LG Display Co., Ltd. (LPL) Q2 2025 Earnings Report, Transcript and Summary

Good afternoon. I am Brian Heo, leader of the IR team at LG Display. Thank you for attending LG Display 2025 Second Quarter Earnings Conference Call. Joining us today are CFO, Mr. Sung-Hyun Kim; VP of Business Management, Mr. Soon Hyun Cheol; VP of Finance, Mr. Kyu Dong Kim; Leader of the Business Intelligence team, Mr. Woo-suk Ha; VP of Large Display Planning and Management, Mr. Chun Deok Kim; Head of Medium Display Planning and Management, Mr. Yoo-shin Ahn; Head of Small Display Planning and Management, Mr. Seung-ryong Paik; and Head of Auto Planning and Management Department, Mr. Moon Tae Hwang. Today's conference call will be conducted in Korean and English. Please refer to the disclosed preliminary earnings release or the Investor Relations section of our website for detailed performance data. Please read the disclaimer before the earnings presentation. Today's earnings presentation is based on consolidated financial figures prepared in accordance with International Financial Reporting Standards, IFRS. Please note that the numbers are unaudited and are provided for the convenience of our investors. Let me begin by presenting our business performance for Q2 of 2025. In Q2, shipments of products decreased due to the seasonal off-peak period for smartphones and the termination of the LCD TV business. In addition, the Korean won, U.S. dollar exchange rate turned stronger. And as a result, sales declined by 8% Q-o-Q to KRW 5.587 trillion. This represents a 17% decline Y-o-Y, which is due to the base effect of increased initial shipments following the new mass production of tablet OLED panels last year and the discontinuation of the LCD TV business in Q2 of this year. Operating profit also posted a loss of KRW 116 billion, reflecting both the negative impact of the stronger Korean won exchange rate and business factors such as the end of the LCD TV business and seasonally weak demand for mobile panels. For the first half of the year, cumulative sales amounted to KRW 11,652.3 billion and operating loss to KRW 82.6 billion. Despite the 3% decline in sales Y-o-Y, operating loss improved by KRW 480.5 billion. This improvement was the result of ongoing efforts to upgrade our business structure to the OLED-centered business, reduce costs and enhance operational efficiency, which are now producing tangible results for the improvement of the company's fundamentals. Net income turned positive to KRW 890.8 billion, driven by improved FX gains and other nonoperating income, including the gain on the sale of our stake in the Guangzhou LCD plant. EBITDA for Q2 stood at KRW 1.539 trillion, which is with an EBITDA margin of approximately 19%, maintaining a mid-teen margin for the seventh consecutive quarter. Next is the trends of shipment area and ASP per square meter. Q2 shipment area decreased by 26% Q-o-Q due to the termination of the LCD TV business. This aligns with our guidance of around mid-20% decrease in shipment area. As for the ASP per square meter, the figure increased by 32% Q-o-Q to $1,056. This was due to the exit of the LCD TV business, which had the lowest ASP per area and changes in shipment within some small to medium panel products compared to the original plan. With the transition to an OLED-focused business structure, we expect to sustain significantly higher ASP levels compared to the past. Moving on to revenue breakdown by product category. TV revenue accounted for 20% of total sales, down 2 percentage points Q-o-Q. However, the decline was limited as OLED TV panel shipments increased Q-o-Q, offsetting much of the impact from the LCD TV business exit. Revenue from mobile and others declined by 6 percentage points Q-o-Q to 28% due to seasonally weak panel shipments. The IT segment recorded 42%, reflecting a relatively notable increase driven by higher LCD IT panel shipments compared to last quarter and a reduced share of other product categories. The Automotive segment grew 1 percentage point Q-o-Q to 10%. The OLED portion of total revenue increased by 1 percentage point Q-o-Q and 3 percentage points Y-o-Y, reaching 56%, continuing its steady growth. Let's now look at our financial status and key indicators. Cash and cash equivalents at the end of Q2 amounted to KRW 1.666 trillion. With the sale of the Guangzhou plant and the end of the LCD TV business, essential operating capital has decreased compared to the past, and our cash level has been managed accordingly to improve efficiency. The debt ratio stood at 268% and net debt-to-equity ratio at 155%, representing significant decreases of 40 percentage points and 19 percentage points Q-o-Q, respectively. Let me now provide guidance for Q3. For the third quarter, shipment area is expected to decline by a low to mid-single-digit percentage due to product mix changes in mid- to large-panel products and a reduction in the share of low-margin medium panel products. On the other hand, ASP per area is forecast to increase to mid-20% levels driven by seasonal increase of shipments in small- and medium-sized OLED products. Now we will hear from our CFO, Mr. Sung-Hyun Kim.

Good afternoon. This is Sung-Hyun Kim, the CFO. Thank you all for joining today's conference call. Following the Q2 results and our outlook for the second half, I would like to further elaborate on our financial performance. Q2 is traditionally an off-season, and our performance was affected by lower utilization rates of mobile panel production lines and FX volatility. However, as has been previously mentioned, the OLED portion of our total sales continued to grow and ASP per square meter increased significantly, marking structural achievements in our business model. The approximately KRW 500 billion improvement in operating results for the first half compared to last year was driven by an upgraded business structure centered on OLED and high-end LCD products, continuous cost innovation and operational efficiency. We expect this performance improvement to continue in the second half. Despite ongoing macroeconomic uncertainties and the volatility in the trade environment, we remain firmly committed to our strategic initiatives, business restructuring around OLED, technological differentiation, product quality enhancement and cost innovation, which will strengthen our core competitiveness and translate into performance outcomes. In particular, we expect a steep rebound in performance in the second half with broader profit improvements compared to first half, driven by performance expansion across both large and small and medium OLED panel businesses. In addition to the business performance, our efforts to improve the financial structure such as early loan repayments and debt reductions are progressing ahead of plan. We already achieved our total debt reduction target of KRW 13 trillion level early as set out in our corporate value plan at the end of last year. We will continue to improve financial structure through cash flow enhancement with various actions such as the sale of the Guangzhou LCD TV plant and the expansion of second half operating profits while further reducing debt by the year-end. Let me now walk you through the plans and strategies for each business segment. In the small panel mobile segment, panel shipments are growing each year, backed by our enhanced production capabilities with strong performance, particularly in the high-end segment. Going forward, we will continue to strengthen our competitive edge in quality and cost based on differentiated technology to further drive business performance. In the medium panel IT OLED segment, we will address new high-end market demand with tandem OLED known for its low power consumption, long lifespan and high luminance. We also plan to systematically prepare for a broader transition to OLED across IT devices. With our accumulated technological leadership and stable mass production capabilities, we will continue to strengthen our market leadership and respond proactively to a changing environment. In the IT LCD segment, we plan to strengthen partnerships with global top-tier market-leading customers in the B2B and high-end sectors based on differentiated high-end LCD technologies. Particularly, we will continue improving profitability by reducing the proportion of low-margin products and engaging in structural cost innovation. In the large panel segment, although the LCD TV business has ended, OLED TV is widely recognized for its competitive differentiation, which we expect will continue to drive business performance. With the gaming monitor market also expanding, the mid- to long-term outlook is positive. We will solidify our leadership in the premium market with a diverse OLED panel lineup with differentiated values and at the same time, strengthen our profit structure through cost improvements and flexible efficient operation strategies. Lastly, in the Automotive segment, the increasing adoption and larger sizes of in-vehicle displays are positive indicators for our future market growth. While competition is expected, we will deliver differentiated customer value through our solid market position, innovative technologies and product competitiveness, including ultra-large size, high resolution, reliability, durability, low power and diverse form factors. Finally, I would like to speak on our investment activities. We are maintaining our CapEx strategy centered on future readiness and business structure enhancement. In June, we announced an investment for new OLED technology preparation, but we continue our efforts to improve investment efficiency. As such, our CapEx for this year is expected to be in the low KRW 2 trillion range, similar to last year. Going forward, we will maximize the use of our existing infrastructure and make careful investment decisions. New investments will be executed with profitability as the top priority. Thank you very much.

So that concludes the presentation of LG Display's Q2 2025 Earnings Results. We'll now move on to the Q&A session. Operator, please provide instructions for Q&A.

[Operator Instructions] The first question will be provided by Dongwon Kim from KB Securities.

My name is Kim Dongwon from KB Securities. My question has to do with OLED as well as your future business performance. So in last June, you have disclosed new OLED technology-related investment. And so what is the specific content and the application scope of the OLED new technology that the company is currently working on? That is my first question. My second question has to do with the fact that tariff-related uncertainties are growing and also there's continuing exchange rate-related volatilities. In this situation, to what extent do you expect performance to improve in the second half?

So I'm the CFO. Let me take your question. So what we have continuously communicated to the market was that we will be shifting away from LCD business and will increasingly focus on the OLED business. And as part of that plan in the first half of this year, we have sold our stake in the China's TV LCD plant. And so that is how we have dealt with the LCD business. And now the answer has to come forward of how we will strengthen our OLED business. As you are probably well aware, the reason we have withdrawn from the LCD business is because we have determined that we no longer have competitive advantage when it comes to the LCD technology. The reason why we are shifting toward more advanced and OLED centered business structure is because we have concluded that our ability to secure future technology is as of yet still superior to our peers. And so our investment that was disclosed in June this year to secure new OLED technology was part of our strategic direction to maintain this technological gap with our competitors. And we have announced back in June that the total investment amount will come to KRW 1.260 trillion, and this investment will be executed over the next 2 years until the first half of 2027 because our financial structure has been very significantly improved and because our performance will continue to improve going forward, we do not believe that this amount is burdensome. So I have just explained the significance of this investment. And I think your question pertains to which area this investment will go into and what kind of new technologies will be developed. I would like to disclose that information. However, due to confidentiality reasons as well as other limitations, I'm not in a position to share that information. So please, we ask for your understanding in that regard. The second question has to do with the extent of the performance improvement that can be expected until the year-end of this year. And my answer is that I'm sure you're well aware that in the beginning of the year, we established our business plans. And throughout the year, we make efforts to achieve that business plan. That becomes our annual business results. First of all, let me talk about the performance up until the first half of the year. At the beginning of this year, we have announced our commitment to turning around into the profit for the full year of 2025. So in order to keep our promise to you about this plan, we have established our company business plan, and we have made efforts to achieve the targets that were set out in the business plan. If we make an assessment about our performance until the first half of the year, well, it is actually exceeding our initial expectations. So our intention is to continue this trend until the second half of the year. And up until now, this trend is being well maintained. I have already noted that compared to last year, we have been able to post a performance improvement of KRW 500 billion in the first half of this year. And in the second half as well, proportional to the revenues that we will be achieving, I think a level similar to that can be expected by the year-end. We will make an all-out effort in order to ensure that a strong performance is delivered.

The following question will be presented by Jin Kim from Kiwoom Securities.

This is Kim, Jin Yong from Kiwoom Securities. There is news that the niche batch for panels for customers' new smartphone models in the second half will be produced by a Korean company, while others say that a Chinese company will be handling the production. So what is the second half outlook for the smartphone business? And every year, the mobile panel shipment is increasing. Can we expect further growth opportunities this year as well? That is my first question. And my second question is, what is the shipment forecast for the OLED panels for tablets in 2025? Are there any changes in market demand? And has the shipment target changed compared to last year?

This is [ Seung-ryong Paik ]. I'm the Head of the Small Display Planning and Management. Let me take your question. The smartphone business continues to show expanded performance as our capabilities across technology, production and operations are further strengthened. Although the volatility in the external environment, such as U.S. tariff issues continues, we are stably managing operations without major deviations from our initial plans and business targets. Despite the seasonal off-peak in the first half, we have achieved a meaningful shipment growth of more than 20% Y-o-Y. We're also planning to increase volumes centered on new models in the second half and thus expect to outperform last year's full year performance. It would not be appropriate for us to directly comment on the capabilities or business status of other suppliers. But for ourselves, we will continue to strengthen our quality competitiveness, steadily reduce costs and prepare for future technologies so that we can respond to the competitive landscape and maintain stable business results. With regards to the tablet OLED panels due to the sluggish global IT market, last year's shipment of tablet OLED panels fell short of both our internal targets and market expectations. While the current macro environment is somewhat unfavorable to high-end product sales, our tablet OLEDs offer distinct advantages such as low power consumption, longer lifespan and high brightness, which are expected to continue attracting market attention and consumer demand. So accordingly, our panel shipments are expected to increase Y-o-Y and utilization rate is also expected to rise compared to last year. We would like to ask for your understanding that specific targets for panel supply by model and expected market share involve confidential customer information and thus cannot be disclosed. However, we have secured differentiated technological competitiveness in the tandem OLED space, and we'll continue to maintain our position as the first vendor in the market. We're going to continue pursuing product differentiation that is based on our long-standing technological leadership and competitiveness and actively respond to market demand.

The following question will be presented by Mingyu Kwon from SK Securities.

My questions are twofold. First, given the macro level uncertainties such as tariffs still persist, are there any new developments regarding a recovery in IT demand? My second question is, if the current situation becomes protracted, what is LG Display's operational plan and strategic direction for the medium panel LCD business? And how does the company plan to manage profitability?

This is Yoo-shin Ahn, Head of the Medium Display Planning and Management. Let me take your question. So the demand for medium-sized panel products are expected to grow slightly this year with both set and panel demand projected to increase in the low to middle single digits. While the end of negative growth is a positive sign, we do believe that demand volatility remains high due to the continued uncertainty in the external environment. Demand and sales conditions vary by product category as well as by customer. But in the LCD segment, we are focusing our business operations on B2B and high-end areas, strengthening partnerships with top-tier global customers. At the same time, we are closely monitoring the growth and transition pace of OLED demand across each product category and systematically preparing for the future. We believe replacement demand and opportunities such as AI PCs are still valid, and we will actively respond to market opportunities in each product area based on our differentiated technological strength. Regarding profitability, we expect the profitability of our medium panel business to improve gradually with last year marking the bottom. As has been mentioned, although there have not been any significant changes on the demand side, we are rationalizing our product lineup in the LCD area by reducing the proportion of low-margin products and focusing on top-tier global customers. In the medium panel OLED segment, we anticipate improving profitability to a meaningful level this year by increasing panel shipments compared to last year and leveraging OLED's differentiated competitiveness. Although recently, the profitability of the IT business has weakened compared to the past, we are intensifying our cost innovation efforts and leveraging our differentiated competitiveness in the high-end LCD technologies like IPS and oxide as well as in the tandem OLED, which offers advantages in high luminance, low power consumption and long lifespan to expand our performance in B2B and high-end product areas and thereby improve profitability.

The last question will be presented by Jimmy Yoon from UBS.

My name is Jimmy Yoon from UBS. I have 2 questions. The first question has to do with the full year outlook for sales of the large OLED panel in 2025. Has there been any changes to the beginning of the year business plan that you have established? And my second question has to do with the OLED monitors. I think you have briefly mentioned this area in your presentation. But what are the opportunity factors for OLED monitor? And what is the current and future contribution levels of OLED monitors?

Good afternoon. This is Chun Deok Kim. I'm the VP of Large Display Planning and Management. Let me take your question. So with regards to the sales outlook for our large OLED panels and monitors, despite volatile external environment, including the U.S. tariff issue and other macroeconomic factors, our large-sized OLED panel shipments are proceeding according to the original plan without much deviation. And annual shipments are expected to reach the mid-6 million range, an increase over the previous year. And in relation to price compared to LCD, the differentiated value of OLED panels is being recognized in the market. And in terms of our price acceptability, the prices are approaching an acceptable level, increasing their overall appeal. And so as a result, both OLED TVs and monitors are seeing continuous growth, not only in panel shipments but also in sales as well. Recently, in addition to TV panels, the share of OLED monitor products, especially gaming monitors, has significantly increased. We expect the proportion of monitor products within our total large OLED panel shipments this year to exceed 10%. Now regarding profitability, although this has been said time and again, let me repeat this once again, that we believe the most important factor is to establish a cost structure and internal operations that could ensure stable profitability despite any changes in the external environment. So accordingly, we are shifting the structure of our large panel business to focus on OLED in response to competition and are making significant efforts towards cost innovation to enhance profitability. To improve the profitability of the large panel business going forward, we're not only strengthening the competitiveness of the OLED products, but we're diversifying our OLED product lineup and also carrying out aggressive cost innovation and operational efficiency-wise efforts. As a result, we are now seeing tangible results in terms of profitability improvement Q-o-Q. While it is difficult to comment on the profitability of the individual business segments, we expect that our large-panel OLED business will continue to deliver stable performance in both growth and profitability by leveraging strong partnerships with the global top-tier customers.

With this, we'd like to conclude the 2025 Second Quarter LG Display's Earnings Presentation. Thank you very much for your attendance. And if you have any additional questions, please contact our IR team. Thank you.