chain, we do not anticipate any critical issues arising. Additionally, we do not foresee any pricing pressures from this situation. Regarding the sale of our LCD TV plant in Guangzhou, the sales proceeds amount remains unchanged from our previous disclosure. We have been informed that as of April 1st, CSOT is operating the plant at full capacity without significant issues. Payments are being received according to the schedule, and the transaction is effectively closed. We expect a significant cash influx in the first half of the year. Regarding the use of these proceeds, we plan to diversify our investments rather than focusing on one specific area. We are considering various urgent business needs and preparation for future operations before deciding how to allocate the funds. Our operational activities can cover our ongoing cash flow requirements. A portion of the cash flow we receive will be used to enhance our financial position and may involve investments to strengthen our capabilities, particularly in the OLED sector.

Next question, please.

The following question will be presented by an analyst from IBK Investment & Securities.

I would like to ask you 3 questions. Although the CFO gave us a quite good explanation on this, I just would like to follow up by asking the external uncertainties do not seem very good. So I would like to understand whether you have made some adjustments into your business plan outlook going forward and particularly in relation to your strategic customers. Second question also regards to your strategic customers. There seems to be a heightened level of competition amongst the suppliers. We'd like to know whether that is impacting the amount of volume shipment that you're making to each of these customers or whether you are exposed continuously to any downward pressures on ASP? And then the third question is, in the second half, we always used to get new products. There is a rumor in the market that the new products will all be based on LTPO technology. If that is the case, what good news would that be for LG Display?

Yes, hello. I oversee Small Display. In response to your question, there are certainly uncertainties arising from recent tariff developments. However, at this moment, customers are diversifying their production bases. We anticipate that multiple companies will closely monitor upcoming changes. Regarding our smartphone business, we possess strong capabilities and a solid strategic position. We are operating according to our original business plan, but we acknowledge the potential for market volatility ahead. Therefore, we are maintaining close communication with our customers and are fully prepared to adapt swiftly to market changes. Competition among suppliers has always been present, but we manage to highlight our unique advantages through timely product supply, volume delivery, and preparation for future technologies. By focusing on continuous cost innovation, enhancing quality, and other competitive factors, we have successfully increased our supply volume. These commitments will enable us to effectively navigate the competitive market. Although the first half of the year is typically a slower season, we expect a year-over-year increase in volume due to the trust from our customers, our strategic positioning, and our production capabilities. In the second half of the year, we anticipate further expansion in shipment volumes, particularly with the introduction of new models. We expect to deliver year-over-year performance comparable to last year.

Next question, please.

The following question will be presented by Won Suk Chung from iM Securities.

I just have 2 very simple questions. Since you've discontinued your LCD TV business, for your large business, I take it that you have to focus on your OLED business. But in light of the uncertainties in demand and the fact that the high-end market segment is currently stagnant, I would like to understand what strategies you have in place? Second question is that on top of the tariffs as well as uncertainties in the market, I would like to know whether that drove any changes to your overall shipment plan.

Yes. My name is Kim Jong Duck, and I am the VP in charge of Large Display. I will address your first question regarding profitability. This can be divided into two main areas. We operate our business with a focus on profitability, which involves responding to customer needs and implementing rigorous cost savings. First, by offering a differentiated product portfolio with unique specifications and sizes, we aim to meet customer demand. The second area involves our ongoing cost-cutting efforts. With these strategies, we are committed to improving our business performance. As for the second part of your question, we have decided to discontinue our LCD business, and our focus will now be on enhancing our large panel OLED business, which is progressing as planned. Given the current market uncertainties, we are aligning our actual product supply with market demand. Additionally, we have taken extensive cost-cutting measures and strengthened our collaboration with global customers. We have also expanded and differentiated LG Display's unique offerings, such as OLED monitors, to bolster our earnings structure. From a mid to long-term perspective, we aim to drive growth in volume, which will contribute to stable performance. OLED is positioned at the top of our product lineup for top-tier customers, and it holds a leading position in the market. While we anticipate competition from LCD, the unique value of OLED will help us maintain its position in the high-end market segment. Regarding tariffs, our CFO has shared a high-level overview of the tariff landscape. The changes affecting TV sets have had mixed impacts, but we currently believe the effect on the large panel TV business is minimal. However, future developments in tariff policy could impact the manufacturers directly. We are dedicated to ensuring we maintain flexibility in meeting our customers' supply needs.

We'll take the next question.

The next question will be presented by Sung Kim from Kiwoom Securities.

I have two questions regarding your IT panel business. The demand for IT panels and the uncertainties surrounding it are ongoing. What is your outlook for IT product demand across various product segments for 2025? Additionally, while LG Display and your competitors have raised their technology standards, how do you differentiate yourself in the market? How will you maintain your competitiveness in the high-end segment of the IT market? Finally, regarding your IT LCD efficiency planning, what steps will you take to enhance profitability moving forward?

Yes. I am Ahn Yu Shin. I'm in charge of Medium Display. Responding to your question, originally, we were looking forward to some positive impact coming from the replacement demand and the discontinuation of Window 10 having triggered the market demand in the high end as well as the B2B market. However, at this point, with the talk of the reciprocal tariff that will be imposed by the U.S. and with the prolongation of the macroeconomic uncertainties, we need to closely and continuously monitor how the demand dynamics change as we go into the future. Depending on the decision on the imposition of the tariff by different countries and the extent of that tariff, the actual impact could surface quite differently depending on which product segment you're talking about and depending on different geographies. Thus, there is potential for continuous volatility to emerge in the downstream market. We are committed to very closely communicating with our customers regarding the market situation and respond accordingly. We have a technological edge in terms of high-end LCD technology that includes IPS Black and next-generation oxide technology as well as tandem OLED that's known for high luminance, low power, and long life. Underpinned by the technological strength, we can offer the most optimized portfolio that best fits the needs of the customer for each of the product segments, and that is the way in which we respond to competition. Going forward, our forecast is that there will be growth from the OLED monitor market on top of the AI PC growth from a mid- to longer-term perspective. Hence, we believe that our capabilities in the mid- to large OLED, especially on high picture quality and low-power solutions, our competitiveness will be further solidified as we move into the future. By bringing such differentiated technologies into the products that we offer, we will continuously lead the market as we have a very solid base of Tier 1 customers, and that really works to our advantage. Across the entire IT segment, the level of competition between and amongst the panel providers is becoming fiercer. However, through stringent cost innovation as well as operational efficiencies and focusing on our top-tier customer base and strengthening our partnerships, we will gradually enhance our profitability.

We will take the final question before we close.

The last question will be presented by someone from UBS.

My question relates to your auto business. Can you provide us some color on what your take is for your short-term and mid- to longer-term outlook for your auto business? Also, what's the forecast for LG Display's auto business growth and profitability going forward?

Yes. I am, Son Ki Hwan, I'm VP in charge of Auto Marketing. If you look at the greater auto market, we are in the gradual recovery phase, but there are certain issues that have newly emerged such as the tariff issue and the slowing of the EV growth. OEMs in Europe and the U.S. have been experiencing quite a bit of stagnation. Because of all these factors, this year, we expect that it will be quite difficult for the overall auto market to report more than 90 million units of vehicles. However, fortunately, if you look at in-vehicle display, regardless of whether a car is an EV or IC, we see on a per vehicle basis, the percentage of adoption of such displays is increasing, and we see an accelerated shift to larger panels. So, we are looking forward to continuous growth this year of the LTPS LCD and OLED market. The auto business since 2020 has recorded a CAGR of around 10% over the past 4 years. From a mid- to longer-term perspective going forward, at least for the next 3 years, we're expecting a steady growth trend. Compared to our peers and competitors, we have successfully transitioned to LTPS LCD and, supported by large-scale OLED orders, we hence expect steady growth. In particular, for our OLED display product, we started with customers in Europe and the U.S., and now we have been able to expand to customers in Korea and Japan as well. Going forward, in 3 years' time, we are expecting to triple the revenue compared to where we are today. We will actively leverage new technologies such as pillar-to-pillar display, switchable privacy, and tandem, which are OLED and LCD differentiated technologies that we have. Supported by these new technologies, we will further strengthen our top-line revenue as well as our bottom line and solidify our leadership in the market.

This brings us to the end of the earnings call for the first quarter of 2025. If you have any unanswered questions or additional questions, please feel free to contact us at the IR team. Thank you very much.