LG Display Co Ltd (LPL) 2011 Q4 法說會逐字稿

Good morning and good evening. First of all, thank you all for joining this conference call, and now we'll begin the conference of the fiscal year 2011 fourth-quarter earnings results by LG Display. This conference will start with a presentation, followed by a divisional Q&A session. (Operator Instructions). Now we shall commence the presentation on the fiscal year 2011 fourth-quarter earnings results by LG Display.

Good morning, good afternoon, good evening, everyone. Welcome to LG Display's fourth-quarter year 2011 conference call. My name is Hee Yeon Kim, Head of the IR department. On behalf of LG Display, I would like to welcome everyone to our global quarterly earnings conference call.

I am joined by our IR staff, as well as representatives from TV Marketing and IT Marketing. J.S. Park is heading up the TV Marketing Department and Kevin Oh is Vice President of IT Marketing Department.

Next slide, please. Before we move on to the earnings results, please take a minute to read the disclaimer. I would like to remind everyone that results are based on consolidated IFRS accounting standards and are unaudited.

Next slide, please. This conference call will take about an hour. Before we go into the Q&A session, please allow me to highlight our fourth-quarter results performance highlights and outlook.

Moving on to revenue and profits on the next slide. Revenue was KRW6.6 trillion, up 5% quarter-on-quarter, with better than expected US end of year sales, higher value-added products such as FPR 3D and smart device sales growth, resulting 4% quarter-on-quarter increase in shipments.

Although panel prices slightly dropped in Q4, the price remained flat since November, with conservative inventory policies and utilization adjustments across the industry. Increased portion of high-end specialty products, higher utilization rates and continued cost reductions significantly improved operating loss compared to previous quarters, recording KRW145b loss.

Operating margin was minus 2%. EBITDA margin was 13%. Income before tax was minus KRW133b. Net income was minus KRW6b.

Moving on to slide four, looking at our financial positions and ratios. Following the last quarter, aggressive cost reduction efforts and preemptive inventory level control improved our financial position. So our cash and cash equivalents rose to KRW2.3 trillion. Inventory fell by KRW52b to KRW2.3 trillion. Net debt to equity ratio fell by 3 percentage points quarter-on-quarter, recording 22%.

Moving on to slide five, looking at our cash flow. Cash at the beginning of the quarter was KRW2 trillion. Cash flow from operating activities resulted in cash inflow of KRW1.5 trillion, with a KRW638b increase in working capital. Cash flow from investing activities resulted in an outflow of KRW1.2 trillion. As a result, the net change in cash was inflow of KRW300b.

Moving on to slide six, I would like to go over our performance highlights. Looking at our shipments, it increased by 4% quarter-on-quarter. Panel price remained flat since November and our ASP recorded $684, a 3% quarter-on-quarter decrease. The price fall was limited compared to the industry average decline, due to increased portion of our higher value-added products.

Moving on to our product mix, on slide seven. In the fourth quarter, the TV segment represented 47% of the revenue, followed by Monitor at 20%, Notebook at 13%, Smartbook at 9% and Mobile and others at 11%. The Smartbook portion has been reduced as the high-end smartbook sales decreased in Q4, but Mobile' revenue portion increased with strong sales in smartphones.

Moving on to slide eight, and looking at our capacity. Our capacity decreased slightly, by 3% quarter-on-quarter. This is due the introduction of a new production process and change in set mix. Although the production capacity decreased, impact on our output was limited as production efficiency has improved.

Next we turn to our outlook section. In the first quarter, we expect our total shipment to remain similar to the previous quarter as we expect better than normal seasonality as customers restock their inventory from current low levels, and LG Display's portion is expected to increase within our customers.

However, the uncertainty over demand outlook remains, with the macroeconomic impact acting as our risk factor. The ASP is expected to remain stable since the panel makers' profitability concerns continue and inventory levels across the industry are very lean. Although there are some uncertainties in the market which could potentially impact panel shipment, we believe that we are in a relatively better position thanks to the increasing trend of high-end specialty products within our sales.

We are committed to accelerating the differentiation of our products and business strategy to minimize the impact of the industry cycle, and to maintain a stable product structure during this uncertain period.

With that, I will end my summary of Q4 and future outlook and would be happy to take your questions. To use the time efficiently, please limit to three questions per person. Operator, proceed to Q&A session, please.

(Operator Instructions). The first questions will be provided by Mr. Andrew Abrams from Avian Securities. Please go ahead, sir.

Hi. Just a couple of questions. Smartphones, would you expect smartphones as a part of your mix to be up in the first quarter, or would it be down again just on a general basis in the first quarter?

In Q4, our smartphone portion was increased. And also in Q1 we also -- in Q1 we expect our smartphone portion will also increase, backed by the market share increase in our customers.

Right. And have you seen any impact on your business from the hard drive shortfall? Has it affected the monitor side, meaning the monitors, or the notebook side directly that you've seen?

This is Kevin Oh from IT marketing. Actually, industry-wise there is some slight impact because of the hard disk drive supply. But customer by customer the situation is very different, and for major customers their impact was limited. But second tier customers, they have some larger -- relatively larger impact. However, in our case, our customer portfolio is mainly with major customers, so relatively our impact was quite smaller than others, I believe.

Great. Thank you. And lastly, OLED, if you could just review the TV plans. Are we still on track for something in late second quarter, early third quarter, as far as a product release? Is that still on track? And are we still talking about the Gen-8 fab, all the similar kind of things that we talked about last quarter?

In terms of OLED television strategy, it is still on track with our initial projections, and also you might have heard about the market feedback of our OLED television at the CES show. Actually, the feedback was quite good, so it might be possible we might make a decision for the new additional capacity increase earlier than our initial consideration.

Great. Thank you very much. I appreciate it.

The following questions will be presented by Mr. Jeffrey Toder from RBS. Please go ahead, sir.

Yes. Good evening. A couple of questions. First, on the capacity reduction, is that something that we should see going throughout the year, or was there a short-term impact on your capacity from, I think you mentioned before, you've changed your process and your set mix?

It will be a temporary issue. It will impact on our first quarter.

It will impact on first quarter, or will not impact on first quarter?

It will be only temporary issue, for only one quarter.

Okay. So we should think of 1Q as going back closer to the 3Q level rather than the 4Q level?

Yes.

Okay. Great. Okay. Second question, you mentioned that inventories were low across the supply chain, which is a good situation to be in. Your first-quarter shipments being flat, your fourth quarter being up, this seems to be different than overall seasonality for end markets. From the view of end markets, how much do you see of your shipments or of the market demand coming from restocking in first quarter, and how much do you see as end market demand? And if you can break that down between TVs and IT, that would be great.

It might be difficult to allocate how much will be for the real demand and for the inventory restocking. But, however, if you look at the seasonal pattern, usually first quarter we might see 10% to 15% demand decline. However, this quarter it will be flattish. So it means if we see this sort of pattern, maybe 10% to 15% should be inventory restocking demand and the remaining should be the real orders. This is my understanding.

Okay. And then just do you have a -- I know in the afternoon session you gave a capacity forecast for the year. Do you have a demand forecast or demand growth forecast for 2012?

In case of demand, we expect demand growth should be very limited to mid-single digit.

You said mid-single digit?

Sorry, in terms of demand growth, it should be about 10%, and capacity growth should be about mid-single digit.

Okay. So capacity mid-single and demand up around 10%. And then, just following on on the demand side, how are your customers thinking about Chinese New Year and Olympics and how that might impact the order trends in the second quarter? I'm not asking for a forecast, I know that that's outside of your guidance range, but in particular when we look at sporting events they have turned out to be disappointing, and I was wondering if you've seen any change in the way your customers think about that build going into the summer versus what we've seen in previous years.

This is J.S. Park from TV Marketing. Chinese New Year sales, we didn't receive the full month data. But considering Chinese government's subsidy program and the last year demand growth was around 20% YoY base. But after finishing government subsidy program, every Chinese customer expects around 10% growth rate, they expect, but the result is lower than their expectation. But we didn't have any data now.

Okay. That's for the Lunar New Year, right?

Yes.

Okay. So -- and I think you said in the call -- in the conference this afternoon that you entered or the Chinese market entered below normal inventory for the peak season. Is that correct?

Because of strong sales results at the end of last year, our customers' January inventory level was around one week lower than their normal level.

Okay. Now, what I was actually asking about was the next round of holidays, which is Labor Day. And also, as I said, demand leading into the summer, where we have the Olympics this year, and how customers might be thinking about inventories and a situation where you've already noticed or noted that inventories are low. So coming into second quarter, toward the end of first quarter, how are they thinking about those events?

Historically, those kind of sports events impact around 2% additional growth. But with the demand shift from second half to first half, we expect the same situation because of Europe economic situation is really bad now. So this year it's not easy to forecast same thing happening this year. So we're a little conservative at this moment.

Okay. And that would be on second quarter. That's okay. Could I just ask one more question on CapEx?

Yes.

Okay. When we look at -- how should we think about -- you talked about maybe launching sets in the middle of the year for OLED and you've talked about making, I think, a decision on your OLED investment plan towards the middle of this year. But when we look at -- we've got the CapEx guidance for this year. That's no problem. When we look at 2012, it looks like that will carry the bulk of the OLED investment. So should we think about that number potentially being sequentially higher than the cash guidance for this year?

Actually, although our -- irrespective of our decision making of OLED, our CapEx for this year should remain the same. That should be KRW4 trillion in terms of cash outflow. Actually, if we make a decision for the OLED additional CapEx in the second half of this year, it means our major cash outflow will be maybe in year 2013. So, overall, our CapEx should remain the same in year 2012.

Right. And then would you see CapEx in 2013 being higher than 2012 because of the OLED investment?

Actually, right now we have several options for the OLED CapEx. If we will have a new fab built up, that should be one option, and another option will be our existing fab conversion. So with this kind of two options, our CapEx should be quite different. So it's early to mention about the issue.

Okay. And then you gave some numbers on that, I think, in the afternoon reading, right. So you said a new OLED 8.5g would be 2.5 times the cost of similar capacity for LCD, right?

In terms of, yes, investment.

And then if you converted an existing fab, it would be half of that amount?

Yes.

And then, when I think about these numbers, it sounds like the economics for building a new OLED fab are going to be very difficult without having a significant price premium. What sort of price premium do you think is the right number in order to incorporate these kinds of CapEx figures?

Actually, right now we are not at the mass production stage, so the ratio and cost structure is not decided yet. So the price premium -- mentioning about the price premium is also very early stages. We might be able to give you a more clear answer maybe in the second half of this year.

I think the question isn't what it is today; the question is what do you think would be the right types of numbers to make that CapEx make sense.

Actually, as I mentioned before, we have several options for the CapEx and investment, so based on -- according to which option to be chosen, the number of our CapEx should be quite wide range. So it's difficult to mention about that. (Multiple speakers).

Okay.

We'll give you a more clear answer in the second half of this year.

Okay. I'll be looking forward to that. All right. Thank you very much.

The next questions will be presented by Mr. Daniel Chung from SK Securities. Please go ahead, sir.

Hi. Thanks for taking my question. I have three simple questions on OLED. My first question is when do you think OLED TV panels will become comparable in cost to LCD panels in the views of TV set makers?

And my second question is what size are you planning on for the OLED TV to be released for the second half of this year?

And lastly, for white OLED materials, could you tell us the lifetimes for the yellow, green and blue materials?

I'll give you your second question, the OLED, 55 inch, first. And then first -- the reasonable price point for [the market], we believe we might give -- we might have the reasonable price point after the full ramp-up of our Gen-8 fab of OLED. So we plan for our full ramp-up of new fab build in early of year 2012. We expect at that time that we have a reasonable price point to offer to the market.

In terms of lifetime, right now we have to consider the lifetime based on the provable basis, because the provable lifetime is the shortest. It is 3,000 hours. It means 10 years of display in terms of eight hours [play per day]; 30,000 hours.

30,000 hours.

30,000, based on the provable.

And it's about for eight years, you said?

10 years, based on eight hours play, per day.

Okay. Thank you very much.

The next questions will be presented by Mr. Brian Park from Tong Yang Securities. Please go ahead, sir.

Thank you for taking my question. I have a couple of questions. You mentioned in the afternoon session area proportion of premium products reached 30% in fourth quarter of last year, and you are targeting 60% end of this year. Can we estimate quarterly proportion by linear sequential growth? I mean first quarter of 30-something or 40%. Am I right?

And my second question is worldwide utilization rate is still quite low, we estimate. Could you provide us your numbers in December and January? If it is not convenient for you, a quarterly number's okay. So I just want to estimate cost reduction potential with that number. Thank you.

For the premium product portion, is it reasonable for the expectation -- for the forecast of linear growth. Actually, we don't have the numbers for the each month, so we only have the quarterly numbers.

Okay.

Globally, quarterly of Q4 utilization ratio was around 80%, and first quarter also should be very similar to 80%. It is slight -- in Q4 it is slightly over 80%; first quarter it is slightly below 80%.

Is that your number?

That's the global utilization ratio, and our utilization ratio should be over 90%.

Okay. Thank you.

In Q4 and in first quarter each.

Okay.

The following questions will be presented by Mr. [Cory Sebastian] from JP Morgan. Please go ahead, sir.

Hi. Thanks for taking my call. Could you give me a little bit of an idea of what's going on with your oxide process and how that's progressing in terms of the technology for the back plate, and for the OLED specifically?

Actually, we already released a 55-inch OLED television at the CES show, and also we mentioned that we will ramp up our OLED fab in the middle of this year. It means our oxide technology is ready.

Okay. Even on an 8.5 generation scale, you're not having any issues in terms of the ramp there?

We had several issues but we resolved. That's why we are ready for the production.

Okay. Okay. And when you talk about two and a half times the cost to build a similar facility and then you say that it's about half of that if you convert an existing line, is that -- how much of that is the conversion of the amorphous process into the oxide versus adding additional equipment for OLED deposition and all that process?

On the detailed cost structure side we have -- right now we don't have the numbers. We will get back to you more detailed numbers in next quarter earnings conference call. Sorry for that.

Okay. Thank you very much.

The next questions will be presented by Mr. Wamsi Mohan from Bank of America Merrill Lynch. Please go ahead, sir.

Yes. Thank you. Good morning. I believe in your earlier call you'd indicated that you expect the panel shipments to exceed the TV sell through. Is that right? And why is the expectation that you will have higher panel shipments this year relative to TV sell through? Thank you.

TV's worldwide sell through?

Yes.

In Q4 this year?

For 2012.

2012. We expect around 220m for this year sales rate. It's a growth rate around 5% YoY.

Okay. And how about for panel shipments?

Well, we expect panel shipments much higher than that, 238m this year. Growth rate around 14% in terms of unit, and we expect more -- over 15% in terms of area.

And what is the --?

If I may add on that issue, actually, there's some gap between panel shipments and actual TV set shipments. That's because of the inventory restocking demand. Actually, last year, panel shipment was negative growth, while TV set shipment was positive growth. That's because of the aggressive inventory correction from set makers. But on the flip side, we believe this year that kind of last year's inventory correction issue will be additional potential growth -- growth potential for panel makers, because set makers will increase their inventory. Right now, inventory level is very low, historically low level. It is very lean. However, this year we have some events and also set makers start to fill inventory restocking need, so that's the gap between set and panel growth numbers.

Okay. Thank you. That's helpful. And one more, if I could. Any sense on how Chinese New Year sell through progressed?

Lots of people are interested in Chinese New Year. And as I explained, Chinese government subsidy program was finished end of last year. That's why YoY last year -- in the last year demand growth was around 20%, and after that this Lunar Year every customer in China expect around 10% growth rate YoY. But even we didn't have exact numbers, but we have heard that the results were less than their expectation. And we expect around -- less than 10% growth rate in China this year.

Okay. Thank you. That's very helpful. Thank you.

The next questions will be presented by Mr. Andrew Abrams from Avian Securities. Please go ahead, sir.

I just wanted to clarify what you were talking about on the panel production versus sets. If I understood it correctly, you're looking for normal panel growth to be about 5% year-over-year, at 220m, and if we include the inventory fill it's 14% or 15%, around 238m. Is that correct? Are those numbers correct?

Yes. Sales rates -- set sales rates we expect around 5% at 220m, and panel shipments we are expecting around 14% in terms of unit, 238m. And this results always the panel shipment and the set shipment together is around 7%. We are using around 6% because our panel shipped to our TV set customers but also public display use our panel. So there's a gap between panel and set, because you -- everybody gets number from TV sell through data, but public display is not counting the numbers. That's why the gap between panel and set.

Got it. Thank you very much. I appreciate it.

The following questions will be presented by Mr. Jeffrey Toder from RBS. Please go ahead, sir.

Hi. Just a follow-up on the demand question. So you've given the numbers for sets and panels for TVs. Could you give the same numbers also for, I guess, tablets or smartbooks, notebooks and monitors?

In case of monitor, we are expecting the panel demand around 198m, and in case of notebook, pure notebook, around 238m, and in case of smart tablet around 82m. That's what we are expecting right now.

Are those set forecasts or panel forecasts?

Panel forecasts.

Panel forecasts. Are your set forecasts different for those categories?

We think slightly lower than that.

Okay. So --

Around 5% difference, on average.

5% difference on average. Okay. Less, okay. And then -- okay. One other question, on your touch business. How is your in-cell technology progressing and when do you expect to be in mass production?

In terms of technology, we are ready. However, the production timing -- for the production timing, we cannot mention about that because it is related to our customers' production schedule. Please understand that issue.

Did you say in the meeting earlier that -- I'm not sure whether you said it would be ready in the first half, or you would be starting production in the first half. Or am I missing the meaning?

In terms of production, as I mentioned before, we cannot mention about the issue. Please understand.

Okay. So --

Anyway, for the technology and production we are ready.

Okay. So the technology is already ready?

Technology and production base are already ready, but the timing cannot mention about that.

And then -- okay. So if you're ready, then when you think about it on a cost basis, so if a panel -- let's not take a panel price, but let's just say if a panel is priced at X without in-cell touch, or cost X let's say, then what would the cost be for in-cell, X times how much?

For that issue, actually, we are [totally before] the production. We are before the production stage, so we don't have any detailed cost structures. Maybe, several quarters later, we can deliver you the detailed cost structure for that. But anyway, theoretically, in-cell cost structure should be more competitive than the existing cost structure.

Should be more competitive than having a separate module?

Yes.

Okay. But you don't have any idea of how much more competitive?

We have idea, but we cannot mention about the issue.

Okay.

So that's the issue, yes.

Okay. All right. Thank you.

The next questions will be presented by Mr. Cory Sebastian from JP Morgan. Please go ahead, sir.

Hi. Thanks for taking another question. Can you give me an idea, just to follow on to the in-cell, of what your yields look like in terms of how well you've been able to get those?

Actually, as I mentioned before, we are not at the production stage, so (multiple speakers).

But in terms of, at least through your R&D or whatever or however else you're experimenting it with, what yields have you been able to establish?

In terms of R&D status, our yield should be okay.

Okay. And just going back to OLED really quickly, in terms of taking an existing LCD line, from when you decide to convert that to OLED, what do you think the timing is from that first consideration to being able to ramp up OLED production on that line? Is it six months or would it be 12 months or would it be 18 months? Can you give a general timeframe there?

It would be 18 months. That's the usual pattern.

Okay. So that's from taking an existing LCD offline and then starting the process, and 18 months later you're in full production on OLED?

Yes. We have to procure the partition machine as well, although we have to convert our existing amorphous silicon base to oxide.

Right. So converting to oxide, adding additional OLED equipment and then being able to ramp that production, about 18 months you think?

Actually, in terms of a [fab] conversion it would only take six months, but in case of the partition side it will take one and a half years.

Okay. All right. Thank you very much.

The following questions will be presented by Mr. Jeffrey Toder from RBS. Please go ahead, sir.

Hi. I'm just following up on the last question. So you said -- when you talked about converting to OLED, you just said oxide is six months and deposition is one and a half years. Does that mean if you converted an existing line it would take two years, or it would take one and a half years?

It would take one and a half years.

Okay. So the one and a half includes the deposition -- includes the conversion to oxide?

Yes.

Okay. That's quite a long time. Okay. And then also, just back, I just missed one of the demand numbers that you gave me earlier. Can you just tell me what the notebook number was for 2012?

Notebook demand?

Yes.

238m.

238m, so the notebook number is the same as the TV number?

Coincidentally, similar number.

Okay. I just wanted to make sure I got it down right. All right. Thank you very much.

The next questions will be presented by Mr. [Kim Dong-Sa] from UBS Securities. Please go ahead, sir.

Hi. Thank you. Quickly on OLED CapEx, I think I've heard that the Greenfield investment for 8 gen OLED fab would be about 2.5 times higher than that of equivalent LCD fab, but the conversion cost would be about half of this amount. Is this correct?

Yes, correct.

Thank you. Then, does this suggest that the conversion cost alone, excluding operating cost that you would incur during the 18 months that you've just mentioned, would be higher than the opening of a new LCD fab? Is this correct again?

No, it is similar.

Okay. Thank you very much.

Just like to say the total timing will be similar to LCD new fab.

Thank you.

(Operator Instructions).

Operator, if there's no participants to wait, please end this conference call now.

Okay. There are no participants with questions now.

Okay. On behalf of LG Display, we thank you for your participation in our fourth-quarter earnings conference call. Should you have any further questions, please contact either myself and I will call you. Thank you.