lg display co., ltd. (lpl) management on q2 2019 results - earnings call transcript
At 3: 00 a. m. on July 23, 2019, ETCompany attended the second quarter 2019 earnings conference call
Matthew Kim, chief financial officer, Hee Suh-TV market
Song of rights-strategy and marketing GroupConference is called participipantsdongwon Gold-KB securitieson Youzhong xishuo investment and SecuritiesJong yo Korea Gold-Daiwa capital investment and SecuritiesNicolas Gaudois-UBSSK MarketKim Heeyeon [
Foreign languageGood morning.
This is Kim Heeyeon in charge of LG Display IR.
On behalf of the company, let me thank all the participants in this conference call.
The CFO of DH Suh joined me today; Young-
Responsible for the rights of the strategy and marketing team; I’m Sing-
Min responsible for the company\'s business management;
Matthew King of TV marketingKi-
Jin Junjun of mobile marketing;
Right to IT marketing;
Daniel Lee from market intelligence
The conference call will be held in Korean and English for an hour, starting with an introduction to 2019 of the financial results and company prospects for the second quarter, followed by a Q & A.
For more details on the financial results for Q2 2019, please refer to the IR demo file on the company\'s website.
For those who join via webcasts, please refer to the details of the widget on the screen.
Please take a moment to read the disclaimer before we start our presentation.
Note that today\'s results are based on the integrated K-
The International Financial Reporting guidelines prepared for your benefit have not yet been audited by external auditors.
Having said that, we will now start with an introduction to the results of the 2019 earnings in the second quarter.
Revenue for the second quarter was KRW 5.
3534 trillion, down 9% month on monthon-quarter.
With the increase in macro uncertainty, the purchase of manufacturers and retailers has become more conservative, resulting in a decline in panel prices.
And one more-
Costs incurred to strengthen the mobile sector\'s business capabilities and prepare for the future have increased operational losseso-Q to KRW 368.
The second quarter was 7 billion.
The OP margin is negative 7% and the EBITDA margin is 9%.
Income before tax minus 442 won.
4 billion net income minus KRW 550. 2 billion.
The huge net loss relative to pre-tax income is due to a reduction in deferred tax assets that will be deducted from the investment tax.
Next is regional shipping and ASP.
Regional shipments in the second quarter were 9.
4 million, 1% lower than our guidance.
Conservative purchases by TV and IT customers have led to lower pricesthan-
Large shipments are expectedsize products.
ASP in the mixed area was $456, down 14% month on montho-Q.
This is due to changes in the seasonal product mix, as well as a decrease in the price of TV panels later in q2.
Capacity growth of 2% in the second quartero-
Q: due to the standardized maintenance and R & D part.
Revenue in the second quarter, mobile and other applications accounted for 19%, down 6 percentage points from the previous montho-
Due to the seasonal nature of smartphones and wearable devices.
The share of laptops and tablets is 22% and the display is 18%.
TV revenue accounted for 41%, up 5 percentage pointso-
Despite the rise in the share of oled TV, panel prices have declined.
Next is the company\'s financial position and ratio.
Inventory at the end of the second quarter was KRW 2. 5692 trillion.
Q fell slightly-o-Q.
The company plans to manage inventory and value in a conservative manner.
Financial ratio, liabilities-to-
Equity ratio and net liabilities-to-
The equity ratio rose slightly Q-o-
Continue to invest in the OLED market.
As we finish the medium term, the financial ratio will gradually increase from the end of this yearto long-
Cash flow at the end of the second quarter is KRW 2.
5018 trillion, almost unchanged Q-o-
Q. Due to the continuous investment of OLED and financing from outside.
Next is the company\'s guidance on 2019 in the third quarter.
Regional shipments are expected to grow in the medium term in the third quartersingle-
Percentage of numbers.
Due to macro factors, there is a risk of volatility in demand, but there are also some positive factors, such as the operation of new oled TV factory and plastic OLED factory and the introduction of high-techIT products.
As for the mixed area ASP, the decline in panel prices is expected to slow down.
Due to conservative sourcing from retail and fixed products, panel prices have been falling since the end of the second quarter, but major panel suppliers will be able to move to conservative operations to maintain profitability.
For the company, we expect hybrid ASP to grow by about 10% as small and medium plastic OLED panels are shipped.
Next is Suh Dong, chief financial officer of the company-Hee. Dong-
Hee SuhGood told shareholders, investors and analysts from home and abroad in the morning and afternoon.
This is DH Suh, chief financial officer of LG Display.
After the second quarter financial performance presentation, I will now introduce the market review in the second quarter, as well as the company\'s strategy.
As we all know, the second quarter was characterized by industrial and macro issues.
The unpredictable nature of America\'s continued existenceS. -
China\'s trade conflict appears to have led manufacturers and retailers to remain conservative.
Assuming the trend will last for some time, we are planning the scenario.
One example is cash flow in the second quarter.
Although there is more than 2 trillion won of investment cash outflow, we limit the loan to about 600 billion won through strict internal control.
For finance, we will maintain a prudent cash management position in the worst case
Focus on innovation cost structure.
The third quarter and second half of this year will be very meaningful for the company, although there are still concerns about industrial and macro issues.
When this is the visible result, we will look at it first.
Large investments have been made over the past three years to get rid of the excess supply of structured LCD.
First, the OLED factory in Guangzhou, China will be put into operation.
By the end of this year, this will nearly double our production capacity and increase OLED shipments by 30% in the second half of this year-on-
Half of 40% years. on-year.
In particular, MMG technology, which has been successfully applied to domestic Fab, will be extended to our Chinese factory to significantly increase production in oversized sizes such as 55 inch and 77 inch.
This will meet the demand for large sizes in the high-end market
Terminal market, accelerate the pace of OLED to become a new trend.
As for the product lineup, transparent OLED will be added based on existing wallpapers, Crystal sounds and scrollable.
Market response before listing positive.
With the unique features of transparent display, we will strive to expand the application of differentiated OLED products.
Second, the full launch of mobile plastic OLED.
Paju\'s new plastic OLED plant will be put into operation, while the Gumi plant will increase supply to multiple customers.
As sales grow, it will start contributing to profits in the second half of the year.
There are still disadvantages in the business and competitive environment, but we will consolidate our position in the mobile business by taking advantage of the basic advantages of LG Display.
Third, we will launch the first plastic OLED display for cars.
Plastic OLED fab, which has been focusing on only mobile products, will now start producing high
End car products.
The company will consolidate its dominant position in the automotive display market through overwhelming and differentiated value propositions such as design, weight and spatial freedom.
Based on these three outputs, we will transform our business structure from large to small to the only overall solution provider in the OLED field.
Under this vision, we will continue to follow the following objectives:
Increase investment in 10. 5G OLED plant.
Following the announcement of investment in the backboard in 2017, the board decided yesterday to invest in the evaporation line.
We have conducted extensive verification of these 10.
5G equipment and technology to confirm its potential.
We plan to lead the expansion of super-large and new markets based on cost and production efficiency of 10. 5G.
We will combine with differentiated high-end products such as wallpaper, CSO, rolling and transparent OLED to further enhance the leadership of OLED.
Taking into account the additional investment of 10 years.
5g has been considered with backboard investment in 2017, and capital expenditure this year and next year is not much different from our communication with the market.
It plans to reach 8 trillion won this year and then halve it in the next two years.
Next is the LCD business.
Even if demand volatility increases, excess supply continues to increase.
The company plans to make various efforts and rationalize beyond the adjustment of utilization rate.
In our 3-generation 8 LCD range in Korea, one has been converted to oled TV, and the other focuses on high-end, IT and business.
For the remaining ordinary LCD production lines, some conversion scenarios are being considered, as well as the best time to maximize future value and improve profitability.
As we approach the final verdict, we will review the matter thoroughly and actively communicate with the market.
Finally, the latest issue of Japan\'s export regulations.
So far, there is no concern about a significant impact on the company, but we are preparing to ensure uninterrupted procurement in the short term and diversify the procurement channels in the medium term.
Please understand that given that the predictability of the situation is beyond what is known, this is the extent to which we communicate on this issue at this point. To conclude.
This year will be the year we begin to finish-
Continued massive investment from 2017 is also the time when we will see the result of such hard work within us, however, it is also a very uncertain moment, such as the intensified competition in LCD prices, the United StatesS. -
Trade friction between China and Japan and export control
We will focus on OLED and double-
We rely on our internal innovation to overcome challenges at home and abroad.
We will strive to communicate better performance to the market through the hard work of all members of the company. Thank you.
Kim heeyeonthe let\'s close the 2019 earnings report for the second quarter.
We answer questions now.
Operator, please start with the Q & A session. Question-and-
The first problem is the securities of the East yuan gold KB.
Please proceed, sir.
I\'m Kim from KB Securities.
I have two questions.
First of all, you plan to release CBs worth about $0. 6 billion.
So is the purpose of this issue to invest in P10?
The problem associated with this is P10 capital expenditure over the next 10 years.
Will this be entirely borne by LG Display, or will there be a strategic customer or strategic partner who will share capital expenditures as well?
The second problem is the application of MMG technology in Guangzhou factory.
So do you also have plans to apply MMG technology to the pozhou plant?
Also, I know the application of MMG technology in Guangzhou has been delayed compared to expected.
What do you think is the biggest technical barrier to applying MMG? Dong-
This is the chief financial officer.
Yes, I am aware of some media reports that a $0. 6 billion CB was issued in 10 or 10 generations.
5, but now invest 10.
It has been planned for a while.
Most of the investment will take place between 2020 and 2023.
This is already reflected in our capital expenditures.
Investments starting in 2020 will take place within the EBITDA level.
So no decision was made for the release of the CB, yes, a lot of options are being considered.
So, I would say that this is one of the many options that LG monitor is considering, and it doesn\'t have a direct relationship with 10. 5G plant.
About your next question, about whether the capital expenditure is 10.
5G may be shared by strategic investors: So that\'s how I understand your problem.
Again, no such decision was made here, but as I explained earlier, we plan to invest within the EBITDA level.
At this time, we believe that LG Display will be able to afford 10 capital expenditures. 5G.
Having said that, I would also have to add that for OLED, it\'s not just a TV, it\'s also the case where it works.
Therefore, we are also looking for customers with various applicability.
In the process of expanding applicability, if there is an opportunity to cooperate in a strategic relationship, then we will always be open to this opportunity.
So if something happens and if something more specific happens then we will always be actively communicating with the market.
About your second question, about MMG.
You said that you have been told that the time to apply the MMG technology to the Guangzhou factory has been delayed.
Well, as far as I know now, there is no specific problem with the application of MMG in Guangzhou factory.
So now, they have finished the installation of the equipment, so they are ready for mass production.
Once mass production begins, the application of MMG technology will also begin.
Then, about whether there are any obstacles to applying MMG to 10.
5G, now it is only a technical obstacle in 10 aspects. 5G itself.
Therefore, we do not consider the MMG itself to be any particular bottleneck. Operator[
The next question will be investment and securities won by Shuo Zhongxi.
Please continue with your question.
There are also two issues with Suk ChungI.
First of all, Samsung Electronics recently launched 2 LEDs in the North American market, enjoying a very positive discount.
Now, this has also raised some concerns in the market about the oled TV camp, such as LG Electronics and Sony, which have an impact on profitability.
Now, the target for next year is 7 million units, but this year, there are some talks about the possibility that TV makers will reduce oled TV orders and shipments.
So, will this also have an impact on LG Display\'s OLED shipments?
Is the plan for 7 million units next year still valid?
The second problem is that as the price competition for LCD monitors increases, then, it may mean that LG Display has to increase its cost-competitive first in order to be able to reduce the price.
So when do you believe 10 about this.
Will 5g be put into operation?
Also, when do you believe-the second line announced today, and when do you believe this will be put into operation as well?
I\'m Matthew Ginno, who is in charge of TV marketing.
Regarding your first question now, let\'s take a look at some data first.
Therefore, excluding North America, the growth rate from January to was about 30%.
As a result, our sales have grown by about 30% worldwide.
That said, perhaps in North America, the growth rate is a bit low, but in other regions it is still about 30%.
This figure is roughly similar to our plan and expectations.
Therefore, even if the pricing of OLED and LCD TVs is lowered, we see a very limited impact on the pricing of OLED TVs.
So-this is because of high-
The final product from the consumer and the fact that we are able to meet this high demandend products.
So this is what we will continue to do.
Therefore, we will continue to expand our product lineup so that we canend TV market.
Let me say in Korean that a growing cat will not make it a tiger.
So we are going to continue our course and our plan is 7 million units next year.
Given the current pricing level and what we plan to do, we are confident that we will be able to achieve our target for next year as well. Dong-
So this is the second question the CFO answers.
Now in 2017, when we first decided to invest in the backboard, we have announced 30,000.
In the next time
We plan to invest 45,000 fab now.
The reason we plan 45,000 fab is that after extensive review, we conclude that this is the scale that gives us the best investment efficiency.
As disclosed, we will strive to complete 45,000 in early 2020.
At the same time, of course, we can operate 30,000.
When, of course, we have our internal plans, but due to the volatility of the situation, it is not appropriate for me to give you a decisive time at this point.
But I can tell you that this is not very different from our original plan.
We will share more details with you at a later date. Operator[
The next question will be provided by Yoo Zhong Yu of Korea Investment Securities Corporation.
Please proceed, sir.
I have two more questions, the first one is about the price of the LCD panel.
We have seen television panel prices continue to fall since June, so we think it is also deteriorating the profitability of the company.
Of course, the CFO mentioned earlier that you are thinking about how-the strategy for the operation of the LCD fab, but in the last two years we have heard almost the same thing, you are reviewing and considering the strategy for LCD fab operations.
At the same time, we believe that panel prices continue to fall as profitability increases, so, when do you think-and when-or what kind of circumstances will trigger you to make a final decision?
So if you can give us some explanation about the environment, let you make the final decision.
The second question is about your plastic OLED production line.
Can you share with us the operation plan of the plastic OLED production line in the second half of this year?
So there are two lines in E6, so how do you plan to operate these two lines in the second half of the year?
So maybe you can explain it by app or client. Dong-
Hee SuhAnd then now-first now, about the first question.
So I know, how are we going to operate fab even if the LCD price is falling?
You also mentioned that in the last two years we were just reviewing the options and did not take any action.
In terms of how to operate fab, I think it\'s simple from a business perspective.
So it\'s about whether the company is profitable.
What we have basically been doing is looking at the cash flow expected in the future.
I believe that the final decision has not been made so far, because there has been no situation so far that large-scale restructuring of fab is required.
So the question is will it be the same on the road ahead?
Of course, it may not, so we have to watch cash flow closely.
If it does fall to a negative value, then we have to look closely at the low-margin fab, but we have to keep in mind that the decision of one factory will also affect other factories.
So when we look at the Fab again, we have to look at most of them carefully.
Of course, the standard is very clear. It is about cash flow.
Your second question, about the operation of the plastic OLED production line.
As you know, yes, we have plastic OLED production lines in Gumi and pozhou.
Gumi\'s factory is made for mobile and automotive products and, as reported in the newspaper, is also made for it foldable products.
Paju\'s plan so far is to focus on mobile.
Of course, the factory of Gumi has already started operation.
As I mentioned in my previous speech, we-the Gumi factory will increase production for multiple customers, multiple strategic customers, and therefore, it will have to increase production in the future.
Then for Paju, which is about to be put into operation, it seems that it is expected or assumed that all 30,000 will be put into operation, however, we must first prepare all the lines, then start using lines that ensure credibility or reliability.
So all we need to do is start with something reliable.
So that\'s how we intend to start the operation of the Paju production line. Operator[
The next question will be provided by Nicolas Gaudois from UBS.
Please proceed, sir.
Good afternoon, thank you for answering my question.
Earlier you mentioned you-in terms of the adjustment of the large size of the LCD --panel Gen 8.
You can, including the adjustment of capacity utilization.
Can you please let us know if you have started or plan to adjust the utilization of Gen 8?
5 LCD is currently specific, if so, how much will there be in the future?
Second, could you please clarify what you said on the ramp?
Can rgb oled be used when you talk about reliable operations or lines?
So, can you be more specific about how you will gently use the capacity of 30,000 sheets per month between your smartphone, wearables and your car? Thank you. Dong-
Hee SuhNow answers your first question about the utilization adjustment of the LCD Gen 8. 5 plant.
Of course, we must continue to observe the needs of the future.
Therefore, we should not produce and simply pile up our inventory without demand.
So yes, we also made some utilization adjustments in order to adjust our inventory level as well.
What we have done so far is to leave the device idle for a day or two, but the question now is whether this utilization adjustment is sufficient to cope with the current decline in LCD prices and the increased competition in the LCD market.
That is what we are trying to solve right now.
Therefore, this means that we have to consider various options, including possible suspension of production line operations if required.
Regarding your second question, regarding the reliability of the line, how do we know whether certain lines are reliable or not.
Now let me explain first that it is a combination of different component equipment for any production facility or production line, so we must first check whether each component equipment will achieve the purpose, whether the quality and output will meet our expectations as well.
So we have an internal process to check this reliability.
If we do not complete the inspection of this reliability, or if the Lien does not meet our reliability standards, then we will not start the operation of this line. Operator[
The last question will be provided by SK Kim of Daiwa Capital Market.
Please continue to answer your questions.
SK KimI has two problems, too.
It\'s about Paju first now, so it\'s extra.
So you decided to make an additional investment in Paju\'s P10.
So I just want to know the reasons behind the extra investment decision.
So now you\'re preparing for 10.
5g oled TV panel.
When you-when the company initially announced its investment in 2017, there was some mention of a 10-year technical bottleneck or technical barrier. 5G.
So do you now think that this technical bottleneck has been eliminated or eased?
In connection with this, there are also talks about your competitors entering the oled TV market now.
So is this also a move to control competition, or do you think this is a new opportunity?
The second problem is that with the uncertainty of market demand, LG Display has invested in oled TV and plastic OLED at the same time, which means that the company is facing a considerable cost burden.
You have explained capital expenditure-so with the decision to invest extra, it won\'t change your capital expenditure this year or next.
Therefore, this means that the investment originally planned in other areas will be reduced.
Or does this mean that this will be reflected after 2021, which means that capital expenditure will increase significantly from 2021? Young-
This song is young now.
Be responsible for strategy and answer your questions.
Now about 10.
5G, our technology, the technical direction is basically white OLED.
About the 10th.
5G, we have done a lot of preparation for the backplate oxide since 2017.
What we are preparing now is 10.
5G for evaporation equipment.
So we prepare the evaporation equipment on the 10th.
5G, we have decided to increase our investment because we believe in the potential of this technology.
Not only are we based on the technological potential, but we have decided on additional investment for 10 years.
5G, but it also looks long
So what I mean by the portfolio strategy is because of the scalability of OLED.
So when it comes to the size-transparent and scrollable products, we believe for 10 products.
This will be the best size to support this scalability.
That\'s why we made this decision this time. Dong-
This is the question that the chief financial officer once again answers you about capital expenditures.
Your problem is that we are investing in these 8 projects. 5G and 10.
Also talked about the impact of 5g on our capital expenditure plan, but let me reiterate that this is part of our initial plan.
So you also asked this question-is there an additional investment in 10.
5g will come at the expense of other investments, but as you know most of the major investments this year have been completed and all we have left is some of the current investments.
Then 10 for the investment.
5G, this is to consolidate us in the big-size OLED.
So let me reiterate once again that we are moving forward as planned. Operator[
We will close the 2019 earnings call for the second quarter.
Thank you again for joining us today.
If you have any other questions, please contact the IR team. Thank you.