Hee-Yeon Kim - Head of Investor Relations Sang-Don Kim - Chief Financial Officer Young Kwon Song - Senior Vice President of Strategy and Marketing Group Stephen Ko - Head of TV Marketing Mathew Kim - Head of Market Intelligence.

Nicolas Gaudois - UBS Simon Wu - BoA Rob Stone - Cowen and Company Kyung Min Kim - Daishin Securities Hyun-chul Soh - Shinhan Investment Sang-un Lee - Yuanta Securities.

- :.

[Interpreted] Ladies and gentlemen, welcome to LG Display's First Quarter 2017 Earnings Release Conference Call. We will begin with a presentation followed by a Q&A session. Throughout the call, all participants will be in listen only mode. [Operator Instructions] Now we will start the presentation. I hand over to the speaker. Ma'am, please begin..

[Interpreted] Good morning. Thank you for joining LG Display's Q1 2017 earnings conference call. I am Hee-Yeon Kim, Head of IR. On behalf of the Company, let me thank all of the participants for attending today’s conference call. Let me first introduce the executives present here with us.

First, CFO, Sang-Don Kim of LG Display; Young Kwon Song, Senior Vice President of Strategy and Marketing Group; Duck Young Kim, Head of Corporate Business Management Division; Mathew Kim, Head of Market Intelligence; Stephen Ko, Head of TV Marketing; Kyong-Deuk Jeong, Leader of IT Marketing Division; and [indiscernible] Leader of Mobile Marketing Division.

Today's earning presentation will last around one hour in both Korean and English. There will be a presentation on the Company’s financial performance in the first quarter of 2017 and market outlook to be followed by Q&A. Please refer to our website and attachment to our disclosures for more details regarding Q1 results.

For those of you joining us via the webcast, please refer to the references in the widget on the bottom left corner. Before we begin the presentation, please take the moment to read the disclaimer. Please note that today’s results are based on consolidated K IFRS standards prepared for your benefit and have not been audited by an outside auditor.

With that said, the CFO, Sang-Don Kim will now start with the presentation on Q1 2017 earnings results..

[Interpreted] Good morning and afternoon and evening for those calling in from abroad. This is Sang-Don Kim, CFO of LG Display. I would like to thank our shareholders, analysts and investors for joining LG Display’s Q1 2017 earnings release conference call.

Before presenting the Company’s earnings, if we look back to Q1, ASP maintained a consistently favorable trend led by large display despite the weak seasonality as migration to bigger TV’s continued on the demand side and production constraints continued on the supply side due to limited growth in supply area.

In addition, there was better than expected response from customers and market to OLED TV like the Wallpaper and CSO that we unveiled at the CES this year and interest and demands for POLED are growing.

We will keep broadening and diversifying our customer base by meeting market expectations with the additional OLED TV capacity at E42 to be completed in Q2 this year. The E5 small to mid-plastic OLED line where mass production will begin in the second half is on schedule.

We will ensure successful mass production of the E5 sixth generation plastic OLED by building the Company’s technology and production know-how. Now let me move on to Q1 earnings results in more detail. Revenue in Q1 KRW 7,062 billion down 11% quarter-on-quarter.

This is largely owed to the 7% reduction in area shipment due to limited capacity and job in blended ASP coming from the lower share of mobile. Operating income came in at KRW 1,026 billion up by 14%. Profit grew quarter-on-quarter largely owed to the upward ASP trend in large display.

Premium focused product mix such as large UHD TV's and high resolution high end IT products as well as continuous cost saving efforts. To elaborate more on Q1 area shipment and ASP, area shipment was 10.07 million square meters, down by only 7% quarter-on-quarter despite the seasonality.

This is due to the tight supply amidst continuous size migration. Capacity fell by mid-single percentage quarter-on-quarter, due to a fewer working days and usage for R&D for new products and OLED line conversion.

Blended ASP was down by 5% quarter-on-quarter, although large panel ASP maintained its upward trend shipment of small to mid-display decreased due to seasonality.

TV's share out of as for the revenue share by product; first TV share out of revenue was up five percentage points, thanks to the premium focused product mix such as UHD and continuous rise in large size ASP. But mobile share fell by five percentage points on lower shipment due to seasonality.

IT share remained little changed as a result of profitability focused fab mix. As for financial performance, inventory was KRW 2,283 billion, almost flat quarter-on-quarter. Inventory appears to remain low with tight supply continuing mostly for a large sized TV panel.

The company will closely monitor the market condition and maintain a tight inventory control. Overall, the company remains in sound financial position at the end of Q1 in terms of debt and cash position, thanks to improved market situation and efficient management.

Cash at the end of the quarter was KRW 2,303 billion, down by KRW 419 billion from the previous quarter. Next is on market outlook and the Company’s strategic direction in more detail. Tight supply is expected to continue for large panels on the back of continued size migration and closing of low generation production lines.

There appear to be no major risk factors although some corrections may be possible in some products or sizes. The company will keep a very close eye on the market environment and set makers to react accordingly while ensuring sustainable profitability through different technologies and product mix under the current favorable supply demand dynamics.

Moving on to Q2 guidance, area shipment is projected to be generally flat quarter-on-quarter, due to capacity limitation, but TV shipment is expected to fall slightly or remain flat following the increase in large size panels.

As for the ASP, it is expected to remain on the stable trend albeit with some fluctuations by size and product depending on the supply demand dynamics, but for area ASP, it is likely to drop by single digit percentage due to seasonality of small to mid-size products.

As for the CapEx this year, it is likely to be higher than initially planned amidst growing demand for volume production of new technologies, but coming up with the specific numbers will take time as detailed planning is still under work.

The company is revising its strategic and investment focus as well as detailed planning as the industry is quickly moving from LCD to OLED with better than expected reception of OLED TV like Wallpaper and CSO and growing customer interest and demand for POLED.

We will develop our strategy and plan after a thorough review of market opportunities and risks in light of the timeliness and adequacy of investment, in so far as it does not affect the Company's sound financial position.

Even as we prepare for sustainable growth into the future, the Company will do its best to set itself apart from peers in profitability through rigorous business management and cash flow control under a meticulous scenario planning. This concludes my report, thank you..

This brings us to the end of the earnings presentation for Q1 2017. We will now take your questions. I would like to now ask the operator to please commence the Q&A session..

[Interpreted] We will now begin our Q&A session. [Operator Instructions] Our first question is from Nicolas Gaudois at UBS. Please ask your question..

Yes, good morning, thanks for taking my question. First question, relates to OLED TV panels, you just alluded to better than expected reception of the new OLED TV models, which will launch at CS including the wall paper.

Is this leading you to reconsider your plans for 2018 and 2019 in particular for further conversion of capacity from LCD to OLED in Gen 8.5 next year and potentially in 2019 Gen 10.5 in your P10 side which will currently building up? And after this I have got a follow-up. Thank you. [Foreign Language].

[Interpreted] This is the CFO speaking. Now in the last quarter's earnings release conference call, I talked about the EBITDA for the year in full, and saying that the target is to have the EBITDA in the black and then we will maintain that until the 2019, so we have also talked about the EBITDA target for 2019 as well.

Now having said that, I did mention earlier that yes, the reception from the customers regarding the new OLED TV was quite good, better than expected. Then also there is some view inside the company that there is some upside potential, for example if there is improvement in the yield, then there could also be some improvement in the shipment as well.

So yes there is the possibility of upside potential. But now we have to use 60,000 capacity for this, and so for this year we are going to focus only on securing new customers and diversifying the customer base.

So again yes, there is the upside potential in this area, but for us to fix the timing of let's say changing the plan and so forth would be too early to say at this point.

And I believe that you also asked about the possible additional conversion of the capacity in 2018 and 2019, and yes, I did mention that there is some upside potential, but mostly coming from the demand side, so we believe that there is some upside potential from the demand, so regarding this there are various and a number of investment options that are under review.

Likewise for P10 investment and also investing to meet customer demand, there are various options available that are currently under review and then once we have some kind of decision then we will communicate that with the market..

Great, thank you. And just a quick follow-up on CapEx, you just mentioned upside versus your usual guidance the supply demand, why you’re referring that to upside related to LCD CapEx or if any of that OLED related including your ramp up of Gen 6.

If I recall for LCD, you already have plans to have some capacity in China is soon half of the year in Gen 8.5 in particular because you stop to supplying one of the major TV vendors duet to one of the panel makers are stopping supplying them? Thank you. [Foreign Language].

[Interpreted] Now again this is the CFO. And as I have explained earlier in terms of the possibility of revising our investment plan, it is currently under intensive consideration and review.

Now, I remember explaining this some time ago that in coming up with so far the decision making in investment, there are a lot of factors that have to be considered. For example, the actual size of the CapEx as well as our technological readiness as well as internal capability and also our financial factors as well.

And right now, there are a lot of demands and a number of requirements coming from various customers. So the size of the CapEx will be determined in time in consultation with our customers.

And fortunately, we are currently enjoying a very good favorable market situation in terms of profitability as well as the reputation that we’ve enjoyed from the customers. So we’re going to make our decisions based on the market situation as well as the customer’s requirements.

Now having said that let me also emphasize that our strategic orientation remains that 70% of our CapEx will go into OLED, mostly in the large sized TV panels and plastic OLED..

[Interpreted] The next question is from Jung Yeon-jin [ph] at Korea Investment. Please ask your question..

[Interpreted] I have two questions.

First is, you have to plan to start operation of E5 line in the second half of this year, but then recently as also known in the markets, now one of the major mobile customers so the orders coming from one major customer has been ended, so then, so that means there would be less demand for the LG Displays, LCD panel.

Now, do you believe that by operating the E5 line, you will be able to offset the reduction in the volume and also expected reduction in sales, and if so how much do you believe that you will be able to offset that? And the second question is about the investment, so as the CFO has mentioned earlier, your plan is to invest 70% of your CapEx into the large size and small to mid-size OLED.

But then given you EBITDA, do you believe that it would be possible to maintain the balance in the investment between the large size and the small to mid-size or do you believe that it would be better to focus on one?.

[Interpreted] Now, this is just CFO again. And I believe your first question is pertaining to the LTPS capacity and we believe that the small to mid-size display moving to the plastic OLED is in reversible market trends.

So we would also try to make the investment accordingly in order to keep up with this trend or the movement from the LTPS to plastic OLED. Now, having said that, we believe that there are still market opportunities left for the LTPS LCD.

So utilizing our competitiveness in the generation six line production as well as high quality, we believe they we still have some play left for example the high specifications demand as well as the auto and also the ultra-high resolution smart phones, so for those that we will try to keep utilizing the market of opportunities available.

And regarding your second question about the CapEx for the large OLED and plastic OLED. Now, as the market already is aware of now up until recently, we were in Phase 2 of a large TV mass production and afterwards after receiving the customer perceptions, we have expanded the production and is now providing better value.

And then, for the plastic OLED, yes, we have the technology for this as well as the possibility of successful mass production. Right now, we are in the phase of trying to increase capacity.

Now going back to your question about the CapEx or the 70% of the CapEx going into OLED this year, yes, I do believe that there would be a higher share going into mobile and plastic OLED this year. But let me also tell you that we are going to have a very conservative CapEx spend for OLED because OLED requires higher investment than LCD.

So we would also have to closely review with the customers’ commitment level as well as to level of certainty of market demand as we run a very conservative CapEx spend in OLED..

[Interpreted] [Operator Instructions] Our next question is from Simon Wu at BoA. Please ask your question..

[Interpreted] Thank you for taking my questions.

And first is about the LCD now pricing which has enjoyed very good pricing for three consecutive quarters, but then the industry being cyclical, I believe that there would be some adjustment in the or the correction in the LCD pricing and eventually it might decline again, when do you think that is going to happen, so I like to ask the view from the management?.

[Interpreted] Now I am from market intelligence and now with regards to the demand then right now it is moving from large size to ultra large size and also the resolution is moving toward the higher resolution, for example the UHD.

And then though looking at the supply then that actually there has been some changes since last year, so in the second half of this year, it seems as of the supply increase is going to be at a lower extent compared to last year, and because of this, we believe that the stable pricing will continue for some time into the future.

But then because the panel prices are already somewhat high it also depends on how market will be tolerant of this pricing. So I would say that this is right now quite a flexible..

[Interpreted] Thank you for that. And the next question no from the investor's perspective you also have to be concerned about the initial yield as well as to cost recognition for the current investment into the E5, which is the plan for the plastic OLED for smart phones.

And the CFO earlier mentioned that your plan for this year in terms of EBITDA is to be in the black and in terms of EBIT to be in the black by 2019. I wonder whether this is also inclusive of the plastic OLED.

And the next question is about the sixth generation plastic OLED the business is going to be in the amount of a trillions of one, and I wonder in such a case EBITDA when do you believe that that can be in the black?.

[Interpreted] This is the CFO again and - about the EBITDA being in the black in 2017 and EBIT surplus for 2019 that is for the large size OLED panel.

And as you have also observed for the plastic OLED large scale investment is currently underway and the investment is larger than the LCD and now for such large scale investment as this is continuing for us the first priority is to make sure that production will stabilize as early as possible.

So to be more specific the first challenge or the first priority for the plastic OLED is to secure enough capacity to have the economy of scale.

And second is to build on the existing a large scale - large size OLED panel competitiveness, our experience and also try to create the synergy effect with the large size OLED panel and in doing so have the synergy in terms of cost as well as an investment efficiency and securing the supply chain.

Now in terms of the yield or the EBITDA and please understand that is too early for us to specify how much they're going to be. But then I can tell you that we have been planning for the plastic OLED for quite some time and things are moving along on track..

[Interpreted] Our next question is from Rob Stone at Cowen and Company. Please ask your question..

Good morning, congratulations on the very strong Q1 results.

I wanted to ask if you could provide a little more color on the OLED TV shipments and performance during Q1, could you comment on the panel shipment and also gross margins improved quite a bit from Q4 to Q1 did OLED TV production also contributed to the improved gross profit percentage in the first quarter? [Foreign Language].

[Interpreted] Now this is the CFO speaking again, now regarding the OLED TV panel, yes it seems as if the business is moving in the way that is exceeding our target, so in the first half the shipment on a quarterly basis is 300,000 and in the second half it's likely to be 500,000 per quarter.

Now of course among the questions that we get, there are some about the possible improvements in the profitability much faster than expected. Now as the CFO, I have to remain conservative about our forecasts and expectations.

But then I can say that internally yes, there seem to be positive expectations because of the performance of late that is exceeding the target..

I have one follow-up question if I may. You mentioned that the sales from the E5 line or mass production should start in second half. Can you comment on when is expected for the new lighting OLED lighting capacity? [Foreign Language].

[Interpreted] Now this is a CFO again and so the question was about the OLED lighting, now in terms of the plastic OLED for the E5 line, yes, the mass production at the E5 line for plastic OLED will begin at the end of the Q2 of this year. And then also for the E6 line to GEN 6, now for this, the mass production will begin in the second half of 2018.

And then for the OLED lighting of the Gen 5, now currently we are reviewing the possibility of producing 15,000 in the second half of this year..

[Interpreted] The next question is from Kyung Min Kim at Daishin Securities. Please ask your question..

[Interpreted] Thank you for taking my questions. I have two questions regarding technology. First about the CSO, I understand that the how this works is that there is a vibrating panel and because of this the sound can be made without having speakers.

And I believe that this will have very good applicability for the artificial intelligence areas or voice recognition in the future.

But an international exhibition, you only talked about the applicability for TV’s but I wonder whether there are other applications that you are currently envisioning or do you have any plans to identify and develop other applications?.

[Interpreted] I am from the Strategy and Marketing divisions. And, yes as you have mentioned the CSO, the crystal sound OLED, it does have very good scalability. So we actually do not have any fixed applications for this.

And because of such a broad applicability, we will be making such decisions or such applications in close consultation with our customers..

[Interpreted] I am from IR and I would like to add some explanation to that. Now for LG Display, OLED technology so far in the industry, it has been talked of mostly in terms of the good picture quality as well as how slim it is.

But then as for our investment, our vision into the OLED is of course on one hand, yes the picture quality and the form factor of such slimness of course they’re important as well. But then we also have the value the possibility of convergence, so I would say that the CSO is a very good embodiment of such convergence possibility.

So because of this it would also have scalability and convergence possibility into the fourth industrial revolution and also the voice recognition and artificial intelligence. So because of that there is going to be a lot more R&D and efforts to be made into this and we will also try to broaden its applicability..

[Interpreted] Thank you very much. And actually my second question seems to have been answered by the IR leader already, so that concludes the questions from my part..

[Interpreted] The next question this from Hyun-chul Soh at Shinhan Investment. Please ask your question..

[Interpreted] I also have two questions. First is about the large size TV panel, larger than 60 inch. So what is the increase in the supply or the production of the large size TV panel that is planned for the second half of this year, so in terms of the number of units.

Because I believe that that is going to largely determine the supply and demand dynamics in the second half? And the second question is about the OLED panel that the Sony is receiving from you.

And since because this is pertaining to a particular customer, I understand that you might not be able to respond to this but I just like to know what Sony’s reaction or response is regarding the panel that it is receiving from you..

[Interpreted] I’m from TV marketing division. And now for the super large size TV panels, yes we remained a very strong dominant number one player in the industry. And the target is to have growth at higher than two digits and right now the developments are ongoing.

Now regarding your second question, yes because this is pertaining to a particular customer, it is difficult for us to give you the details, but then what we understand so far is that now the product has been launched in China already, and it is also planned to be launched in the U.S. and European markets respectively in April and May.

And we also understand that although it is a high end high priced products it has been launched quite well, and is enjoying smooth sailing..

Now I'm from the market intelligence division, I would like to elaborate a bit more about the 60-inch and above market. Now for the super large size from the second half of this year, the lineup is going to be expanded more in earnest, so for this year the growth rate would be at the 30% level..

[Interpreted] The next question is from [indiscernible] at Samsung Securities. Please ask your question..

[Interpreted] Now I also have a two questions regarding OLED. Now regarding the large size OLED, now let’s say with the white OLED going to the full HD, now it took about one or two years to reach the golden yield.

So I wonder whether the similar level of yield would be reached for the QHD and also in such a case can we assume the kind of the BEP similar to the other large size OLED level.

And then the second question is about the small to mid-size products, so now for the E5, the E5 yield now for this I wonder now - for the E5 yield now is the plan to reach the yield at the full HD level or will this be at the QHD level? And so another question related to this is that.

Independent of the customers demand, when do you believe that so what kind of yield do you believe it should be reached internally for the company to increase the capacity?.

[Interpreted] Now this is the CFO again, now as was explained in Q4 earnings release, now not only for the large size OLED TV panel and also for large size OLED TV panel, not just for the full HD, but then also for the 55-inch, 60-inch and other sizes, we have reached the golden yield.

So for the LCD it took 10 years, but then for OLED it took about two years for us to reach the golden yield.

And then for the E5 plastic OLED, now as you would understand it takes a lot of efforts and it's quite challenging to secure a sufficient yield in the early stage, but then based on our experience of the OLED cycle we believe that the improvement is rather than being incremental, I believe the improvement would be that we would at a certain point reach the momentum and then see a very rapid upgrade since then.

And for me to specify the target would be very difficult at this point, but then I hope that you would keep a close watch on LG Display on what we do before we move into the mass production stage..

[Interpreted] The next question is from Sang-un Lee at Yuanta Securities. Please ask your question..

[Interpreted] Now looking at the Q4 and also Q1 earnings than if we take away the OLED side and just looking at the LCD, we see that the profitability is actually higher than 20%, so now regarding this, do you believe that there is such a high margin is deserving meaning that because LCD is different from LCD and also the Chinese LCD products, so because the LG Display’s LCD provides higher value in terms of the technology, do you believe that this is a deserving margin that is adequate that has been realized just now finally or do you believe that this is just simply because of the market situation that you are enjoying.

So do you believe that this is an undeservingly high margin that is abnormal and one off and it’s likely to go down again? And the second question is now looking for the next three years, what would be the production roadmap and the technology roadmap for LG Display as well as the other Chinese LCD makers.

Because I believe that for the TV as the size becomes larger in the near future, 75 inch and larger could also become as popular as the 65 inch as it is today.

So in such a case then the resolution will also have to go up to like 6K or 8K, so when do you think that this can be made possible?.

[Interpreted] Now this is the CFO taking your first question. Now it is true that the LCD is recently enjoying a much improved profitability but then whether the current margin rate is appropriate or not, I do not believe that I am in the position to make such a judgment and we also have to take the market supply and demand into consideration.

So it’s quite difficult for us to say whether its certain margin level is appropriate or not. But then what I can tell you is that clearly LG Display has two advantages. One is technological differentiation, for example the technologies that only LG Display has like M-plus and IPS.

So these are the technologies that are different from our peers and that provide better value to our customers. And the second advantage that we have that we offer to the customers is our reliability as a supplier.

So in terms of the experience in mass production and consistency in quality and also the kind of supply chain that we have that ensures on time delivery. So we have to kind of system that enhances reliability for us as a supplier in the eyes of the customer.

And the recent favorable market situation the positive market situation it enables the achievement of our plan the basic strategy of utilizing the profitability of LCD to prepare for the future. So this provides a very good environment for us to make positive progress on such a strategy.

So with this, we could also perhaps pull out the lets say our plans for investing into the plastic OLED and also into the large size OLED and also developing new applications. So overall these built quite well in terms of our planning for the future as well.

Now regarding your second question, I would like to respond in the way of a providing our strategic orientation for the TV business from the year 2018 to 2020. Now first I understand that there are a lot of market concerns regarding the generation 10 by the Chinese makers. So I would just like to elaborate a bit regarding this.

As far as that we understand for the Chinese makers for them to set up the G8 and then go into the 55 inch UHD, I understand that it took them about 6 quarters to 8 quarters to complete this. Now based on this and of course by 2020, the Chinese makers would also accelerate their technological development.

So in such a case the timing could become shorter but still based on our planning for 2018 and 2020, we believe that the LGD has enough strength and advantages to overcome the challenge coming from the Chinese makers.

Now regarding the 8K, now in terms of the market perspective and also in terms of infrastructure readiness and so forth, we believe that 8K will come into full bloom by 2019.

And I believe that by just combining the UIPS technology of IPS as well as the M-plus we will be able to differentiate ourselves from the peers in the 8K amorphous LCD and remain the dominant player..

[Interpreted] The next question is from Jung Yeon-jin at Korea Investment. Please ask your question..

[Interpreted] Now I only have one question. So it seems as if from the forward industries the demand seems to be a bit sluggish for example from the smart phones or a PC and so forth.

So what do you believe is - what is your projection for the demand from this side and how do you foresee this to impact your business?.

I am from market intelligence.

And as you have mentioned, yes it is true that in terms of the unit growth in the like smart phones or television or PC's it seems as if the growth from in terms of volume from this sector is limited, but then when we look at the market by product then there is seems to be growing demand for let's say high resolution products, large size and high quality products and less demand for commoditize products.

And then so that - so in terms of the demand it seems as if that is where things stand today. And then looking at the supply, we believe that supply is also going to remain quite tight now because of the capacity loss that could happen as we focus more on the high quality products as well.

So because of this we believe that in general the supply demand balance will still be maintained..

[Interpreted] We will now close Q1 2017 earnings conference call by LG Display. Thank you once again for joining us today. And thank you very much for your outstanding questions. Please do contact us at the IR team for any additional questions or information. Thank you..

[Interpreted] Closing the conference, we kindly ask you to fill out the survey if you connected to online webcast. Thank you all for attending. You may disconnect now..