OLED Focus And Automotive Displays Will Fuel Future Success

Key Takeaways

• The strategic OLED focus and technological advancements are set to bolster revenue growth and solidify LG Display's high-end market position.
  
• Enhanced cash flow from asset sales and operational efficiencies will strengthen financials, supporting growth in OLED and automotive displays.
  
• Discontinuation of LCD TV business and market challenges may impact LG Display's earnings, profit margins, and future growth amid global trade tensions and demand uncertainties.

Catalysts

Engages in the manufacture and sale of thin-film transistor liquid crystal displays (TFT-LCD) and organic light-emitting diode (OLED) technology-based display panels in Korea, China, the rest of Asia, the Americas, Poland, and the rest of Europe.

• LG Display's strategic shift to an OLED-centric business model is expected to drive higher revenue growth and improve net margins in the future, as OLED products command higher average selling prices (ASP) compared to traditional LCDs.
  
• The sale of the Guangzhou LCD TV plant will generate a significant inflow of cash, enhancing the company's financial position and allowing it to focus more resources on OLED technology, which is expected to improve long-term earnings.
  
• The expansion in the automotive display sector, leveraging OLED and LTPS LCD technology, is anticipated to sustain revenue growth and strengthen earnings as demand for larger in-vehicle screens continues to rise.
  
• The ongoing focus on rigorous cost savings and operational efficiency measures is expected to enhance net margins, even amidst challenging market conditions and global uncertainties.
  
• Technological advancements such as tandem OLED and next-generation oxide LCD are expected to solidify LG Display's position in high-end segments, driving revenue growth through differentiated products and potentially improving earnings over the long term.

LG Display Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Display's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.4% today to 4.5% in 3 years time.
• Analysts expect earnings to reach ₩1209.7 billion (and earnings per share of ₩1606.2) by about May 2028, up from ₩-2042.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, up from -2.1x today. This future PE is lower than the current PE for the US Electronic industry at 11.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.7%, as per the Simply Wall St company report.

LG Display Future Earnings Per Share Growth

Risks

• The discontinuation of the LCD TV business will lead to a decline in revenue from large panels starting in the second quarter, potentially impacting LG Display's overall top-line results.
  
• Heightened competition among suppliers, particularly in the smartphone and IT panel sectors, may result in pricing pressures and could negatively affect earnings and profit margins.
  
• The ongoing global trade tensions and potential imposition of tariffs by the United States introduce volatility and uncertainty, which could disrupt supply chains and negatively impact revenue and profitability.
  
• The stagnation in high-end market segments and macroeconomic uncertainties may limit demand growth for OLED products, posing risks to LG Display's revenue from these high-margin segments.
  
• Investment plans are being approached conservatively due to unpredictable market dynamics, which could limit the company's ability to scale operations swiftly in response to demand shifts, impacting potential future earnings growth.

Valuation

• The analysts have a consensus price target of ₩10963.636 for LG Display based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩15000.0, and the most bearish reporting a price target of just ₩6500.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩27113.1 billion, earnings will come to ₩1209.7 billion, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of ₩8470.0, the analyst price target of ₩10963.64 is 22.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.