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LG Display 2Q results: Hopes for early industry bottom-out fading 10
Kei Nihonyanagi (Tokyo): [e-mail], [phone]
Goldman Sachs Japan Co., Ltd.
Yuji Fujimori (Tokyo): [e-mail], [phone]
Goldman Sachs Japan Co., Ltd.
Bullish 3Q guidance likely to be viewed negatively by industry
LG Display’s 2Q (April-June) results conference call (at 9:00 pm JST on July 9) had a negative tone and
dashed slim expectations for an early bottoming-out for the industry, in our view. Management’s assumptions
look reasonable if panel demand is seasonal in 3Q, as it usually is, and we concur with the expectation for TV
demand to grow as panel prices decline. However, we see some risk in expecting panel demand to rebound
as much as it normally does in 3Q, considering panel inventories rose in 1H2008. We maintain our cautious
stance on the LCD industry as a whole.
Asia-Pacific Morning Summary July 10, 2008
Goldman Sachs Global Investment Research
Management: Output at full capacity in 3Q, increasing capex
Contrary to market expectations, LG Display said it expects output to stay at full capacity in 3Q and plans to
increase 2008 capital spending to 3.8 tn won from its previous figure of 3.6 tn won. Management considers
end-2Q panel inventory levels (nearly three weeks’ worth overall; TV panels more than four weeks’ worth,
monitor panels two weeks’ worth) appropriate because the end-1Q levels (two weeks’ worth overall; TV
panels four weeks’ worth, monitor panels one week’s worth) were too low. It expects inventories to be down
at end-3Q compared to end-2Q.
Impact on component stocks: Price risk likely to remain an issue
In the absence of a reduction in industrywide capacity utilization, price risk is likely to remain an issue for
Japanese display component suppliers. LG Display expects its 3Q manufacturing costs to decline 4%-9%
qoq. More efficient glass usage, productivity improvements, and reductions in depreciation and other fixed
costs are likely to have a greater impact at LG Display than at other companies.
We maintain our estimates for Nippon Electric Glass (5214.T, Buy, Conviction Buy List), as its LCD glass
ASP probably declined only 5% yoy in 1Q, versus management’s and our expectation of a nearly 10%
decline. We do not see any short-term catalysts for the stock, but consider the stock attractive for longer-term
investors based on its P/E of 10X.
Impact on production equipment stocks: Investment deferral risk
The risk of investment being deferred will, we believe, remain a concern for production equipment stocks. LG
Display’s 6G investments have already been factored in. We maintain our Neutral coverage view.
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