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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 effort.

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 available.

On 04/25/2017 11:23 PM, Esekla wrote:

LG Display has reported its first quarter results:

  • a net profit of 84 cents per ADR beats by 34 cents
  • on sales of $6.3b, which beats by $100M
These figures were calculated using the current conversion rate of 1126.55 KRW to USD.

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.

Esekla 
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All content is the opinion of the author, rather than investment advice.
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