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LG Display earnings call +4

12:30 27-Apr-15

Correction: 2 Korean shares = 1 LPL ADR.  So, the operational profit per ADR below should be "nearly $1", not $2.

LG Display has reported revenue of 7 trillion KRW, which beats by 3b
Operating Profit was 774 billion KRW handily beating consensus by 284b

774b/357.8M shares outstanding = 2163KRW/share

1 LPL ADR equals 2 Korean shares, so using a conversion rate of 0.00092 KRW/USD LG Display profits for the quarter amounted to nearly $2 per ADR.  On an annualized basis, that makes LPL look quite cheap; a P/E ratio of 10 might typically be considered fair value for a U.S. manufacturer.  However, the next quarter is seasonally lower and almost 20% of this quarter's gain came cost cutting.  Other improvements were due to a higher margin sales mix and, to a lesser extent, the predicted currency gains. 

In terms of product segments, TFT-LCD panels for TVs accounted for 41% of revenue in the first quarter of 2015, mobile device panels for 25%, tablet PCs and notebook PCs 17%, and monitors 17%.  This means that AMOLED televisions did not contribute meaningfully to revenue.  The company did state that it plans to continue targeting the high-end market with these products.  It expects that process to accelerate this year with "technology developments and improvements in productivity".

I'm sorry it took me a little bit to get this out.  In this case, going over the report took some time, because the transcript had errors and some key points that were marked as inaudible.  I wanted to listen to the replay of the audio for more color.  I think that proved to be useful.

For instance, at one point in the Q&A, an analyst asked about the production targets I've written about.  The transcript simply repeats the party line of 600K for this year, but in the audio the initial answer is the 500K that I referenced, and it is then corrected after input from the background to 600K.  There is a tendency for upper management in the chaebol to put a good face on everything.  However, reading between the lines, I believe the reports of yield problems (a direct question here was dodged) on UHD AMOLEDs, and delay or at least uncertainty on the timing of production expansion.

None of this should obscure the fact that LG Display had an unexpectedly good quarter financially.  I'm just noting that it may not be completely clear sailing for LG Display going forward; the company seems to have more work to do on improving its AMOLED manufacturing processes, and then cutting deals with others.  With regards to the impact on stocks, I think the difference should be that LPL is fairly cheap, and will be offering a dividend, whereas OLED has become quite expensive.  Valuation is always my prime guiding principle.

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All content is the author's opinion, rather than investment advice.

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