OLED Transition And Expansion Into Smartphone Panels Will Boost Revenue And Margins

Key Takeaways

• Transition to OLED-focused business and cost optimization strategies are expected to improve net margins and boost future revenue.
  
• Growing demand for high-end OLED panels may drive top-line growth, profitability, and capture new market opportunities.
  
• High debt levels and slow IT sector recovery threaten LG Display's financial stability and growth amid market competition and OLED demand uncertainties.

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.

• The continued transition towards an OLED-centric business model, with significant year-over-year growth and enhanced operational efficiency, is expected to boost future revenue and improve net margins.
  
• Increasing demand for high-end large OLED panels, driven by premium TV market trends and innovative technologies like meta technology and eye safety features, could drive top-line growth and enhance profitability.
  
• Cost optimization strategies, including a recent ERP program and ongoing labor cost reductions, aim to improve net margins and overall profitability.
  
• The anticipated sale of the Guangzhou LCD fab could strengthen the financial position by boosting cash reserves, potentially impacting earnings and financial ratios positively.
  
• Expansion in smartphone panels and foldable products leveraging existing production capabilities is expected to positively influence revenue and margins by capturing new growth opportunities in evolving display markets.

LG Display Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Display's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.1% today to 5.0% in 3 years time.
• Analysts expect earnings to reach ₩1347.6 billion (and earnings per share of ₩2619.8) by about December 2027, up from ₩-1586.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩1526.0 billion in earnings, and the most bearish expecting ₩252.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.7x on those 2027 earnings, up from -3.0x today. This future PE is lower than the current PE for the US Electronic industry at 25.8x.
• Analysts expect the number of shares outstanding to grow by 0.95% per year for 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

• The sluggish downstream demand and high volatility in the external environment, especially in the IT products sector, could lead to lower revenues and earnings due to uncertainties in shipment and demand recovery.
  
• Continued macro uncertainties and delayed recovery in IT device demand, particularly for high-end products, pose a risk to LG Display's ability to increase revenue and maintain profit margins in this segment.
  
• The high debt-to-equity and net debt-to-equity ratios may strain the company's financial position, potentially impacting its ability to invest in growth opportunities or respond effectively to market changes.
  
• Heightened competition in the smartphone display market could pressure LG Display's market share and profitability, as rivals might offer more competitive pricing or technology, impacting revenue.
  
• The planned scaling up of OLED business structures relies on market demand, and any shifts in this demand due to macroeconomic factors could negatively impact profitability and revenue projections.

Valuation

• The analysts have a consensus price target of ₩12530.0 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 ₩16000.0, and the most bearish reporting a price target of just ₩7000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩27159.5 billion, earnings will come to ₩1347.6 billion, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 12.1%.
• Given the current share price of ₩9440.0, the analyst's price target of ₩12530.0 is 24.7% 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.