LG Display - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good morning and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation, followed by a Q&A session. If you have a question, please press STAR and one on your phone during the Q&A. Now we will begin the presentation on LG Display's third quarter of fiscal year 2025 earnings results.

Heo Suk (Investor Relations Team Leader)

Good afternoon. This is Heo Suk leader of the LG Display IR team. Thank you for joining our third quarter 2025 earnings conference call. Joining us today are CFO Kim Sung Hyun, Vice President Cho Seung Hyun in charge of Business Control and Management, Vice President Kim Kyu Dong in charge of Finance and Risk Management, Lee Kyung in charge of Business Intelligence, Vice President Kim Jong Duck in charge of Large Display Planning and Management, Hong-jae Shin in charge of Medium Display Planning and Management, Park Sang-woo in charge of Small Display Planning and Management, and Hwang Mun Thae, Head of Auto Planning and Management. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company's website. Please refer to the disclaimer before we begin the presentation.

Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with IFRS. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q3 2025. Panel shipment grew across the entire OLED product line driven by the start of seasonality and supply for new small and medium-sized OLED products. Revenue was KRW 6.957 trillion, up by 25% QoQ and up 2% YoY. Operating profit reached KRW 431 billion, improving by over KRW 500 billion QoQ and YoY. The improvement resulted from the growth in shipment and portion of OLED products as well as the company's ongoing intensive cost innovation activities.

The number reflects around KRW 40 billion in one-time costs related to workforce efficiency activities, excluding which the business performance stands at approximately KRW 470 billion. Net income was KRW 1.2 billion including the impact from the foreign currency translation gain with the exchange rate rising QoQ. EBITDA in Q3 was KRW 1.4239 trillion with an EBITDA margin of 20%. Next is the trend in area shipment and ASP. In Q3, area shipment fell 1% QoQ despite the seasonality and growing shipment of small and medium OLED product lines. This is following reduced shipment of low-margin mid-sized LCD models in line with our ongoing profitability-focused product portfolio management. ASP per square meter was $1,365, up 29% QoQ, slightly outperforming the guidance. It was driven by the higher than planned growth in shipments of small and medium OLED products.

It is an all-time high resulting in part from the rising portion of OLED. Next is revenue share by product category. Mobile and others, which has the largest share, reached 39%, up 11 percentage points QoQ, led by panel shipment growth stemming from the seasonality and preparation for new products in IT. While revenue grew on the back of sharp expansion in shipment of OLED panel for IT, there were larger changes in revenue in other businesses. As a result, its portion fell to 37%, shrinking by 5 percentage points QoQ. The TV segment's revenue share was 16%, down 4 percentage points QoQ. Auto segment's share was 8%, down 2 percentage points QoQ. The share of OLED products out of total revenue was 65%, up 9 percentage points QoQ and 7 percentage points YoY.

As we continue to expand the performance of OLED-centered business structure upgrade, its impact is further solidifying our foundation for growth and profitability. Next is financial status and main indicators. Cash and cash equivalents in Q3 stood at KRW 1.555 trillion, largely unchanged QoQ as we keep downsizing non-strategic businesses, for example discontinuing the LCD TV business and enhancing operational efficiency. The size of essential working capital has also decreased. Debt-to-equity ratio was 263% and net debt-to-equity ratio 151%, down 5 percentage points and 4 percentage points respectively QoQ, further strengthening our financial soundness. Next is Q4 guidance. Continuous growth is expected in area shipment of OLED products in Q4, while LCD shipment is expected to decrease as we keep running profitability-centered product portfolio.

Accordingly, total area shipment is projected to grow in low single digit percentage QoQ, and for ASP per square meter we saw much more pronounced increase in Q3 than usual thanks to shipment growth of small and mid-sized OLED driven by seasonality and preparation for new product launches, and that is also why going into Q4 we anticipate another higher level of ASP compared to average quarters. However, it is expected to decline in low single digit percentage QoQ due to some factors such as mix change in small and mid-sized OLED products. Now let me hand over to our CFO Kim Sunghyun.

Kim Sunghyun (CFO)

Good afternoon everyone. This is the CFO Kim Sunghyun. Let me thank you all for joining us at our conference call.

Q3 this year was when we saw the results of our ongoing strategy to upgrade our business structure to be more OLED centric and our strong initiatives for cost innovation beginning to come to fruition and manifest themselves into business performance. As mentioned earlier, Q3 saw an increase in shipment coming from the seasonality, coupled with the impact of concentrated shipment of small and medium OLED for new products. It has boosted OLED Product Group's revenue share up to 65%. Based on this, Q3 year to date, business performance showed revenue of KRW 18.6093 trillion, an operating profit of KRW 345 billion, continuing the trend of improvement and giving more visibility to a full year turnaround. After four years, despite the pressure on revenue from the discontinuation of the LCD TV business, it remained flat YoY thanks to a larger portion of OLED and premium products.

Operating profit year to date improved by approximately KRW 1 trillion YoY. It is owed to the intense and speedy execution of strategic initiatives including cost innovation and operational efficiency along with business structure upgrade. External uncertainties and the consequent shipment volatility are expected to persist in Q4. There still remain variables in the business environment including macro related real demand, intensifying competition among suppliers, and supply chain stability, but we plan to address these challenges by prioritizing business efficiency initiatives. OLED products revenue share is expected to be similar QoQ in Q4 with the annual share projected at a low 60% level. Incidentally, we are also planning for an additional workforce improvement program in Q4 as part of our ongoing cost innovation effort. The specifics cannot be disclosed in advance, but its impact on our financial performance is considered to be more than that of last quarter.

The one-time cost incurred by this workforce improvement program will be offset after one and a half years, providing positive impact on the business performance thereinafter. Next, let me share our plans and strategies by business segment. For small mobile business, we plan to ensure more stable operations by expanding panel shipments every year based on our technological leadership and stronger partnership with our customers. At the same time, we will keep broadening our future business opportunities by methodically implementing all future-proofing activities, including R&D and investments in new technologies for IT OLED, which is part of our mid-sized business. We plan to respond to the growing demand in the high-end tablet market with our Tandem OLED technology and for the anticipated shift to OLED in the notebook sector. We will closely examine the market size and pace of change and respond effectively.

Overall, we will enhance our responsiveness with differentiated approaches, leveraging our long-standing technological leadership and mass production competitiveness. We will solidify our leading position in the market. We will also proactively respond to changing environments, including market demand and customers' requests, through efficient utilization of our existing infrastructure. In IT LCD business, we remain focused on reducing low-margin products while focusing on B2B and differentiated high-end LCD segments. It is encouraging that this has led to meaningful improvement in profitability. YoY, we will strengthen execution of our current initiatives to deliver improved results next year as well. For large panel business, where OLED's differentiated competitiveness is well recognized in the market, we will further solidify our leadership in the premium market with a various lineup of OLED panels offering unique value based on close partnership with strategic customers.

We will continuously grow our business performance and intensify cost improvement initiatives to maintain stable business operations. Last is Auto. The market outlook is more positive than other product areas, led by expanding in-vehicle display adoption and accelerating enlargement of displays. While competition is expected to intensify, we plan to maintain our competitive edge and create differentiated customer value based on our solid market position and diversified technology and product portfolio. Finally, on investment, our principle in CapEx execution remains unchanged, focusing on investment for future preparedness and business structure upgrade. Because our investment efficiency initiatives continue, capex this year is expected to be at high KRW 1 trillion range, below last year's level. Moving forward, we will make prudent investment decisions while maximizing the use of existing infrastructure. New investments will be executed with profitability as the top priority. Thank you very much for your attention.

Heo Suk (Investor Relations Team Leader)

This concludes our presentation of business highlights for Q3 2025. We will now take your questions. Operator, please commence with the Q and A session.

Operator (participant)

[Foreign language]. Now Q&A session will begin. Please press Star 1, that is Star and 1, if you have any questions. Questions will be taken according to the order you have pressed the number 1. For cancellation, please press Star 2, that is Star and 2 on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be provided by Cango Park from Daishin Securities. Please go ahead with your question.

Cango Park (Analyst)

Thank you very much for taking my question and congratulations on the good performance. I have largely two questions. I see that in the third quarter the performance has risen sharply and that appears to be on the back of rising revenue from the OLED panel as well as the revenue share of the OLED panel as well. The question is, does the company believe that it has the kind of structure that can sustain this kind of business performance down the road? Related to this, traditionally the company had been sluggish in the first half because of the strategy of its strategic customer. Given the fact that it saw good performance in the first half of this year, does the company believe that this marks any change in the structure of the OLED market or the OLED business?

Based on that, what would be the outlook for next year, first half and also for the whole year? The second question is, in 2026 it appears that the macro uncertainties will continue and also competition continues to intensify even amidst the sluggish demand in the downstream. As a result of this, there could be some pressure from the customer to lower the ASP. How does the company intend to respond if such pressure should arise? What is the company's strategy for continuous growth for the future?

Cho Seung-Hyun (VP of Business Control and Management)

This is Vice President, Business Control and Management, responding to your questions. Allow me to respond to the second part of your question first and thank you very much for interest in the company. It is true that in the past few years the uncertainty and volatility in the external environment have continued.

The company has continued also to expand our business performance every year based on internal capabilities, based on our push to upgrade our business structure to be more OLED centric and also to continue with the cost innovation activities. As a result, despite the various factors coming from the outside, we were able to improve our performance and we intend to keep demonstrating more stable performance down the road. Looking back to the performance in the past two years, last year in 2024, we were able to narrow the loss by a very big margin of KRW 2 trillion from the previous 2023. For this year, although we still have the fourth quarter to go, we have the projection that we will be able to improve profitability by another KRW 1 trillion this year. For the year now looking ahead, uncertainties in the external environment are likely to persist.

As explained earlier, based on the stronger business fundamentals as well as the ongoing effort at cost innovation, we will continue to work to further improve our business performance next year as well. YoY and looking ahead, we will continue to maintain stable business performance. It is true that there has been sluggish demand in the display market downstream and also stronger competition, making it difficult for any company to go for both growth and stable management of profitability at the same time. Having said that, the company will continue to try to expand our revenue and solidify our market leadership by increasing the OLED product portion, focusing more on high value add and high end products from global leaders, and also developing the new growth engines based on differentiated technologies.

With regards to your question about the panel price, I take it that it is a question about our maintenance of the profitability. Based on our strong partnership with our customers, we will continue to operate an optimum pricing strategy while at the same time upgrading our product mix and continuing with our cost innovation and operational efficiency activities so that we can continue to expand our profitability.

Heo Suk (Investor Relations Team Leader)

Thank you. We will take the next question.

Operator (participant)

The following question will be presented by Minkyu Kwon from SK Securities. Please go ahead with your question.

Minkyu Kwon (Analyst)

Thank you very much for taking my question and congratulations on the good performance. I have two questions and one is about the mobile. It seems that the, so I'm wondering about the market reception to the launch of new models by the North American customer. From media reports, it seems as if the reception for the standard model is better than expected; for the Air model, perhaps less so. What would be the implications for LG Display? For example, will there be any changes in the expected shipments or in the market share? The second question is for the smartphone panel, annual shipment target and the outlook for next year. If there is a foldable product to be launched and also given the likely launch of the foldable product and the intensified competition, what is the possibility of shipment increase in 2026?

If the company believes that shipment growth in 2026 is possible, what would be the drivers for that? The last question is related to the small to mid size OLED. Because of the restructuring in Japan Display Inc., it is understood that LG Display is now the sole supplier for the smartwatch panels. What will be the volume, the annual volume of supply, and what will be the contribution to the company's revenue and profit and loss?

Park Sanghee (VP of Small Display Planning and Management)

This is Park Sanghee in charge of Small Display Planning and Management. For the smartphone business, the company has been achieving stable performance thanks to our stronger competitiveness with our technology and production as well as across all areas of operation. In terms of the response to the new models by the customer, we understand that generally it is quite positive. For the different models, the actual demand could be different.

This could also translate into some changes in the shipment plan based on the market trends. In the first half, despite the seasonality, there was a meaningful shipment growth by over 20% YoY. In the second half, thanks to the diversified product portfolio and stable supply system, as well as the efficiency improvement, there has been improvement in profitability as well. For the year, we are confident that we will be able to further expand our performance from last year. For the company, we believe that we have already built up the technological know-how to flexibly respond to the diversifying needs from the customer. For example, by having a stronger capability in development and mass production of smartphone panels and also by more efficiently utilizing the current infrastructure, we will be able to respond even more speedily and flexibly to new technologies and also growth in demand for different products.

Looking ahead, we will continue to create stable performance by strengthening our quality competitiveness, continuing with our cost innovation efforts, and preparing for the future technologies based on our close partnership with the customer. Now, about the wearable devices, they are equipped with a number of different functionalities and also across the society, we are seeing increased interest in health overall. It seems as if the use of these products across the consumer's lifestyle in general is going to keep going up. We believe that the outlook for the mobile OLED product market, including the smartphones, is quite positive. The company already has the best technological leadership and production capability in the smartwatch panel business. Recently there has been a change in the supplier status in the industry which has also resulted in the growth of panel supply volume.

We believe that this will serve to further solidify the company's position in the premium wearable market. In terms of the annual supply volume, revenue, profitability and other information related to them are directly related to the customer. Thus, please understand that I am not in the position to discuss the details or the specifics. We will continue to create stable performance in the smartwatch panel business utilizing our technological competitiveness and leading supplier status.

Heo Suk (Investor Relations Team Leader)

We will take the next question.

Operator (participant)

The following question will be presented by Jang Hyun Jung from UBS Securities. Please go ahead with your question.

Jang Hyun Jung (Analyst)

Thank you for taking my question. I have a question on the small mobile product. Now, the market expectation is that in the second half of 2026, the North American customer will be launching a foldable smartphone product. What would be LG Display's strategy for foldable smartphone panel business? Can you also share with us the status of the company's readiness for the and technology?

Now for foldable products, there is growing anticipation from the market on the possibility of opening up new market segments for its differentiated form factor and the new user experience that it provides. If the foldable smartphone market becomes well established, the product can also become the vehicle for trying out new technologies as the flagship model. The company is closely monitoring the smartphone market trends as well as the demand outlook and is preparing for potential market growth.

For now, our strategy is to maximize the supply volume for the existing products so that we can continue to heighten our performance until we can get better visibility into the demand growth as well as opportunities for the company smartphone. The company continues with the series of activities to strengthen our R&D and acquire new technologies. In these smartphone areas, if we can come upon more clearer opportunities, then we will build up our supply structure and expand our business opportunities after carefully reviewing the market acceptance of differentiated product as well as the market growth pace.

Heo Suk (Investor Relations Team Leader)

Thank you. We'll take the next question.

Operator (participant)

The following question will be presented by Kim Sung-hoon from Kiwoom Securities. Please go ahead with your question.

Kim Sung-hoon (Analyst)

Thank you for taking my question. I have two regarding the IT business. First, in IT, the LCD. The competition for LCD in IT is intensifying, and at the same time the profitability is worsening. Are there any plans for the company to downsize or even exit the LCD IT business as it has done so in the LCD TV, or otherwise, what would be the strategy for the LCD IT business? Second, there is also outlook for growing adoption of OLED in the IT market as well. In response to this, your peers in the market are now making investment into the 8.6 Gen OLED. What is the company's preparation or what are the company's activities in order to be ready for this potential adoption growth of OLED in IT?

Hong-jae Shin (Medium Display Planning and Management)

This is Hong-jae Shin in charge of Medium Display Planning and Management.

It is true that the medium product market remains overall sluggish, but the company has been maintaining intense cost innovation activities and as a result we have been moving closer to our targeted performance. For example, making gradual improvement on our profitability thanks to our focus on the high-end LCD technologies and differentiated competitiveness coming from OLED. In LCD, we are maintaining profitability-centric business management by the select and focus approach centered on strategic customers and utilizing the company's technological advantage and global customer partnerships. We continue to maintain our business based on B2B and high-end lineups while at the same time downsizing the low-margin models, improving profitability, and enhancing stability. For OLED in particular, the company is providing various solutions to our customers based on the two-track strategy of addressing new demand and preparing for future market.

Based on the company's differentiated competitiveness, we continue to respond to the growing demand of high-end monitors like gaming, and as a result we are also seeing increase in the shipment of OLED panels for monitors. In the notebook business, it is expected that there is going to be gradual transition to OLED, but the company believes that we need to see additional and clearer signs of the market size, transition speed, as well as consumers' acceptance. As such, the company remains closely watching the OLED notebook market size while at the same time we will be utilizing the existing infrastructure as much as possible for the technologies that can apply to future products. By doing so, we will steadily make preparation for future technologies and mass production.

Heo Suk (Investor Relations Team Leader)

Thank you. We will take one last question.

Operator (participant)

The last question will be presented by WonSuk Chung from iM Securities. Please go ahead with your question.

WonSuk Chung (Analyst)

Thank you. I have a simple question about the OLED TV. The macro uncertainties continue and also there is growing competition with the LCD products. At the same time, there are also reports that a domestic TV set top company is intending to expand its OLED lineup as well. What is LG Display's strategy and mid to long term target for the OLED TV business?

Kim Yong Duck (VP of Large Display Planning and Management)

This is Kim Yong Duk in charge of Large Display Planning and Management. Yes, it is true that the uncertainties in the external environment and the business environment continue. For the company this year, we are projecting a mid 6 million unit level of large OLED panel shipment, which is growth YoY. Now, compared to the LCD, the unique value of OLED panel appears to be more and more recognized in the market.

Also, pricing is nearing the range of affordability, enhancing further its acceptability in the market. As such, for next year the company is looking forward to another growth, expecting 7 million units, and in particular the gaming OLED monitor. The demand for the gaming OLED monitor that is produced out of the large OLED fab is seeing meaningful growth. For the large OLED panel, we believe that the gaming OLED monitor out of the large OLED panel shipment, the share will be around low to mid teen percentage this year. The company continues to strengthen the fundamental competitiveness of OLED products as we also continue to diversify our product group. At the same time, we are maintaining very intense cost innovation activities and operational efficiency activities so as to continue to improve profitability of our large panel business.

Of course, I cannot mention the specific profitability of each business segment, but the results of all these multifaceted efforts are coming together to make a bigger contribution to the overall business performance. Of course, external uncertainties persist and competition between the different products is also intensifying as evidenced by the launch of various products that are in direct competition with OLED. In response to these changes, the company will maintain our very strong cost innovation activities and also continue to build up our partnership with global top tier customers so that we can maintain stable business performance. Last, the company's OLED capacity is 180,000 for Generation 8, out of which we are currently utilizing 135,000 for mass production.

Down the road, we intend to flexibly run the capacity in linkage to actual demand and we also have sufficient infrastructure to flexibly respond to any additional growth in the market demand.

Heo Suk (Investor Relations Team Leader)

Thank you very much. This concludes LG Display's Q3 2025 earnings conference call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you.