LG Display Co., Ltd.

Hello, I'm Heo Seok, Director of LG Display IR Room. I would like to thank everyone who attended this quarter's performance announcement conference call. Today's conference call was attended by Chief Executive Officer Kim Seong-hyeon of CFO, Chief Executive Officer Kim Hee-yeon of CSO, Chief Executive Officer Lim Seung-min of Management Management, Chief Executive Officer Son Ki-hwan of Auto Marketing, Chief Executive Officer Lee Ki-young of Business Intelligence, Chief Executive Officer Lee Won-jae of Major Strategy Marketing, and Chief Executive Officer Lee Min-young of Minor Strategy.

Good morning. This is Brian Ha in charge of LG Displays IR. On behalf of the company, let me thank all the participants at this conference call. Today, I'm joined by the CFO, Sung-Yeon Kim, Hee-Yeon Kim, CSO, Seung-Min Im, Senior Vice President of Corporate Planning, Ki-Hwan Son, Vice President of Auto Marketing, Ki-Young Lee, in charge of Business Intelligence, Won-Jae Lee, in charge of Large Display Strategic Marketing, and Min-Hyung Lee, in charge of medium-small display strategy.

The conference call will be conducted in both Korean and English

Please refer to the provisional earnings released today or the IR event section in the company's website for more details on the financial results of Q3 2023. 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 yet been audited by an outside auditor. I will start with Q3 business results.

Revenue was almost flat QOQ in the midst of intense inventory correction continuing in the downstream industries, as demand is slow to recover due to macroeconomic uncertainties, with impact being felt differently by product category like TV, IT, and mobile. Revenue in Q3 was 4.785 trillion won, up 1% QOQ.

There was operating loss of 662 billion won narrowing QOQ and YOY, maintaining the improvement trend.

As the company continues with business structure upgrade, It has also remained on the path of cost innovation and operational efficiency.

Next, on area shipment and ASP per square meter.

Q3 area shipment was up 1% QOQ to 4.77 million square meters. ASP per square meter was $804, up $1 QOQ. 다음으로는 제품별 매출 비중을 말씀드리겠습니다.

TB 부문 매출 비중은 전풍기와 유사한 23%를, IT 부문의 매출 비중은 B2B 수요 회복 지연으로 전풍기 대비 2%포인트 감소한 40%. The sales volume of the mobile and other sectors recorded a 28% increase in the 5% point increase compared to the previous quarter due to seasonal factors. The auto business sector recorded a 9% sales volume that decreased by 2% compared to the previous quarter due to partial adjustment. The sales volume of all OLED products recorded 42%, the same as the previous quarter.

In terms of revenue breakdown by each product segment, TV panel's revenue mix was 23%, almost flat QOQ. IT accounted for 40%, down 2 percentage points QOQ due to delayed recovery in B2B demand. Mobile and others took up 28%, up by 5 percentage points following the seasonal increase in mobile panel shipment. Auto business revenue mix was at 9%, down by 2 percentage points as a result of some shipment adjustment.

OLED revenue mix remained unchanged at 42%. Next is on the financial position and key metrics.

Company's cash and cash equivalent was 4.087 trillion won. Inventory value was 3.349 trillion won, up by 667 billion won QOQ, to prepare for seasonal demand. Key financial ratios were up QOQ, resulting from activities to strengthen liquidity, as well as net loss in the quarter. Debt-to-equity ratio was 322%, and net debt-to-equity ratio, 151%.

With 3.8530 trillion won of basic pension, and 23.5 billion won of liquidity, 기말 현금은 4조 870억 원을 기록했습니다. 다음은 4분기 가이던스입니다.

연말 수요 대응을 위한 TV 패널 출하 증가와

Next on Q4 Guidance.

With increase in TV panel shipment to respond to year-end demand, as well as expansion in the previously delayed IT panel shipment, shipment area in Q4 is expected to grow by a high 10% QOQ. Shipment of panels for smartphones with high ASP per square meter is expected to grow, likely to drive up ASP per square meter by a mid-20% level QOQ. Thank you.

Next, CFO Sung Hyun Kim will walk us through the key highlights. Good afternoon. This is CFO Sung Hyun Kim.

The company was able to narrow the loss in Q3 again following Q2. despite the challenging market environment where downstream demand remains sluggish, by focusing on upgrading the business structure and innovating costs. In Q4, panel inventory adjustment will ease in the downstream industries, and shipment of mid- and large-sized products and panels for new mobile products will grow to respond to the year-end seasonality. Profitability improvement continues. as the company keeps up its cost-innovation and operation-efficiency activities, and turnaround is expected in Q4.

We will continue to strengthen key projects in response to market demand and business environment change, and we will continue to improve our revenue structure through continuous price innovation. In particular, we will continue to improve our revenue structure The company will keep strengthening key businesses to respond to market demand and changes in the business

and improve its profit structure by persisting with the enterprise-wide cost innovation. Allow me to explain more about the OLED business strategy, which I understand to be of high interest in the market. In large OLED, we will broaden our position in the premium TV market and improve profitability by boosting customer portfolios centered on ultra-large products and by innovating cost, for example, cutting material costs in key components.

In the small and medium-sized OLED segment, we are making full use of the latest production capabilities to expand the export of mobile products, and we are preparing the 24-year mass-produced supply system of IT-type OLEDs that apply durable and high-performance OLED technology such as long-life and high-intensity. In small and medium OLED, we are driving shipment of mobile products by fully utilizing the new ramped up capacity.

We are also preparing for volume production and supply of IT OLED in 2024, equipped with the technology marked by higher durability and performance, like long life and high luminance. Over the mid to long term, the pace of OLED penetration is likely to differ by IT product, like monitor, notebook PC, and tablet, as well as by consumer acceptance. And it is important to efficiently utilize the existing infrastructure and respond wisely to varying customer needs and market opportunities.

In the automotive business sector, we will continue to strengthen our position as the world's number one company based on our high-end LCD, differentiated technology competitiveness, thorough quality management, and stable supply and demand.

In automotive business, the company will keep solidifying its world number one position by expanding orders won and revenue based on our unique technology competitiveness that encompasses tandem OLED to high-end LCD, as well as rigorous quality control and stable supply capability.

In a situation where it is difficult to see a real-time recovery, the company strongly promotes improved revenue structure,

With little visibility into the future trajectory of real demand, the company plans to push ahead with intense restructuring of the revenue structure so as to achieve more meaningful performance next year. Thank you very much for your attention.

That brings us to the end of Earnings presentation for Q3 2023.

We will now take questions.

Operator, please commence with the Q&A session. 질문을 취소하시려면 별표와 2번을 누르시면 됩니다. 원활한 회의 진행을 위하여 질문은 한 분당 두 가지 이내로 부탁드립니다. Now, Q&A session will begin. Please press star 1, that is star and 1, if you have any questions. Questions will be taken according to the order. You have pressed a number, star 1. For cancellation, please press star 2, that is star and 2, on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be presented by Sunwoo Kim from Merit Securities. Please go ahead with your question.

Hello, I am Sunwoo Kim from Merit Securities. Thank you for your question. I would like to ask two questions. First, I would like to ask the second question after the first question. First, I know that there was a delay issue in the supply of smartphone panels in the second half of this year. Please tell us how the demand for smartphone panel output in the second half of this year will change according to our existing plan. I would like to ask how the company sees the actual impact of this.

Thank you. I have a two-part question. I would like to ask my first question, then follow up with the second after the response. Now, the first question is about the issues of delay in the second half of the smartphone panel shipment. So I wonder what have been the changes in the smartphone panel shipment in the second half for the company compared to the plan, and also what would be the impact on the company's business performance?

Hello, I'm a CFO. We know that you always think these questions are very important. But what we always say is that we can't tell you specific customer-related information on our own. This is one of the limitations of our industry. First of all, as you can see in the market, there were some other factors related to production, but we overcame them well. In the fourth quarter, as you know, we reduced the production capacity, but we used it as much as possible to reduce the delay. Now, this is the CFO responding to your first question.

And of course, I do realize that this kind of question is important and perhaps necessary, but then I also would have to ask for your understanding that I must give you a stock response, meaning that we are actually not at liberty to discuss issues that are related to certain customers. And this also is, I would say, related to the limitations of the nature of the industry itself. Now, having said that, yes, it is true that as the market is already aware, there have been some disruptions in our production in, let's say, in a form that is different from the past. But then we were able to overcome the issues. And then now going into the fourth quarter, you would know that there have been improvement or ramp-up in our production capacity. So we plan to fully utilize the new ramp-up capacity so that we will be able to make up for the delay as much as possible.

Thank you. I will ask one more additional question. Following the previous quarter, you just mentioned that you will try to convert to black market. In the past, you continued to communicate with the market that you would convert to black market as a result of mobile product export or such water-based business, but I'm still a little curious if you can see a lot of flexibility and visibility. If you convert to black market, it may be a little better, but the interest rate is still high and the interest rate seems to have increased a lot until this quarter. My next question is,

Now, as was the guidance in the previous quarter, it is the same communication, meaning that the company is looking forward to a turnaround in the fourth quarter. So that is, as I understand, on the back of the recovery in the mobile industry. So I wonder whether the assessment or the prediction by the company still remains valid. And does the company believe that there is now some visibility into the achievement of this goal? And of course, if there is a turnaround that is achieved, then perhaps things might improve. But still, I would say that the environment is still challenging. For example, the rates remain high. Borrowings appear to have gone up again throughout the quarters again. So that would also bring up the interest expense as well. So this is by no means an easy environment for the company. And I wonder whether there are any financing activities planned for the company to strengthen its liquidity? And also, how does the company plan to repay its borrowings?

As I said before, we expect a dramatic change in the fourth quarter, and it is still effective that we will work towards that goal. I hope you'll keep an eye on us. In the meantime, we've been focusing on driving price innovation in a very bad market environment. And it was about focusing on influence and trying to improve our profits according to the market situation.

Regarding the turnaround, yes, it remains as our target for Q4, and we keep working very hard toward it. I would like to ask for your patience and support as we continue to work toward this, which remains as a valid target for us. Yes, it is true that the market environment is not easy, but throughout this, what we have been focusing on is to drive cost innovation. so that we will be able to improve our profitability to the level of the market.

As I said before, the company focused on such activities. When the market situation gets better, during the difficult times, especially this time is a bit long and it's true that it takes a lot of energy, but when the situation gets better, We expect that the activities we have done in the past will work in a very positive way. Therefore, our company will continue to strengthen the core business business in line with market demand and business environment change and continue to improve the revenue structure through continuous price innovation in the field.

Again, the company has been focusing its capabilities on doing this. And once the market improves, I must say that, of course, there have been these ups and downs in the past, but I must say that this time around, let's say the tough time is quite long and perhaps a bit more challenging than before. But once this is over, then I believe that all the activities that we have persisted with during that time are going to come back to us with quite a lot of benefits. So in the meantime, the company intends to strengthen its key businesses and also continue to drive ahead with the cost innovation so that we will be able to improve in line with the market environment. Thank you.

And as the difficult situation has been going on for two years, We had a lot of investments due to the nature of the business, and you all know that there was little return. Because of that, it is true that we have lost a lot of our financial strength. However, as you all know, there are many ways to raise funds, but we are still advocating the most traditional way. I hope you can accept that the story is still stable. And rather than in the stock market or such places, we can feel that trust is still maintained in the financial market. Gradually, almost all financial institutions, including international banks and major large-scale market banks,

And as we have been going through this tough time for about two years now, and as you would know, this is the kind of business or industry that requires quite a lot of investment with not so much return in the beginning, which is something that you all know. As we have gone through this tough time for some time, it is also true that it has had an impact on our financial strength. Of course, there are various options in financing, but then we tend to keep to the traditional approach, which means that we still are maintaining stability. Rather than the stock market, going to the financial market, we can sense that there is still quite a lot of trust in the company So we have been working to get financing from government-run banks as well as large commercial banks. So indeed, most of the major financial institutions are working to finance low-interest and long-term instruments.

The following question will be presented by Hyunsoo Kim from Hana Securities. Please go ahead with your question.

Hello, I am Hyunsoo Kim from Hana Securities. Thank you for the question. I would like to ask two questions about LCD TV and OLED TV. Recently, there was a media report that the main LCD TV set makers will expand the purchase volume of the LCD panel. Regarding this, I would like to ask you to tell us how the overall operation direction of the LCD TV panel business will be, including Guangzhou LCD Fab. And secondly, you gave guidance on the release of medium-sized product panels in the fourth quarter. I would like to ask if this increase guidance can be understood as a guidance that reflects the demand recovery expectation at the end of the year. In connection with this, I would like to ask how the fall volume of this year's large 511 will be this year, and since the shortfall is continuing for a long time, it would be helpful if you could tell us about the medium-term operation plan and the profit-making improvement plan together. Thank you.

Thank you for giving me the opportunity to ask my questions. I also have two questions, one on LCD TV and another on OLED TV. Now, for the LCD TV, there have been reports lately that major set makers will be increasing their purchasing of panels. Then I wonder what the company's direction is in terms of the LCD TV business, including the Guangzhou LCD FAB. And the second question is, there was earlier guidance on the increase in the shipment of medium to large size panels in Q4. And the question is then whether it is reflecting the expected seasonality at the year end with expected demand recovery. And also, if that is the case, then what would be the projection or the outlook for the large OLED shipment for the year And also, what is the company's plan for the medium to long-term operations? And also, what is the company's projection for the longer-term profitability?

This is the CSO responding to your questions. There have been quite a lot of questions from the set makers about their sourcing of the LCD TV panel.

There is quite a geographic concentration of the LCD TV production capacity, and also because of the U.S.-China friction due to inconsideration of the CSM stability, It is true that many companies are now trying to diversify their sourcing strategy and as a result are also increasing their inquiries to the company.

However, as I said before, under the big framework and direction of the business structure, there is no change in the existing strategy of the company related to the LCD TV business. However, we have made a wise and flexible plan for the request of set customers

but within the larger direction and the larger framework of upgrading the business structure, the company's strategy on LCD TV business remains unchanged. Having said that, we would have to wisely and flexibly respond to the requests coming from the set makers, so that we can strategically respond with varying options so that we will be able to enhance the value of our LCD Fab. And this is Wonjae Lee in charge of large display marketing.

It is expected to expand in the third quarter due to the promotion activities of the distribution of iron ore. However, the actual sales due to the macro effect are weak compared to the normal season, and the reverse growth of the high-end market demand is also expected to continue. And recently, it is a country where the competition for large-scale LCD sales is intensifying in the Chinese market.

Now, it is expected that panel shipment is expected to grow over the third quarter thanks to seasonality. actual sales are not going to be as strong as the ordinary seasonality due to macro impact, and also the demand for high-end remains sluggish. Now, having said that, we are also seeing intensifying product competition for the ultra-large LCD sales coming from the Chinese region, and also with the continuation of the inventory correction policy among the set makers as well as the retailers. They expect that the panel shipment for the year is going to be under the set shipment at around 5 million units.

However, after 24 years, the return on demand for high-end demand is expected, and stable customer base and In order to strengthen the high-end position in the early generation center and improve profitability for set customers, we want to remove the stability of the water pipe through sales expansion and continuously improve profitability.

But now, from 2024, there has been negative growth in demand for high-end products. And then also, so from 2024, it is expected that there will be a negative demand for high-end products. And also, the inventory will go back to normal. And so based on our stable customer base, the company believes that we will be able to strengthen our position in the high-end markets. And also, the set maker's profitability is improving, and based on the higher volume and larger sales, the company expects to keep improving its profitability.

This year, we have continued to focus on material cost reduction activities, focusing on key parts and materials, and we will continue to work on FAP and personnel management, which are linked to actual demand,

And this year, our efforts for cost innovation continued by trying to lower the materials cost, especially in key components and materials. And then going into next year, we will be running our FAB in linkage to the real demand, so that we will be able to optimize the labor costs and also the fixed costs and variable costs. And we will try to improve our revenue per production capacity or production area, especially in non-TV businesses, so that we will be able to improve overall profitability.

The next question is from Kim Dongwon from KB Securities. The following question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I have two questions for the auto display business. When considering the current demand for electric vehicles, I'm wondering if there is no change in the middle of 10% of the auto business's medium-term sales growth rate. Please also tell us about the future prospects of the auto business in the medium-term and the future prospects of the OED. Next, please give us your opinion on the opportunities and risk factors of the auto business in the medium-term.

Now, I have two questions about the auto display business. Now, given the recent sluggish demand for EVs, then in the previous quarter, in the previous conference call, the company gave the guidance of about 15% revenue growth for auto business over the medium to longer term. And I wonder whether this guidance remains still valid for the company. And then also, for the medium to longer term, what is the order backlog for the auto business? And out of that, what is the share of the OLED business? And then what would be the overall, and also based on these circumstances, does the company believe that it will be able to turn around the auto display business next year? And also, what is going to be the overall auto shipment guidance for the medium to longer term? This is Kyu Hanson, Vice President of Auto Marketing.

This year, we expect a 10% increase in total sales per year, and for the next five years, we expect a 10.5% increase in sales per year. This year, we expect a 20 trillion won increase, and by 2025, we expect a 30% increase in sales per year.

Now first, about revenue, the revenue for the year will be within 10% of the company-wide revenue. And then for the next five years, we are looking forward to revenue growth in the mid-10% level. And as for the order backlog, it is in the low 20 trillion won for this year, and it is set to grow by approximately 30% until 2025.

The share of Tandem OLEDs owned by Govo is expected to rise by 50% in the early 40% of this year and after 25 years. Just as the stable sales growth of OLEDs is continuing, I expect that the interest rate will also increase gradually.

And in terms of the share of the order backlog for the high-end tandem OLED panel, it will be in the low 40% for this year and will top 50% from 2025 and on. And given the fact that the stable revenue growth continues for OLED, it is expected that its profit contribution will also continue to grow.

I will answer the second question. Opportunities are changing from electric cars to SDVs, and the lifestyle is changing within the car. As the role of the automotive display becomes more and more important, the number of OLEDs and large LCDs is continuously increasing.

And then moving on to the next question, which is about the opportunities and risks or threats in the automotive business. Now first, about the opportunities. We see that the auto market itself is gradually moving toward EV and STV, meaning that it is becoming more and more the vehicle for lifestyle. And that means that the presence of the auto display is going to become even more important. and this is going to drive for the demand for OLED as well as large display.

The risk factor is that automotive display competition is increasing due to demand for TV, IT, and so on. However, we will continue to work with Tandem OLED, LTPS LCD discrimination technology, and Global OEM for better technology cooperation.

And in terms of risks, now because of the continuous sluggish demand in TV and IT, there is actually heightened competition around auto display. But then, thanks to the company's tandem OLED technology as well as its superiority in LCD and other technology, And also based on our strong relations and cooperation with global partners, the company will be able to continue to strengthen its competitiveness in winning contracts.

Yes, we will take the next question.

The next question is from Lee Kyu-ha of NH Investment. The following question will be presented by Kyu-Hwa Lee from NH Investment and Securities. Please go ahead with your question.

Hello, I'm Kyu-Hwa Lee from NH Investment and Securities. Thank you for your question. I have two questions. First, if you look at the LCD panel price announced by the investigation agency at the beginning of this week, you can see that the panel price has dropped in the small size of the LCD TV. How do you see the mid-term and future evaluation prospects? Thank you.

My first question is, according to the LCD panel prices that have been announced by a research organization earlier this week, there are signs that the panel prices are falling. among the small and medium-sized LCD TV. Then what is the company's outlook for the ASP in the second half and also for the longer term? And the second question is, again, what is the company's outlook for the demand per application in 2024? And compared to this year, what does the company believe will be some of the meaningful changes next year in the market?

This is Ki-young Lee, in charge of business intelligence, and I would like to answer the two questions at once.

Now, first, about the TV panel price. It has been on the rise since October last year and has been on an upward trend for the past one year or so. And then, going into the latter half of October, it began to slightly fall, led by the small and mid-sized products.

This is due to the lack of structural recovery of the TV in the first half of next year,

And it is believed to be the result of the set maker's conservative management and conservative policy, given the fact that we are not yet in a structural recovery of real demand, and also we are going into the seasonality in the first half of next year. It is expected that the panel makers will continue to flexibly adjust the utilization based on demand so that we can minimize the price volatility and continue to try to stabilize the ASP. According to the season, there will be a small drop, but for the time being, it is expected that the industry's production cost will remain at the level that will remain at the level that would be higher than the industry's production cost.

In the case of IT panel prices,

And now about the price for the IT panels.

It has remained flattish for some time now.

But now over the medium to long term, there are concerns of intensifying competition with expectations of demand recovery as well as the stronger supply capability of Chinese makers. So given that there are a combination of both positive and negative factors, the IT panel price is likely to remain flattish going into next year as well.

Next is on the demand outlook.

In terms of TV, it seems as if the structural slow demand has been established. So, it appears as if the demand is going to remain flat into next year as well.

However, since the demand for super-large-size products is strong, we expect a growth rate of about one-digit as of this year.

But there appears to be a strong demand for ultra-large products. So then in terms of the area, then it is likely to achieve about mid-single-digit growth. And for panel demand, Now, thanks to the healthier inventory, we expect a slight growth in panel demand compared to this year. Now, in IT, overall, negative growth continues led by B2B and high-end industries. It is also true that macroeconomic uncertainties remain, like high interest and inflation, but then the negative growth has slowed down in 2023, and now there are expectations of recovery from the second half and on. Likewise for IT, panel demand is expected to achieve positive growth as the set inventory has become healthier.

Lastly, I would like to talk about smartphones. And last is on the smartphone.

In terms of the smartphone, the market is generally in saturation, so we see that it continues to remain sluggish.

24년에도 세트와 패널 모두 플러스 성장을 예상하고 있습니다.

Having said that, it is a positive factor that the OLED market, which is the target market for the company, is maintaining positive growth. And looking into 2024, we look forward to similar positive growth in both set and panels.

이상입니다.

The last question will be presented by Sowon Kim from Kium Securities. Please go ahead with your question.

Hello. Thank you for the question. I would like to ask a question about the IT OLED, which is scheduled to be produced next year. Thank you very much.

I have a question about the preparation on the IT OLED, which is set to go into volume production in 2024. So it was mentioned earlier that the preparation is underway smoothly, but then I wonder whether there are any changes to compare to the previous plan, and also what is the outlook for the market size and competition. So if the company could provide us with further update, please. Thank you.

Yes, I'm Lee Min-young, the strategy manager for small and medium-sized enterprises. As we have already announced, Thank you. This is Min-Hyung Lee in charge of medium-small display strategy.

Now, for the IT OLED, as has been disclosed, The plan is to continue to invest into the first quarter of next year, and after the investment is completed, then we will go into mass production and the preparation is well underway. We will apply the technology that has been accumulated in auto as well as the large OLED business so that we will produce high-end panels that have the advantage of low power and long life.

In the long term, we expect that the OLEG in IT, which we are looking forward to, will have different penetration speeds depending on the characteristics of each product and the acceptance rate of the consumer. Therefore, it is our direction to use the various customer needs and market opportunities in our infrastructure efficiently to respond clearly. Thank you.

And over the mid to long term, in terms of the pace of OLED penetration, we believe that it is going to differ depending on the characteristics of the IT product as well as the consumer's acceptance. So it is important for the company to wisely respond to varying customer needs and market opportunities by utilizing the existing infrastructure.

We will now close Q3 2023 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.