Hee Yeon Kim – Head of IR Department.

Andrew Abrams – JG Capital Alberto Moel – Sanford Bernstein Jerry Tsai – HSBC Nam Hyung Kim – Arete Research Eric Lin – CIMB.

Good morning and good evening. Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2014 Third Quarter Earning Results by LG Display. This conference will start with a presentation, followed by a division of Q&A session.

[Operator Instructions] Now we shall commence the presentation on the fiscal year 2014 third quarter earning results by LG Display..

Welcome to the LG Display third quarter conference call. My name is Hee Yeon Kim, Head of IR Division. I would like to welcome everyone to our quarterly earnings conference call. I am joined by our IR staff as well as representatives from marketing intelligence and TV marketing. K.Y.

Co [ph] is Head of Market Intelligence Division and Matthew Kim [ph] is head of TV marketing team. Next slide please. Before we move on to the earnings results, please take a minute to read the disclaimer. I would like to remind everyone that results are based on consolidated K-IFRS accounting standards and are unaudited. Next slide please.

We have approximately an hour for this conference call. During the first part of the call, I would like to highlight our third quarter results, performance and fourth quarter outlook which correspond to the slides available on our website. Afterwards we will take your questions.

Please do not hesitate to contact us after the call if you have further questions. Moving on to revenue and profits on the next slide. Third quarter revenue increased by 9% quarter on quarter, thanks to shipment increase and ASP improvement. Sequential shipment increase mainly came from the larger-sized TV, in accordance with our China ramp-up.

The overall price trend for TV and IT was also the revenue booster. The size migration towards larger-sized TV led to tight supply situation, resulting in favorable TV pricing trend.

We have seen the same overall pricing trend in the IT side as well as we have witnessed the continued supply constraint, including our service [indiscernible] reducing our IT capacity further during Q3. Our operating profit was KRW474 billion, which increased by 191% sequentially. Operating margin was 7% and EBITDA margin stood at 20%.

Pretax profit was KRW432 billion and net profit was KRW354 billion. Moving on to Slide 4, looking at our financial position and ratios. At the end of third quarter, total asset was KRW32.7 trillion, liability KRW11.3 trillion, and equity KRW11.4 trillion. Cash and cash equivalent increased by KRW121 billion, resulting in KRW2.4 trillion.

Inventory increased to KRW2.6 trillion from KRW2 trillion. As we have also seen similar pattern last year, inventory at the end of third quarter increased due to strategic inventory preparation for small and medium category products, due to the Q4 seasonality.

Besides the new small and medium products, inventory situation for other [ph] category is very lean. This was a strategic inventory preparation which was attributable to the strong order trend. It is expected to be shipped out during Q4. Thus, we expect a further inventory amount to go down at the end of this year.

Looking at our balance sheet, overall balance sheet had improved during the third quarter. Current ratio, net debt to equity ratio were improved, recording 160% and 90%, respectively, and liability-to-equity remained healthy at 99%. Moving on to Slide 5, looking at our cash flow.

Cash at the beginning of the third quarter was KRW2.2 trillion, as cash flow from operating activities resulted in cash inflow of KRW789 billion and cash flow from investing activities resulted in an outflow of KRW724 billion.

The latest change in -- cash change was an inflow of KRW121 billion, resulting in cash at the end of the quarter recording KRW2.4 trillion. Moving on to Slide 6, I would like to go over our performance highlights.

As explained earlier, our shipment increased by 3% quarter on quarter, resulting in 9.7 million square meters, driven by a seasonal demand increase, especially for larger-sized TV panels and small and medium displays.

As for pricing, we have witnessed a positive pricing trend for both NIS [ph] and TV during the quarter, driven by capacity constraints resulting from the larger-sized demand and panel-makers' efficient panel mix [ph] operation. Moving on to our product mix on Slide 7.

Our TV business was 42% of our revenue, followed by moving applications, 19%, monitors 17%, tablet 12%, and notebook at 10%. Sales portion of mobile and tablet increased by 3 percentage points each, respectively, due to sequential shipment growth.

With the recent TV and mobile [indiscernible] in fab capacity allocation, resulting in reduced capacity for notebook and monitor. This in turn resulted in decline of notebook and monitor. Therefore the sales portion of notebook and monitor decreased by 2 and 4 percentage points, respectively. Moving on to Slide 8, looking at our capacity.

Our producible capacity in third quarter increased by 9% Q-on-Q to 12.3 million square meters, and it was mainly due to the China [indiscernible] ramp-up impact. Next, we turn to our outlook section.

For the fourth quarter, we expect total area shipment to grow by mid-single-digit percentage, mainly driven by continuous size migration trend to bigger display and also increasing shipment for display small and medium-sized panels.

While there is limited capacity and utilization rate increase in fourth quarter, we expect it to reach the shipment guidance [indiscernible] our strategy inventory which was prepared during the previous quarter to meet the growing demand in Q4. Our pricing is expected to remain stable in the fourth quarter.

We anticipate the blended ASP per square meter to increase through mix change. Let me conclude by saying that we are encouraged by the progress we have seen over the past quarters.

We have been focusing on value rather than [indiscernible] focusing on high value-added products [indiscernible] building for the future with continued OLED development which is expected to bear fruit in the coming future and will result in a structural differentiation.

In this way of value addition and future preparation, we will keep disciplined for our CapEx by balancing between capacity growth versus financial soundness.

With our financial performance improvement, we believe that this strategy is leading us to the right way, develop customer relationship, providing us confidence to well-prepare for the future, and to offer our customers with more value-added products through our technology and product leadership.

That's the end of our third quarter results explanation. Now we open up for Q&A session. We ask that you limit yourself to one question and one follow-up.

Operator, may we have the first question please?.

There is a one thing I have to announce. Currently the line is not good so there are a lot of noises in the line. So, could you please drop the line and then make a call once again? And participants, wait until the line is connected.

Hello?.

Hello?.

This is operator. The line is not good, so, there are a lot of noises in the line. So, for the more clear voice and line, please drop the call and connect the line once again..

Okay..

And participants, please wait until -- for a second until the line is connected. Participants, sorry for waiting, but please -- connected for the meeting..

Now Q&A session will begin. [Operator Instructions] The first question will be provided by Andrew Abrams from JG Capital. Please go ahead, sir..

Hi. Thank you for taking my questions. First, I was just trying to get a little color on the status of the OLED fabs. I'm assuming that you're still producing TVs on the pilot line.

Is that correct? And also, when would you expect the new gen-8 line to start taking over some of that production capability?.

As we continue to comment, we will add additional OLED production base at the end of this year. There might be a similar scale at around 6K on top of the 8K. So this is our schedule. And then if our production [indiscernible] improvement [indiscernible] we will add more 20K at the end of next year. That's our plan.

And all the progress is in line with our original plan..

Got it. Okay.

And can you give us an idea of what the cost down was in the third quarter, and if do you think that's going to change in the fourth quarter?.

Cost reduction related for OLED [indiscernible] cost reduction [indiscernible] overall cost reduction at my understanding. Our overall cost reduction is -- continues at around the low-digit [indiscernible] every quarter..

Low single digits. Okay. Thank you very much..

The following question will be presented by Ben Lu [ph] from One Capital Management [ph]. Please go ahead, sir..

Hi. Thank you guys for doing the call. I guess I had a similar question to the prior caller.

Can you give us a sense of what is the OLED losses for 2014 and where do you see that going for 2015?.

Regarding the investment related expense, it's not relevant to comment in this conference call. Anyway, we have to record investment related expense for the OLED this year, but we hope the kind of expense should be reduced going forward. Please understand that we cannot mention about the number itself..

Okay.

But do you think you can still have all that breakeven by second half of next year?.

We try to make money maybe at the full scale of ramp-up, our full 34K production base at the end of the next year..

Got it. Okay. And then how -- can you help us think about mobile revenues or shipments in Q4 and how we're thinking about it in Q1? Because I think at the -- during the analyst meeting you talked about how Q1 will be a smaller than usual seasonal decline. Obviously your mobile revenues is at all-time record highs for you guys.

So, just wanted to get some clarity before our Q4 and Q1 and whether new product launches in Q1 will help kind of reduce the seasonal decline..

Actually our Q4 order trend is strong as you already expected because of the seasonality and good feedback from end-market. Actually we are expecting our revenue mix should be higher than Q4 last year. That should be a good clue for your assumptions. And Q1, it's early to mention about that..

Okay. Because I think you had -- during Analyst Day you guys talked -- analyst meeting, you talked about how Q1 should see a milder sequential decline than usual, so, wanted to get a little bit more color on what's driving that, whether it's just inventory, supply/demand, new products..

Actually, fourth quarter trend should be highly related with the end-demand during Q4. If end-demand would be much higher than our and customers' expectation, yes, they should be better first quarter. But it's early, a bit early to mention about that..

Okay, great. And can I have one --.

And then in first quarter, in first quarter we hope seasonality should be milder than before because of the bigger screen demand from the TV side. Although there's a unit decline seasonality, we hope it can be compensated by bigger screen demand, which has resulted in high utilization ratio.

And also we hope for new application product in the [indiscernible] segmentation to support us to mitigate our low seasonality in first quarter..

Okay. And Hee Yeon, if I can ask one last thing to your answer earlier, that mobile mix should be higher than last year. Your mobile mix was 15% of revenues last year, it was already 19% in Q3. So, God, I hope it's larger [ph] than what it was last year.

So maybe can you give a little bit more color as to how much larger it'll be than the 15% plus US, since it was already 19% last quarter?.

What I'm trying to say is, together with travel and mobile that was mid-30% last year, so altogether that was over mid-30% in Q4 this year. That's what I mean..

Got it. Okay. Thank you so much, and congrats on a great quarter..

Thank you..

The following question will be provided by Sing-hun Han [ph] from Deutsche Bank. Please go ahead, sir..

Yes, hello. Congratulations on the strong results, and thank you for taking my question. Recently one of your main competitors in the small-sized panel business reported losses and I think lowered its full-year guidance, which could raise some concerns about overall mobile panel profitability.

The company also I think seemed to suggest that this is more of an industrywide issue and I think it did raise some questions about LGD's mobile phone panel business. So I have two questions related to this topic.

One, could you please maybe explain how LGD small-sized panel profitability was progressing during the third quarter, and if you can provide an outlook of how that profitability will look like in the fourth quarter? Thank you..

Actually as we -- as we have a wide business portfolio in all category, from small to larger-sized, it's very -- it's not that easy to mention about the specific segmentation. However, we will deliver overall trends.

If we will move in to the details, our profit increase in third quarter was mainly driven by size migration toward the bigger display and price increase in the larger-sized displays such as TV and IT. Profitability for small size was somewhat tough during third quarter.

But as we guided, we expect the small-sized display profitability to see improvements due to the seasonal shipment increase in Q4. Does that answer your --.

Okay, thank you..

Okay..

The following question will be provided by Alberto Moel from Sanford Bernstein. Please go ahead, sir..

Good morning. Just a quick clarification. You saw some very good ASP -- quarter-on-quarter ASP increases, and a couple of questions related to that, quick questions.

One is, how much of that sort of ASP and area increase was due to the mix shift from larger panel to small panel, which although are maybe, you know, profitability may be tougher but there are still higher -- much higher ASPs.

And second, in your comment just now, you said that ASPs for the next quarter, your Q4 2014 ASP is, you said, expect blended ASP per square meter to -- we had expected blended ASPs per square meter to increase. So has this changed? And you say here ASP just stabilized.

There was a comment from yesterday's meeting, at least someone who maybe transcribed it wrong, who is suggesting that ASP increases for -- into Q4 should be double-digit. So I just wanted to get a clarification on that comment there. Thank you..

Yes. We will clarify on this. We have two kinds of ASP, individual ASP versus blended ASP per square meter. In case of blended ASP per square meter in third quarter, that was raised by 7% [ph]. That's the combination between individual products, price increase at low single digits, together with another low single digit of mix improvement.

And in Q4, product by product ASP increased. ASP trend should be stabilizing in Q4. The blended ASP should be changed meaningfully, thanks to the small-sized sales increase. As you already know, small-sized ASP per square meter is much higher than bigger screen, per square meter basis..

Understood.

So the ASP stabilization is in a like-for-like, but your increase on a blended will be because of the mix, primarily, you think?.

Yes, that's correct..

Thank you. Thank you..

The following question will be provided by Jerry Tsai from HSBC. Please go ahead, sir..

Hi. You just mentioned your capacity was up 9% Q-o-Q during the quarter.

Can you give us some idea what's going to be like in fourth quarter as well as in first half next year?.

In fourth quarter we're expecting low single digit capacity increase. And then fourth quarter, theoretical capacity should remain flat. However, actually, usually we are -- we will be doing debottlenecking in operational equipment. Because of that, every first quarter we are witnessing mid-single-digit capacity decline as the usual pattern..

Okay. So, no additional capacity to be built other than the debottlenecking in the first half next year..

Actually if the bigger screen demand from TV market will be higher than our expectation, we will consider minor increase, but it's not yet decided..

Okay, thank you. That's helpful. My second question is regarding to the size migration which according to you drove up the panel price in the third quarter. My question is, it seems like U.S. and China is leading the way in terms of adopting this large-sized TV.

But then, do you also see the other markets also doing the same as well in terms of getting, buying these much bigger TVs?.

As you know well, is that this -- bigger-sized screen demand is quite good, so -- and then, those, and then trend will then continue in next year, especially and then in the trend is also [indiscernible] the 42-inch also very [indiscernible] due to supply issue, just supply. That's why I think that [indiscernible] conclusion..

Okay. So last question will be regarding the pixel migration for smartphone.

For the overall market, do you think this pixel migration for smartphone is happening faster or slower than your expectation say three to four months ago? And what do you think is coming for [ph], in the coming year in terms of the migration of the pixel for the smartphone products?.

Actually [indiscernible] actually resolution is modular [indiscernible] than total smartphone, so, and then [indiscernible] increase, but this issue is cost and then practicability [indiscernible] it depends on customer strategy and then customer strategy and the market situation, resolution and that portion will be changed.

But it's -- clear thing is actually pushing some modular and then [indiscernible] will be increased, yes..

Okay. Thank you..

The following question will be presented by Nam Hyung Kim from Arete Research. Please go ahead, sir..

Thank you for taking my question. I have two questions on TV panel. So can you give us update on TV panel demand this quarter? I believe OEM TV margins are falling at this time. So do you expect any pressure on TV panel price later this quarter or Q1 next year? And then my follow-up question on LCD fab ramp among Chinese player next year.

I believe BOE [ph], CSOT [ph] [indiscernible] these guys will be ramping gen-8 fab next year. Is this going to make market a little bit more uncertain next year or you're not worried about this due to strong demand? Thank you..

As I already explained, the Q4 price will be stabilized, but its size -- segment by segment will be different. But at the moment it's [indiscernible] short supply and then the price will be stable increase. Other segment [indiscernible] situation still, so [indiscernible] inventory level is quite healthy in the channel and [indiscernible].

So I think the Q4 price will be stabilized, Q4, whereas in Q1 will be slowdown due to some seasonality, it will be natural. Second question was this some Chinese and panel-makers ramp-up. We think that it's, yeah, we see [indiscernible] and then Q3 next year for new fab.

But considering this year and then they're ramping up period and then their quality of product, will be -- considering those factors, ramp-up is slowing down, then up, Korean company [indiscernible] my thinking. Also, and then, Chinese makers have CapEx increase for this.

I think there is [indiscernible] because also, and then large size, and then demand is strong, that's why [indiscernible] and then larger size end-demand..

Okay. Thank you..

The following question will be provided by Ben Lu [ph] from One Capital Management [ph]. Please go ahead, sir..

Hi. Thank you guys. Just had two quick pricing questions. One, you said that your ASP will stabilize on a like-for-like basis in Q4. That means that the large-sized panel ASP should be kind of flattish supposedly [ph] in Q4 because I think seasonal -- historically seasonally it's down Q-on-Q. So I just wanted to clarify that for one.

And second, and just to clarify that you guys did guide for your blended ASP per square up mid-teens for Q4, correct?.

We continue to highlight like-for-like price should be stabilized in Q4. As you already witnessed during past quarter, we already witnessed over the price trend. This kind of over the price trend will be [indiscernible] stabilizing later in Q4. That's our assumption for the price trend.

In terms of blended ASP, they will be shifted meaningfully because of the mix improvement. That's the same answer..

Okay, great. And then my last question is also on your cost side. If I look at your costs excluding depreciation in Q3, that was up about I believe 5% or 6% sequentially. And that's obviously because of the higher mix from mobile. How should we think about your cost increase excluding depreciation in Q4, sequentially? Thank you..

Actually, as we highlighted, blended ASP increase is thanks to the mix change. That is also correlated with cost increase. So in Q4, expect the depreciation over cost structure should be increase. That's because of the mix change. But we cannot tell how much will increase. That's, anyway, it'll be lower than blended ASP increase..

So by definition, margin should improve then, right..

We hope it will improve..

Great. Thank you so much..

The following question will be provided by Andrew Abrams from JG Capital. Please go ahead, sir..

Hi. Just one more question on the OLED side.

Do you feel that you will be able to have enough OLED capacity over the next two or three quarters to be able to supply other panel producers with OLED TV panels, or is your capacity going to be pretty much dedicated to LG Electronics? Can you supply others with the amount of capacity that you're in the process of building out?.

As I mentioned before, at the end of this year we will ramp up second phase of OLED new facility and then we also have [indiscernible] planned increase at the end of next year. So by doing this kind of ramp-up schedule, we believe we can diversify our customer base with -- by the product lineup. So it's okay to meet our customer demand.

Actually our customers, most of our OLED customers are targeting high-end product category. So we believe it's okay to meet the kind of high product category rate..

Got it. Thank you very much.

And one other question on that, as you start to produce OLEDs for small-sized watches, are they going to be done on the pilot line? Are they done on the gen-8 line or are you dedicating a line specifically for Flex that you're going to use aside from the smartphone Flex?.

It's provided from our small-sized facility, 4.5-generation fab [ph]..

So they'll all be made on that line. Okay. Thank you very much, I appreciate it..

There are no participants with questions. [Operator Instructions] The following question will be provided by Jerry Tsai from HSBC. Please go ahead, sir..

Hi. I believe that you recently started to supply this 5K, 3K panels for major U.S. customers [indiscernible] PC. Just wondering, first of all, does this -- is this signal that -- I believe that this -- the panel was made by the oxide technology.

And so my question is, does this suggest you have been making a pretty strong improvement in -- for the oxide and you could actually be expanding this technology to other products? And if so, what would be the products such -- are you -- do you have plan to adopt it in the, say, the smartphone or the tablets or notebook? And also my next question will be, for this ultra-high-definition monitor, do you feel -- do you think this could be a mainstream product going forward, not just for this particular customer but for the rest of the monitor display market? Those are my questions?.

Okay. I think the 5K monitor is a very, very high-end monitor and [indiscernible] so this is not going to end up mainstream. So this is a high-end and then specific area. So, expect the customer is enjoying [indiscernible] and then the margin. So this is not mainstream.

But [indiscernible] we are thinking about many kinds of [indiscernible] in the technology. Some product is [indiscernible] some technology [indiscernible] and then oxide, some technology [indiscernible]. Depends on the cost and then the [indiscernible] customer demand [indiscernible] product and the mix and the technology mix..

But what's some of the factors that makes you decide to choose between LTPS [ph] and the oxide technology..

[Indiscernible] and yeah, we have [indiscernible] and the oxide and then LTPS [ph]. Oxide, LTPS [ph] and then [indiscernible] power consumption [indiscernible]. That's why we [indiscernible] oxide. But it depends on the product and then segmentation. It will be different and then [indiscernible] application [indiscernible] technology.

For example, in the oxide, we are thinking about the tablet area and then some in the IT area. But LTPS [ph], we are thinking -- focus only the smartphone area, okay? So it depends on the product strategy mix [indiscernible] our product line by the technology..

Okay. Thank you..

The following question will be presented by Eric Lin from CIMB. Please go ahead, sir..

Hey. Thank you for taking my question. My question will be centering on OLED.

Can we expect the margin for OLED TV [indiscernible] to cross over LCD TV in your company in two years?.

We hope so. That's our target..

Okay. Thank you.

If that will be the case, what will be the year [ph] rate assumption at that moment and the price premium over LCD TV panel?.

Please understand, as you already know, OLED TV is very infant stage in terms of technology, production, skill and scalability, is very small. So it's unfair to deliver our current [ph] numbers because it's very young and infant stages. So we might deliver the kind of numbers maybe at the end of next year.

That should be a good timing, because we can ramp up meaningful scale for OLED TV facility at the end of next year. Before then, our scale is very low, our material support is very weak. Because of that, our costs should be very high. But at the end of next year, maybe in year 2016, we'll [indiscernible] scale, we try to make money, that's our target.

The assumption is always changing because of the [indiscernible] changes..

I see. Fully understood. So in that case, can you give us some figures about the cost structure comparison between LCD and OLED TV? Let's say the fixed cost percentage and the material cost percentage as percentage of total cost, the comparison between OLED TV and LCD TV right now..

Let's put it this way. Eventually we believe -- let's put it this way. In case of LCD, LCD low material cost is around 6% and fixed cost such as depreciation part is around 15% -- 15%, yup. But in case of OLED, we can eliminate the [indiscernible] is around 40% or 50% among [indiscernible] materials [ph].

So you can get easily the cost structure for the OLED may be two to three years later..

Hee Yeon, so for OLED, we should assume the fixed cost as a percentage of total cost will be higher than that of LCD, right?.

Yes, it's --.

Much higher..

Much higher. In case of fixed cost portion for the LCD, that is around 15%. For now it is expected to be 30-something percent [ph], but it will continue to decline. As we highlighted, right now the equipment cost is very expensive because of our small volume scale.

However, if we continue to increase our equipment order, so, equipment investment cost should also decline further. So the kind of fixed cost portion will decrease going forward..

Eventually the fixed cost percentage will be much higher than LCD, eventually, right?.

Not much higher. It will be declined going forward. So it will be a bit higher, that's our [indiscernible]..

I see. Thanks a lot. That's all from me..

Currently there are no participants with questions. [Operator Instructions].

Operator, if there's no questions, we would like to end the conference call now..

Yes, there are no further questions..

Okay. On behalf of LG Display, we thank you for participating in our third quarter earnings conference call. Should you have further questions, please contact either myself or my colleagues. Thank you..