Expanding OLED Offerings And Diversifying Into High-End Displays Will Strengthen Competitive Edge

Key Takeaways

• Expansion into high-end OLED products and strategic partnerships in automotive displays will enhance revenue and profitability through differentiated market offerings.
  
• Improved operational efficiency and ending depreciation expenses will boost margins, contributing to stronger financial performance amidst economic challenges.
  
• LG Display's dependence on the OLED market and a few key customers, combined with financial vulnerabilities and market uncertainties, threatens consistent revenue and growth prospects.

Catalysts

Engages in the manufacture and sale of thin-film transistor liquid crystal display (TFT-LCD) and organic light emitting diode (OLED) technology-based display panels.

• LG Display's strategic focus on expanding OLED panel shipments across different product segments is expected to enhance top-line growth and bolster profitability, given OLED panels' higher price points and margins compared to traditional displays.
  
• Efforts to improve operational efficiency and drive cost innovation are set to enhance the company's margins and profitability, particularly amidst challenging economic conditions.
  
• Expansion into differentiated and high-end product lines such as ultra-large TV panels and gaming OLED monitors is expected to drive shipment growth and improve revenue mix, contributing positively to both revenue and earnings.
  
• The stabilization of depreciation expenses, particularly with some depreciation coming to an end in 2025, is likely to improve net margins and contribute to a stronger bottom line.
  
• Strategic partnerships and diversification within the automotive display sector, leveraging diverse technology offerings, are anticipated to capture growing market opportunities and drive future revenue growth in this segment.

LG Display Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Display's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.6% today to 5.8% in 3 years time.
• Analysts expect earnings to reach ₩1628.0 billion (and earnings per share of ₩3256.0) by about January 2028, up from ₩-2562.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.1x on those 2028 earnings, up from -1.8x today. This future PE is lower than the current PE for the US Electronic industry at 15.3x.
• 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 12.1%, as per the Simply Wall St company report.

LG Display Future Earnings Per Share Growth

Risks

• LG Display's heavy reliance on the OLED panel market and its dependence on a limited number of strategic customers may expose the company to significant revenue impact if customer demand fluctuates or competitors secure a greater share of the market.
  
• Despite ambitious plans for new technologies like tandem OLED, the lengthy demand slump within the global IT market, particularly impacting high-end tablet OLED panel sales, poses risks to revenue growth projections.
  
• Persisting macroeconomic uncertainties and sluggish demand recovery in key segments, such as the IT and automotive markets, may hinder LG Display's ability to achieve consistent revenue and profitability growth.
  
• The high debt-to-equity and net debt ratios suggest financial vulnerability, which could impact net margins if the company needs to service or reduce its debt during periods of fluctuating earnings.
  
• A cautious stance on capital expenditure (CapEx), while focusing on maintaining financial soundness, could risk missing out on potential growth opportunities or technological advancements, potentially affecting long-term earnings growth.

Valuation

• The analysts have a consensus price target of ₩11710.53 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 ₩27969.2 billion, earnings will come to ₩1628.0 billion, and it would be trading on a PE ratio of 5.1x, assuming you use a discount rate of 12.1%.
• Given the current share price of ₩9050.0, the analyst's price target of ₩11710.53 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.