LG Display Co., Ltd.

Hello, everyone. Thank you for joining us today. We will now begin the LG Display 2021 1st Anniversary Performance Announcement Conference Call. This conference call will be held with the investors who participated in the LG Display Announcement and will have Q&A time. If you have any questions, please press the star and number button on the phone. Good morning and good evening. First of all, thank you all for joining this conference call. And now, we will begin the conference of the fiscal year 2021 first quarter earnings results by LG Display. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press star 3. that is star and 3 on your phone during the Q&A. Now, we shall commence the presentation on the Fiscal Year 2021 First Quarter Earnings Results by LG Display.

Hello, I am Lee Tae-jong, the CEO of LG Display IR. I would like to thank all of you who participated in the conference call for this quarter's earnings results.

Good afternoon. This is Daniel Lee in charge of LG Displays IR.

On behalf of the company, let me thank all the participants at this conference call.

Today, I am joined by the CFO, D.H. Seo, Hee-yeon Kim, Senior Vice President of Corporate Strategy Group, Seung-min Im, Vice President of Corporate Planning, Stephen Ko, Vice President of TV Marketing, Jae-young Kwon, Vice President of IT Strategy and Marketing, and Ki-hwan Son, in charge of Auto Marketing.

The actual presentation will be in Korean for about an hour. 2021년 1분기 경영실적 및 2분기 전망에 이어서 질의응답 순서로 진행하도록 하겠습니다.

The conference call today will be conducted for one hour in both Korean and English, starting with the presentation on the financial results of Q1 2021 and the company's outlook for Q2, followed by Q&A.

1분기 실적과 관련된 상세 자료는 Please refer to the IR presentation document in the company's website for more details on the financial results of Q1 2021.

For those joining through the webcast, please refer to the details on the widget on your screen.

Before we begin the presentation, please take a moment to read the disclaimer.

Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not been audited yet by an outside auditor. With that said, we will now start with the presentation on Q1 2021 earnings results. Let me start off with our business performance in Q1.

Revenue was down 8% quarter-on-quarter, reporting $6,883,000,000.

Solid demand and price increase continued for large products, but mobile shipment decreased due to seasonality. Operating profit was 523 billion won, decreasing QOQ on the back of reduced mobile shipment.

Operating profit was 523 billion won,

Operating margin was 8%, with EBITDA margin at 24%. Net profit was $266.1 billion. Next is area shipment and ASP.

Despite the seasonal decline, the medium-sized panel demand continued,

Area shipment in Q1 was 8.54 million square meters, down slightly from 8.66 million square meters of the previous quarter. Demand for medium and large size panels stayed strong despite the seasonality. With seasonality affecting mobile panels, ASP was $736, marking a decrease of 7% QOQ but increase by 30% YOY. The company's production capacity in Q1 increased 3% QOQ as we respond flexibly to market demand. Next is Q1 revenue breakdown by product segment.

In terms of the revenue breakdown, IT panel accounted for the highest portion at 40%, and TV panels, 31%.

Mobile and others accounted for 29%, down 5 percentage points quarter-on-quarter due to reduced shipment of small to mid-sized OLED panels. Next is the company's financial position and ratios.

The company's financial position and ratios.

The company's cash and cash equivalent at the end of Q1 was $4,352,000,0001. Inventory was $2,352,000,0001, increasing by $181,000,0001 as we preemptively responded to parts shortage. As for financial ratios, liabilities to equity ratio was 175%, and current ratio was 101%, remaining unchanged to QOQ. Net debt-to-equity ratio came in at 75%, posting an improvement, QOQ.

Cash flow was up 55 billion won quarter-on-quarter, coming in at 4,352,000,000,000 won at the end of Q1.

Borrowings decreased by 214 billion won QOQ.

Next is presentation by the company's CFO, D.H.

Saw.

Good morning. This is D.H. Saw, CFO of LG Display. Before presenting on Q1 performances, I would like to thank all of you, our shareholders, investors, and analysts for your unwavering support, even as uncertainties continue from the extended impact of COVID-19.

그러면 1분기 실적에 대해 말씀드리도록 하겠습니다.

I will now brief you on the company's Q1 performance.

근본 1분기는 계절적 비수기임에도 홈 이코노미 트렌드에 따른 TV 및 IT 제품군의 수요 조가 지속되었고, 산업 내 부품 수급 이슈 영향 등으로 LCD 패널 가격 상승세가 예상 대비 확대되었습니다. 이에 따라 경영 실적은 전분기에 이어 견조한 성과를 이어갔습니다.

Despite the seasonality, strong demand continued for TV and IT products, along with the stay-at-home economy trend. LCD panel price rose more sharply than expected due to such issues as part supply. As such, financial performance this quarter remained solid from the previous quarter.

The sales decreased by 8% in the previous quarter due to seasonal factors, but increased by 46% in the previous quarter. 1분기 수준으로는 평년보다 높은 6조 8,830억 원을 기록하였습니다.

Revenue fell 8% QOQ due to seasonality, but it was higher by 46% YOY. It was 6,883,000,000,000 higher than in other years in the first quarter.

손익의 경우에는 글라스, In terms of P&L, the company achieved 8% operating profit margin by responding agilely to market opportunities, even as concerns grow over parts supply in the industry.

such as glass and semiconductors. EBITDA margin was 24%, staying at 20% level since the last quarter.

Corona 19 caused a change in lifestyle, OLED만의 본질적이고 차별화된 가치가 고객과 최종 소비자들에게 보다 확실히 인식되고 있다고 판단합니다.

In particular, the most meaningful achievement in Q1 was sales of OLED TV. Despite the seasonality, it recorded 1.6 million units of shipment, which is on par with the peak season level in Q4. With the changes in lifestyle triggered by COVID-19,

Customers and end consumers are clearly seeing the fundamental and distinct values of OLED.

The company's IT business, equipped with unique competitiveness, has been maintaining stable performance by responding flexibly to the COVID-related demand growth. As for mobile business, we were able to considerably reduce volatility by improving elements of operational stability such as yield and quality, although there was some seasonal impact in the first quarter.

Next is the second quarter guidance.

Next is on the guidance for Q2 2021.

Next is on the guidance for Q2 2021.

In Q2, solid demand is expected for large panels like TV, monitors, and notebook PCs. Area shipment will grow by mid-to-high single-digit QOQ, while ASP is expected to fall by mid-to-high single-digit, feeling the impact of reduced mobile shipment due to seasonality.

From this quarter, semiconductor and other industry-wide supply and demand issues and the risk of rising cost I will try to minimize the influence by increasing the response power.

But our actual performance is subject to market circumstances, especially given the risk of cost increase coming from the parts supply issues such as semiconductors. The company's view on the parts supply situation is that it is a structural issue, not a short-term uncertainty, and thus we are preemptively and carefully reviewing our responses from a longer-term perspective. We will try to minimize impact by strengthening our readiness while keeping a close eye on the market.

다음으로는 각 사업별 향후 전망입니다.

Next is update and outlook for each business segment.

OLED 대세화는 그동안 추진해온 3대 핵심 전략과제 가운데 가장 중요한 과제로 내부적으로는 추가적인 수율, 생산성 개선을 만들어내고 있고 프리미엄 시장에서의 판매 물량 확대도 과시화되고 있어서 지속적으로 수익성이 개선될 것으로 예상하고 있습니다.

Mainstreaming OLED is the most important of our three key strategic tasks. Internally, we are further improving yield and productivity, while out in the market, we are trying to drive sales in the premium segment with the goal of improving profitability.

모바일 사업은 For mobile business, growth in sales volume YOY is expected on the back of improved productivity and operational stability.

We will solidify the opportunity for a turnaround by thoroughly preparing for mass production of new models in the second half.

In IT, we are strengthening our partnership with strategic customers based on product and production competitiveness.

we will keep bolstering our market leadership and sustain our profitability.

And in LCD TV business, we plan to remain flexible in our operations and

In response to the changing demand and competitive landscape, we will try to maximize our opportunities within the available resources as we work closely together with customers. Notably, in the second half this year, we anticipate changes in people's consumption patterns following vaccination campaigns and the subsequent improvement in the COVID situation.

We will continue to monitor market trend changes and increase our response power. At the same time, we will continue to improve our financial structure through stable financial management activities.

In particular, changes in people's lifestyles, such as growing outdoor activities, could lead to changes in product demand. The company will closely monitor changes in market trends and strengthen our readiness. We will, at the same time, keep improving our financial position through activities designed to ensure financial stability.

It is hoped that the rollout of vaccines will gradually ease the anxiety and inconvenience brought on by COVID-19.

I do hope for a speedy return to normal. and wish that all our shareholders, investors, and analysts stay healthy and safe. Thank you for your attention.

That brings us to the end of earnings presentation for Q1 2021.

We will now take questions. Operator, please commence with the Q&A session.

지금부터 질의응답을 시작하겠습니다. 질문을 하실 분은 전화기 버튼의 별표와 3번, 별표와 3번을 눌러주십시오. 질문을 취소하시면 별표와 4번을 눌러주시면 됩니다. Now, Q&A session will begin. Please press star 3. That is star and 3 if you have any questions. Questions will be taken according to the order you have pressed star and 3. For cancellation, please press star 4. that is star and four on your phone. The first question will be provided by Jung Won-suk from High Investment and Securities. Please go ahead with your question.

Hi, I'm Jung Won-suk from High Investment and Securities. Thank you for your question. First of all, I would like to ask two questions. The first is that the price of LCD panels has risen so much recently that it seems to be having a very positive impact on the demand for OLED TV panels. I'm wondering how you're going to do the KEPA certification in the medium to long term after the Gwangju line, where the setup is currently being completed, and how you're going to do the KEPA certification in the medium to I would like to talk about whether there is any change. And one more thing. OLED TV sales are steadily increasing, but I don't think you've ever mentioned the turnaround time, so I'd like to ask you to tell me how much you see the turnaround period or the annual black-and-white change in this part. Secondly, if you ask me briefly about the auto display, which you mentioned a lot before, I have two questions.

First is that now we see that the LCD panel price has really increased sharply recently, which also bodes well for the demand for OLED panels. Now, for the Guangzhou line, which has completed the setup recently, I wonder what the company's plan is for the medium to longer term capacity increase. And also, what is the plan for the capacity increase for the mid to small sized panels? Are there any changes in the company's plan in relation to the recent developments? And then also in relation to this, regarding the sales of OLED TV, we also see that the OLED TV sales have gone up quite a lot. But then a little has been mentioned about the turnaround timing recently. So when do you expect the turnaround to occur? Perhaps for the quarterly earnings or for the yearly earnings? And then the second question is about the auto display. What is the portion out of sales of the auto display as it stands now? And then how much do you believe that the company will be able to pull this up in terms of the portion of sales, for example, by increasing the sales of OLED and so forth?

Yes, thank you for the question. I think there are three questions. The first is, as the price of LCD increases, there are various changes in the situation. How are you going to do the KEPA certification of OLED TV? Thank you for the questions.

I detect three questions. Now, first, I believe was that there has been sharp increase in the LCD panel price recently. So given the changes in the situation, what is the company's plan for capacity increase for OLED TV as well as for the small to medium-sized panels?

First of all, when it comes to OLED TV, there is a lot of market data, but after the second half of last year, in the COVID-19 situation, the time for consumers to stay at home has increased, and I think we have begun to recognize the value of OLED. So overall, The TV market has increased significantly compared to the previous year. We can see that the market growth of OLED TV has increased significantly compared to the previous year.

Now for the OLED TV, I would say that the market data tells the good story because since the second half of last year, as people have longer time staying at home, we believe that the consumers are also now discovering the true value of OLED TV. So when we look at the TV set market and there has been growth in this market, And we also see the same trend continuing in the first quarter of this year from the market data. And we also see that amidst this growth, the OLED TV growth has been outpacing the growth in the overall TV market.

I will make sure to share it with you as soon as possible.

So currently we have a positive view on the market and also regarding the OLED TV's competitiveness. But having said that, of course, the market is always subject to change. And also especially with the signs of the pandemic easing, then it could also have changes on demand. So we would keep a close eye on the market situation into the second and the third quarter of this year. and then would make the decision on whether we will be having a further expansion of our capacity or not. And once we have such a decision, then of course we would communicate with the market.

As you all know, we have 30K in Paju and 15K in Kepa. So we are moving towards maximizing productivity in the Kepa area.

Regarding the question on whether there have been any changes on our plan for the capacity for the small to mid-sized plastic OLED, as you know, we have 30K capacity in Paju and 15K in Gumi. Our plan now is to maximize our productivity from the existing capacity So this means that at this point, no decision has been made regarding increase in the capacity of the small-to-mid-sized plastic OLED.

Next, the second question is about the turnaround time of OLED TV. When will the time of the turnaround be? As I mentioned earlier, the market situation of OLED TV, and then we are making a lot of efforts to raise the demand internally and improve the quality, and there are a lot of good signals from both sides. I will comment on when the black market will change specifically, and when we can get a lot of profit from now on. I will comment on when the black market will change specifically, and when we can get a lot of profit from now on.

Moving on to your second question about the expected turnaround time for OLED TV. Now, I understand that the question was on when OLED TV business will be able to turn around to profit, perhaps which quarter within this year. Now, for the OLED TV, we see that the market is doing well, and also we are trying to improve the yield as well as the quality in order to keep strengthening our competitiveness. And we are getting good signals out of those both fronts. And as to when we will be able to turn around to profit in the OLED TV business, it is difficult for me to pinpoint the exact timing, but I can tell you that we are moving in the right direction.

The third question is about our auto business. Last year, after COVID-19, The auto industry is facing a lot of difficulties due to the fast-growing market and supply issues. Despite these difficulties, we were able to increase our stock price by 7.6 billion won at the end of last year, but we were able to increase it to 8.8 billion won this year. . . . . . . . I think there will be a lot of additional supply opportunities in the plastic OLED side of the display, which is the most optimized display for electric vehicles. So, rather than the fact that the auto business is contributing to our company right now, I think it will be more important to see how it will grow into a company-wide business in the near future.

Now, on to your third question about the auto display. Now, I would say that the auto market was probably one of the hardest hit from the COVID-19 pandemic, and also the market suffered recently because of the issues with the semiconductor supply. But despite the difficulties, the company was able to increase our orders for the auto business significantly. to $8.8 billion as of today from the $7.6 billion at the end of last year. And then now down the road, so this is actually inclusive of the plastic OLED, which we will be further focusing on in the future as one of the key business. So we are currently watching the auto display business as we continue think about how much further it can grow and how much of a significant revenue source it can be for the company. But what is clear at this point is that EV sales continue to grow, and the assumption or the expectation is that the EV sales will further pick up pace in the future. If that is the case, then the plastic OLED, which we believe is the display that is best suited to EVs, stands to bring further growth stands to bring bigger orders to the company. So we believe that this will be a very good opportunity for our automotive display business. So the question for this is, the question for automotive display is not how much it is going to contribute now, but how much we can grow this business in the future for the longer term so that it can become a key business for the company.

다음 질문 받도록 하겠습니다.

다음으로 질문해 주실 분은 하나금융투자의 김현수님이십니다. 질문해 주십시오. The following question will be provided by Kim Hyunsoo from Hana Financial Investment. Please go ahead with your question.

네 안녕하십니까. 하나금융투자의 김현수입니다. 질문 주셔서 감사합니다. 저는 Yes, there are two parts. Sorry, can you hear me well? Yes, I'll do it now. Yes, I can hear you well. Yes, thank you. First of all, in the process of shutting down the lcd and now limiting the mobile quality capa, we need to look forward to the white quality in the future. So now, I'm curious about the schedule of White Wallet. In 2022 and 2023, I think that the CapEx plan, which is required to reach the 10 million level, which is the goal, will be shared between the 2nd and 3rd quarter, as you mentioned earlier. I have questions on two topics.

Now, with the shutdown of part of the LCD production, I believe, and also in consideration of other developments, I believe that the company also has to focus more on the white OLED business as a source of revenue. So I was wondering about the schedule of your production ramp-up. So in order to go to like a $10 million by 2023, which is the company's goal, then I do believe that you would also have to increase the production to over the 30K capacity, as was mentioned earlier. And it was, of course, explained earlier that that decision is likely to be shared after the third quarter, but then if you could share with us a more specific schedule regarding the production capacity. And then the second question was about the – it is related to the previous question – About the electronics of the automotive. And regarding the outstanding orders that was mentioned earlier, what is the period of recognizing this as revenue? And also, what is the profitability of the automotive electronics orders?

The first question is... I understood the question by asking you to give us a more detailed explanation of the white-and-red additional CAPA detection point. As I answered the question earlier, we will thoroughly review it, and we will continue to review the 2nd and 3rd quarter, but we will share the correct point of view as it is, and we will divide it into these answers. The second part related to the power plant is that when we receive the supply and sell it, we develop it. The development period is usually different depending on the product, but it takes about a year and a year and a half. The delivery period is different depending on the product and the customer, but it seems to come in between 4 to 6 years on average. However, the projects that are already in the stock market are already in the stock market, so it's a little bit of a burden to say that it's been a few years, but I think you can refer to what I explained. In terms of profitability, this is a long-term stock market business, so considering various exchange rate changes and cost changes in the future,

Now, regarding your first question about the timing of the capacity increase for a white OLED, now, as was explained earlier, we would have to do some further studies regarding this topic. So we would be reviewing the market situation throughout the second and the third quarter. And when we believe that the right timing comes, then we would make the decision either way and communicate this with the market. And regarding the automotive electronics, and the question was when the orders will be recognized as revenue. Now, for the automotive electronics, the process is that we would first receive the orders and then go into development. And that takes about one to one and a half years. and then when the delivery is going to be made, and then also how long the delivery is going to last. That also depends on the product and the customers, but then that could be somewhere between four to six years. So overall, it is quite difficult for us to tell you, on average, what the revenue recognition period is going to be. But then what I can tell you is that you could take into account what I have just explained, And then regarding the profitability, given that this is a long-term business, it could also have the impact of currency or the exchange rate and also the changes in the cost. But then for the profitability, what we target is that it has to be at the level that would be able to also absorb the cost as well as the risks.

Thank you.

Please go ahead with your question.

Hi, good afternoon. Thanks for taking my question. Going back to the automotive display business, could you actually... provide, broadly speaking, a split between what is LCD currently and what is already OLED. Then, secondly, moving to LCD panels, we've indicated earlier that you'll remain flexible in terms of the capacity you'll continue to use for production of TV panels. Should we understand... that you'll continue running the Gen 7 capacity you were supposed to close earlier throughout the year? Or are you thinking already of extending this into 2022? Thank you.

First, I'd like to ask about the auto display. The first question is how much the LCD panel is compared to the OLED panel. The second question is how much the LCD panel is compared to the OLED panel. The second question is how much the LCD panel is compared to the OLED panel. The third question is how much the LCD panel is compared to the OLED panel. The fourth question is how much the LCD panel is compared to the OLED panel. Are you planning to maintain the Gen-5 capacity until this year? Or do you think it is possible to maintain the Gen-5 capacity until 2022? I'm sorry, this is Gen-7. I'm in charge of IR.

First, I would like to talk about the LCD CAPA part. In Korea, the TV market is currently shut down, but P7 is currently operating to respond to the initial demand and commercial demand. LCDPEP is currently operating in the direction of maximizing opportunities within the resources that can be used based on these changes in demand and profitability. In addition to this, we plan to continue to operate in a resilient manner depending on the future market situation.

Now, first, regarding your question on the LCD production capacity, yes, for the TV production capacity in Korea, it has already been shut down. But then for the P7, for the production of ultra-large and ultra-large panels, for this, we are maintaining this. So for the LCD fab, we intend to remain flexible in its operation and try to maximize the opportunities that are presented to us within the available resources. So we intend to remain flexible not only throughout this year, but also perhaps possibly into the future, depending on the market circumstances.

The first question is, how much plastic OLED value do you have? I think it's about 30%. When I was answering the P7 question, I would like to add that the P7 factory continues to operate in response to commercial requests and some customers' requests. The other factories are shut down, but I would like to add that we are not shut down, but we are moving to IT.

And then going back to your question, the first question about the automotive display, the question was about the share of P-OLED and the share of plastic OLED out of the outstanding orders is about 30%. And then to add a bit more to the response regarding the P7 capacity, For the P7 capacity, yes, we are currently maintaining this to deal with the commercial needs as well as the requests coming from certain customers. And then it was explained earlier that we have shut down the domestic production of LCD TV, but then rather than completely shutting this down, we have actually converted the capacity for IT production.

Lastly, I will take one more question and finish.

마지막으로 질문해 주실 분은 다이와증권의 김성규님이십니다. 질문해 주십시오. The last question will be presented by 김성규 from Daiwa Securities. Please go ahead with your question.

질문 기회 주셔서 감사합니다. 좋은 실적 축하드리고요. 저는 IT 쪽에 질문이 있습니다. 지금 보면 IT 패널 수요가 상당히 호조고, And it seems that our company is also achieving high profitability on the IT panel. Recently, there has been a movement in the IT sector to switch from LCD to OLED based on domestic competitors, and next year, there will be a movement to adopt OLED on strategic exchanges such as tablets. What kind of changes do you think the company sees in the IT sector, and what kind of impact will this have on our company's strategy? Currently, you are focusing on differentiating between LCDs. Please give us your opinion on whether there will be any changes. Thank you.

I have some questions regarding the IT business. We see that the demand for IC panels is becoming strong, and this also means that the IT panel profitability is also quite high for the company as well. And we see that more recently, even the domestic peers in the IT side are now showing signs of moving from LCD to OLEDs. and also one of the company's strategic customers are also showing signs of additionally using OLED for their tablet products. So I wonder what the company's take is regarding the outlook for these changes in the IT market, and how do you foresee such changes affecting the company's strategy? Especially given that the company had the LCD focus strategy, do you believe that this is going to change the strategy for the company?

As you all know, the transition from OLED to IT The first case is not a situation that you know well. First of all, we have been preparing since 10 years ago, and the amount of OLEDs is increasing considerably in the large TV. In addition, in the mobile smartphone area, the plastic OLEDs have a wide range of use. Then, in the middle area, large OLEDs, then smartphone OLEDs,

Regarding your question about the outlook of adoption of OLED in the IT products, first of all, as you would also know, I would like to emphasize that it is not the first time in the IT that the OLED is being adopted because with the preparation starting about 10 years ago, We are now seeing increasing adoption of OLED in the TV products. And then also adoption of plastic OLED is increasing in mobile products, especially smartphones. And then now I would say that this really represents the last realm. So between the large products and then the smaller smartphones, now the mid-sized segment, which is the IT products, now this is the last, let's say, frontier for the OLED products.

And then...

Whether small size or large size, given the advantages that are unique to OLED, I believe that it is only a matter of time that they will be adopted in IT products and also the share of OLED will grow among the IT segment.

In that case, in terms of our company's strategy, We've talked about this a few times in the past. Whether it's a medium-sized, large-sized, or medium-sized IT size, we've been making a lot of technical preparations. Especially in IT, when IT becomes OLED and OLED increases, I think it's very important to continue to create the differentiating factors that LCD has. We released such a part last year, but we have judged the potential of the foldable IT product, and I will tell you that we are continuously inspecting the technical potential, production potential, and various aspects. So in this context, as for the company's strategy,

As we had explained several times from the past, we have always been making the technological preparation for all sizes of OLED, either small to mid-size or large size, or now the intermediate size for the IT products. So for the IT products, once the OLED is adopted and once the share of OLED begins to grow, then we believe that we also need to have the kind of differentiated advantages that we have always had for the LCD. And we have also seen the possibilities from the foldable IT products that were launched last year. So in terms of the technological and also the production advantages, we are trying to keep strengthening such advantages that we have. So in sum, the message is that... For the technological advantage that we have enjoyed from the LCD products, I believe that it is important for us to also equip ourselves with the kind of advantages for OLED as well. And that is what we are doing, that we are continuing to get ready so that we will be able to leverage our technological competitiveness once the OLED market takes off in the IT segment as well.

이상으로 LG 디스플레이 주식회사 2021년 1분기 실적 설명회를 마치도록 하겠습니다. 참석해주신 여러분께 진심으로 감사드리며, 추가 질문이 있으신 분들은 언제든지 IR팀으로 연락주시기 바랍니다. 감사합니다.

We will now close Q1 2021 earnings conference call. Thank you once again for joining us today. Please do contact us at the IR team for any additional questions. Thank you.