LG Display 1Q17 results +2
One of the reasons I follow LG Display is for information about
the display and mobile markets, which affects other companies.
The LGD conference call, which I've listened to twice now, gives
some clues about how the market will progress, even though it
doesn't change my outlook for LPL. For instance, it's very clear
that AMOLED demand is exceeding even management's expectations,
but equally clear that management intends to be conservative about
investing to add new capacity unless customers subsidize the
Thus, even though management affirmed that 70% of CapEx will go
toward AMOLED, and that the transition away from LTPS LCD is now
irreversible, the company will still only make 300K AMOLED TV
panels per quarter in the 1st half of this year, and 500K per
quarter in the second half. To put that in perspective, the
industry has been shipping over 60M TVs per quarter lately. The
reason that management is sticking to this strategy for now is
that it can enjoy high margins (one analyst cited 20%!) on its
legacy LCD products, due to LGD's unique tech, scale and the
reliability that goes with that, versus the attrition that has
occurred through the rest of the industry.
For the record, that's just as I predicted when I first
recommended LPL 2 dividends, 2 years, and 40% ago. Again, this
measured approach is smart but not necessarily the sort of thing
that is going generate great returns for investors in a
growth-focused market from LPL's current price. I could see
holding shares in some situations, due to the potential upside in
LGD's AMOLED business; management did say that various options are
being explored and my guess would be that the rumored investment
from Google will materialize, possibly followed by one from Apple.
The situation also makes a rumor
out of Taiwan about collaboration between LGD and AU Optronics
more interesting. Similarly though, while I was perfectly
willing to deploy capital a year ago, when AUO was over 60%
cheaper, that's no longer the case in the current market or at
current prices, especially when there are better options
LG Display has reported its first quarter results:
These figures were calculated using the current conversion rate of 1126.55 KRW to USD.
- a net profit of 84 cents per ADR beats by 34 cents
- on sales of $6.3b, which beats by $100M
Demand and pricing for large-screen TV panels was particularly strong, accounting for 43% of revenue. Production area and pricing expected to remain at similar levels for the current quarter. Mobile devices were 26%, tablets and notebooks 16%, and desktop monitors 15%.
Although this report beats consensus expectations handily, it's less of a beat than the prior report and my guess is that the effect on LPL will be even more limited, given that the state of the display market has been well understood. Next quarter may be more interesting, as sales from new TV partners begin to roll in.
All content is the opinion of the author, rather than investment advice.
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