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 2021 Third Quarter Earnings Results by LG Display. This conference will start with a presentation followed by a divisional Q&A session.

[Operator Instructions] Now we shall commence the presentation on the fiscal year 2021 third quarter earnings results by LG Display..

[Foreign Language] Good morning. This is Brian Hall [ph] LG Display's IR team leader. On behalf of the company, let me thank all the participants at this conference call.

Today, I'm joined by the CFO, DH Suh; Hee-Yeon Kim, Senior Vice President of Corporate Strategy Group; Seung Min Lim, Vice President of Corporate Planning; Stephen Ko, Vice President of TV Marketing; Jae Yong Kwon, Vice President of IT Strategy and Marketing; and Ki-Joon Jin, in charge of Auto Marketing..

[Foreign Language] The conference call will be conducted for one hour in both Korean and English, starting with a presentation on the financial results of Q3 2021 and the company's outlook for Q4, followed by Q&A..

[Foreign Language] Please refer to the provisional earnings release announced today or the IR Events section in the company's website for more details on the financial results of Q3 2021..

[Foreign Language] Before we begin the presentation, please take a moment to read the disclaimer..

[Foreign Language] Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor..

[Foreign Language] With that said, we will now start with the presentation on Q3 2021 earnings results..

[Foreign Language] Let me start off with our business performance in Q3..

[Foreign Language] Revenue in Q3 was KRW 7.223 trillion. Operating profit was KRW 528 billion. Revenue was up 4% Q-o-Q and operating profit was down 25% Q-o-Q. But Y-o-Y, revenue was up 7% and operating profit was up 222%.

Operating profit fell Q-o-Q due to a drop in LCD panel price, rise in materials costs and increased costs from new facility operations..

[Foreign Language] Operating margin was 7%, with EBITDA margin at 23%. Net profit was KRW 463 billion..

[Foreign Language] Next is area shipment and ASP..

[Foreign Language] Area shipment in Q3 was 8.36 million square meters, down 6% from the previous quarter due to decrease in TV panel shipment from soft [ph] global demand and later then trend [ph] shipments of IT panel from part supply issues..

[Foreign Language] Area panel price was $750, up 7% Q-o-Q despite the drop in LCD TV panel price on the back of increased mobile product shipment from seasonality. It was up 6% Y-o-Y..

[Foreign Language] The company's production capacity in Q3 increased 3% Q-o-Q, mostly coming from the 30,000 ramp-up in OLED plant in Guangzhou..

[Foreign Language] Next is Q3 revenue breakdown by product segment..

[Foreign Language] In terms of share out of revenue, IT panel maintained its highest portion at 45%. TV panels came in next with 32%, down 6 percentage points from the previous quarter. Mobile and others accounted for 23%..

[Foreign Language] Next is the company's financial position and ratios..

[Foreign Language] The company's cash and cash equivalents at the end of Q3 was KRW 4.2 trillion.

Inventory was KRW 3.58 trillion, increasing by KRW 857 billion Q-o-Q, owing to deferred shipment to Q4 and build-up of safety stock to prepare against supply chain uncertainties such as power shortage at the production site and continued part supply issues..

[Foreign Language] Financial ratios kept showing improvement. Liabilities to equity ratio was 157%, improved by 7 percentage points. Current ratio was 95%. Net debt to equity ratio came in at 63%, improved by 6 percentage points Q-o-Q..

[Foreign Language] Next is cash flow. Cash and cash equivalents were KRW 4.209 trillion at the end of the quarter, down by KRW 108 billion from the KRW 4.317 trillion at the start of the quarter..

[Foreign Language] Let me now move on to the guidance for Q4..

[Foreign Language] In Q4, area shipment is expected to grow by mid single digit Q-o-Q. The shipment decrease in Q3 coming from part supply issue is expected to recover in Q4..

[Foreign Language] Area price is expected to rise in low single digit Q-o-Q, even with continued drop in LCD TV panel price, thanks to shipment growth in mobile that has higher area price..

[Foreign Language] Next is presentation by the company's CFO, DH Suh, on business performance and strategy..

[Foreign Language] Good afternoon. This is DH Suh, CFO of LG Display. Let me thank the shareholders, investors, analysts and all stakeholders who are participating in today's earnings release conference call..

[Foreign Language] I will first brief you on the main performance and operation strategy for each business in Q3, followed by Q4 outlook..

[Foreign Language] First is main performance of each business in Q3..

[Foreign Language] There were meaningful results in Q3, such as solid performance in IT and strengthening of large OLED positioning in high end TV market despite the volatility in LCD market..

[Foreign Language] In IT, there was some shipment delay due to supply disruption of some components, but the company was able to achieve consistent performance, thanks to our differentiated competitiveness and customer base..

[Foreign Language] In large OLED business as well, demand for OLED panel, which is premium TV, achieved 90% growth year-to-date in Q3 Y-o-Y, despite the globally weak demand for TV set. It was able to further consolidate its positioning in the high end market. The company began capacity ramp-up in Guangzhou by 30,000.

Profitability also improved Q-o-Q and is now expected to turnaround to profit for the year.

[Foreign Language] Let me now explain the operations strategy for each business in more detail..

[Foreign Language] Although volatility in the LCD market keeps growing, the company has continued to make pre-emptive preparation and strengthen stability by focusing on competitive IT through LCD business innovation.

Large and small to midsized OLED business has been stabilized after being deep in the red last year, and we now have the basis to turn around to more than DAP [ph] this year. From next year, we will focus on stable growth and profitability..

[Foreign Language] As a result, we believe that should there be additional worsening of the LCD market, we can maintain stable business operation and absorb a considerable part of the market volatility based on a business structure built for sustainable growth and profitability..

[Foreign Language] By business, large OLED shipment will increase in Q4, thanks to its stronger positioning in the high end TV market. It is expected to turn around to profit for the year and achieve the sales goal of 8 million units..

[Foreign Language] And with the additional 30,000 capacity in Guangzhou that started operation in Q3, we will build the infrastructure to produce 10 million units a year, which will further help drive growth in OLED business..

[Foreign Language] In terms of the market, the mainstream market is contracting in the second half, but the high end keeps growing, creating a wider gap in the market. This is due to the consumer’s willingness to pay more for higher specifications, as TV increasingly becomes a multi-use device with more time spent and higher quality content..

[Foreign Language] Based on such change, LG Display intends to segment the consumer market more finely and develop product offerings customized for each segment. This will help build the basis for profitable growth for large OLED to keep growing and improve profitability at the same time..

[Foreign Language] For small and medium OLED, we intend to turn it into another pillar of future profitability by steadily increasing its volume by strengthening mass production, quality competitiveness and strategic client relations.

We will keep solidifying our partnership with clients to drive volume and new product development and improve our profit structure by broadening product portfolio into wearables, for example..

[Foreign Language] Next is the direction of LCD business. We have been improving our profit structure by pre-emptively converting part of the capacity from highly volatile LCD TV to IT and broadening high end production in IT, by downsizing the business that is directly linked to the market cycle..

[Foreign Language] We also secured stability and longer term volume management in cooperation with strategic clients and continue to generate profit in differentiated business in IT and commercial.

Market volatility keeps growing, but we will pre-emptively manage changes in the LCD TV market, and maintain flexible fab operations with the goal of profitability and competitiveness..

[Foreign Language] Next is Q4 outlook..

[Foreign Language] Shipment growth in mid - the shipment growth of mid-teen percentage is expected in Q4, where shipments fell in Q3 due to component issues, it will recover in Q4. Mobile shipment will also increase, thanks to seasonality..

[Foreign Language] The company also believes that supply/demand uncertainties could continue due to worsening of the LCD market, continued issues with key components and power shortage in China. The company will try to minimize risk by strengthening market monitoring and ensuring thorough pre-emptive management..

[Foreign Language] Next is on financial management activities. Borrowing was reduced two quarters in a row by about KRW 370 billion. CapEx for the year is expected at mid KRW 3 trillion. It will be finalized depending on the timing of equipment moving at year end..

[Foreign Language] Next year CapEx is expected to increase Y-o-Y due to the new investment on small to medium OLED, which was already announced, but we will abide by the principle of CapEx within EBITDA. We will stably manage our cash flow, as we try to improve financial soundness..

[Foreign Language] Last, allow me to respond to the question that was left at the time of registration and frequently received at the IR team. The most frequently asked questions are on OLED business performance, profitability, LCD operation and dividend. I will explain about dividend, which was not covered so far..

[Foreign Language] As was explained at the last earnings release, the company is currently working on a policy that will ensure predictability and practicality over the mid to long-term..

[Foreign Language] Operating profit year-to-date until Q3 was KRW 1.753 trillion, and net income was KRW 1.1531 trillion. This is a meaningful year for the company as we achieved a turnaround after 3 years of deficit. We are positively reviewing dividend for the year.

And as soon as we finalize the dividend amount, we will immediately communicate with the market..

[Foreign Language] Thank you very much for your attention. And one correction from the interpreter. Earlier, it was mentioned that in Q4 area shipment will grow by mid single digit, but let me make a correction that it is actually a mid teen Q-o-Q. So in Q4 area shipment is expected to grow by mid teens Q-o-Q. Thank you.

[Foreign Language] That brings us to the end of earnings presentation for Q3 2021. We will now take questions. Operator please commence with the Q&A session..

[Foreign Language] Now Q&A will begin. [Operator Instructions] [Foreign Language] The first question will be provided by Nicolas Gaudois from UBS. Please go ahead with your question..

The first one is on RGB OLED profitability. You talked about white OLED, but how would you characterize the trajectory for RGB OLED profitability in Q3 and Q4 and for full year and initial thoughts for next year? And secondly, on the LCD side, you talked about running flexible operations.

Would that imply that you would be lowering utilization [ph] rates already for some of the lines or would you intend to do that soon or increase effectively downtime for equipment for maintenance, et cetera? And how is this - or is the current environment influencing the timing of closure of Gen 7 capacity in Korea? Thank you..

[Foreign Language]?.

[Foreign Language] Now first, about the RGB OLED or what we call plastic OLED, anyways the plastic OLED profitability. Now we have two plants, Paju fab and Kumi fab, and I'm not going to specify which fab, but in one major plant, we have already won over the BEP [ph] level.

And for the other plants as well, because of some - there have been some reloading issues. But now compared to the past where we had made a large investment and we're not able to follow-up with proper utilization for some time, we actually had seen losses up to KRW 1 trillion.

But then now today, the two sites combined, we now have the basis for going over the BEP. And going into next year, we look forward to achieving - going beyond the BEP and achieving profitability because we believe that we have laid the capability, as well as the customer and the product structure to make it happen..

[Foreign Language] Regarding your question about the LCD. So I believe that you're asking the flexible operations of the LCD TV side. And now for - overall, now for the LCD fab, Gen 8 capacity, so now speaking only about the Gen 8 capacity, then compared to the end of 2018 because the LCD business began to sour starting in the second half of 2018.

So compared to the end of 2018, then the capacity this year is down by 25%. And now per plant, then we also reduced the capacity in some lines. And also, as you already know, we converted some of the TV capacity to IT. And in this process, there is also some capacity loss, as you would know.

And especially for the IT, we converted mostly to high end products, like high resolution, meaning that there was some capacity loss. At any rate compared to the end of 2018, today, we are down by about 25% in the LCD Gen 8 capacity..

[Foreign Language] But out of the 25% decrease in capacity between 2018 and now, if you look at the capacity adjustment by product, then for TV compared to 2018, it is down by 40%, but for IT, it is up by 30%..

[Foreign Language] [Technical Difficulty] most competitive among the existing Gen 8 fab, it has both the competitiveness, as well as the profitability to keep competing against the peers for some time..

[Foreign Language] Then the question is what about operation of the P7 plant. And for the P7, now again, I mean, this is also, we would say, one of the few plants of this generation left in all of the world, not only in Korea.

So given that it has - it is one of only few Gen 7 plants that are left, we were thinking about what would be the most competitive products to be built out of this plan. And as we had explained earlier, we have differentiated competitiveness in ultra large commercial products, for example, those of 80-inch or larger.

So we plan to keep focusing the G7 plant on producing such ultra-large products. And then for the remaining capacity, we would think about how to flexibly put it into use..

[Foreign Language].

[Foreign Language] The following question will be presented by Sung Hyun Kim from Hanwha Financial Investments. Please go ahead with your question..

[Foreign Language] I have two questions, one each for OLED TV and LCD TV. Now first, about the OLED TV, specialty white OLED. There have been talks from the beginning of this year of the possibility of adding a domestic set customer.

So the question is then what is the possibility of acquiring a new domestic set customer or any other new customer down the road. So if you could share that information with us, to the extent that is possible, then that will be appreciated. And then now it was mentioned in the briefing that the capacity will be close to 10 million.

Now under that assumption, then for the white OLED - or do you believe that in terms of the operating profit for 2022, it will remain similar to the guidance, which was the mid single digit growth in the operating profit? And the second question is about the LCD TV.

Now we see that the LTV TV price continues to decline, but the company's LCD TV business remains in the black. Now then for the company to maintain such profitability, then how much further drop in the LCD TV price can the company accept LCD TV panel.

So the pricing, so how much further drop can the company accept?.

[Foreign Language] Now regarding your first question about the OLED TV and acquisition of a new customer potentially. As you would understand, it is difficult for us to disclose information about customers ask for understanding.

But now for the OLED TV business, of course, we have been working very hard to have the quality at the level that we wanted, as well as the yield and also to secure the production capability. And now that we have them, then we believe that we will now able to make the basis for both growth and profitability at the same time..

[Foreign Language] Now from that perspective, then so far, our customers in this - for the white OLED had been traditional TV set makers. But now we are looking at the market in finer segmentation. And we are already in talks with some of the potential customers.

But we believe that we will be able to acquire new customers aside from the traditional TV set makers. So new customers who would be able to deal with the white OLED and would also be able to appeal to the consumers utilizing the white OLED..

[Foreign Language] So for next year, as I mentioned earlier, we are able to sell 10 million units. And if things go as planned, then we believe that we will be able to achieve a single – mid single digit growth in profitability..

[Foreign Language] And regarding the LCD TV, so your question was how much - so what is the extent of the further drop in the price in the LCD TV panel that will allow the company to remain profitable.

So if I may rephrase your question, I take it as, how much - how - so if I may rephrase your question, then what is the extent of the drop in the price that will still allow us to maintain our business operation? Now for the LCD TV capacity, as I explained earlier, compared to the end of 2018, the capacity is almost half of it.

And most of it is for commercial products. Commercial products, meaning that the specifications are discussed prior with the customers. So in this case, the pricing is quite different from the market price. And this gives us room for maneuver in the LCD business.

And of course, for the commodity products, now for both the Guangzhou plant and the Korea plant, we have no further burden of the depreciation and amortization. So I would say the cost structure is quite different from the peers. And also now then compared to the peers, I would say that in comparison of the COP, then it would be about 5% to 10%.

And that would allow us to stay at least at the BEP level..

[Foreign Language].

[Foreign Language] The following question will be presented by Dong-je Woo from Bank of America. Please go ahead with your question..

[Foreign Language] Now, first of all, my question is about the CapEx. So as we're able to understand from the conference call, for the OLED business, there is going to - there has been the 30k capacity ramp-up in the China plant. And then there was already the ramp up in Gen 6.

Then I wonder why you - the company still needs to have higher CapEx next year compared to this year. So does this mean that the company's business model fundamentally shifted to one that requires higher maintenance cost? I would like to follow up with my next question after the response..

[Foreign Language] For the CapEx next year, as was disclosed already, we have the investment plan for the 15k for small to mid-sized OLED. And that is the reason why there is going to be higher CapEx required..

[Foreign Language].

[Foreign Language] The following question will be presented by Junghwan Kim from Korea Investment Securities. Please go ahead with your question..

[Foreign Language] Now I also have two questions. First is about the TV panel. Well, actually, the TV panel price, we have already discussed this at some length. But then I do not believe that we discussed the IT panel price.

So what is the company's view on the IT panel price trend down the road, because we see that for like PC or notebooks? So the set demand has been strong in the first half, but it started to slow down recently.

So based on this environment, then what is the company's view on the IT panel price? And the second question is about the depreciation and amortization schedule. So given that we - as we see that it is almost certain that OLED will now be turning around to at least BEP.

And perhaps on one hand, it is owed to the higher utilization rate, but perhaps it is also owed to the lower depreciation and amortization. So I wonder if you could explain this part.

And also for the LCD, what is - is there also a schedule for the depreciation and amortization for LCD to also go down?.

[Foreign Language] So first, about the IT panel price. For the LCD TV, yes, the market changes are also affecting the panel price. And - but then now for the IT, relatively speaking, it has - so - I mean, its growth has slowed down somewhat, but still relatively speaking, we believe that the price will remain solid into Q4.

But yes, it is true that compared to the first quarter of this year, then the increase rate has slowed down and is almost becoming flattish..

[Foreign Language] And for next year, we believe that much of the online demand that we had enjoyed is going to go away. But of course, it's not that they will go away completely because there would still be some demand for non-face to face business and remote education and so forth. So the base effect will remain for some time.

And also, on the other hand, much of the B2B market for which the demand had been much declined because of the need for non-face to face, we believe that there is going to be recovery in the B2B market next year..

[Foreign Language] And for the panel price, we believe that start at the press correction would probably start from commodity monitors, so perhaps in the first quarter of next year. And for notebooks, the price correction is likely to start sometime in the second quarter or the third quarter of next year.

But we see that the patterns of the price correction are going to be different between commodity products and high end products because for the high end products, we discussed the specifications with the customers ahead of time.

And determine the pricing based on that, meaning that for the high end products, the pricing is not closely linked with the market. So it actually does not depend on the supply and demand dynamics, but it is more affected by the clients TAM.

But then again, for the commodities, we believe that the price correction is likely to start in the first quarter of next year and for notebooks, second quarter or the third quarter..

[Foreign Language] And your question about the OLED TV profitability. In other words, what are the factors that are driving up the profitability for the OLED TV business is how I understood your question. And there are several factors behind this.

And the first and foremost, I would say it is thanks to the company's internal capability because we were able to achieve considerable improvement in the yield.

And of course, I have to thank the employees for such hard work in achieving this because we were able to improve the yield at a much faster rate than expected, almost to a point of reaching the critical point. Of course, we have to do the exact calculation to determine that, but I believe that we are almost there.

And another is the cost reduction, thanks to cost innovation efforts. And the fact that the sales are more than doubled, this also helped because it then allowed the leveraging effect of the fixed costs, such as the R&D or the marketing cost.

And also for the Paju plant, you would know that it has been built quite some time ago, so most of the depreciation and amortization has gone away..

[Foreign Language] And then your question about the depreciation and amortization for the LCD plant. Now of course, for the investment into any fiber plant, then there would be a major investment or some additional investment for improvement or financial investment.

So some of the other types of investment might remain, meaning that some depreciation and amortization might remain, but depreciation and amortization coming from a major investment for all of - for all of our plants and fabs, that is almost completed..

[Foreign Language].

[Foreign Language] The last question will be presented by Dong-je Woo from Bank of America. Please go ahead with your question..

[Foreign Language] Then I am back with my follow-up question, and this may be a simple but meaningful question, I believe. Now for the fourth quarter, the company is projecting a volume increase of about 15%. And - but then it would be good if we can have the volume deferred from the third quarter actually be realized in the fourth quarter.

But does this mean that the OEMs might be trying to secure excessive volume of panels or does the company believe that there is real demand coming from the OEMs, so despite the uncertainty in the macro environment.

So perhaps the OEMs are trying to make up for the lost production in the third quarter, in the fourth quarter, so if that is the case, and that is going to be a good sign.

But - so more specifically than for the approximately 15% volume increase or the increase in the area shipment, can you explain by application from which application it is going to come most, perhaps not the LCD?.

[Foreign Language] Now for the area shipment, there is - much of their shipment increase will come from IT. So there is the volume deferred from the third quarter.

And as far as we understand, I mean, not only the company, but also other companies struggled with the shortage of component supply, so for the set demand still the supply fall short of demand. So currently, what we need to do is try to do our best to fulfill the customer's demand that continues.

And then also a part of it will come from the OLED TV because traditionally, Q3 and Q4 are where the OLED TV volume is most concentrated. And given that the 30k ramp-up in the Guangzhou is also going into operation, we believe that the OLED TV is also going to make a contribution to the increase in the volume.

And then for the plastic TV, perhaps its contribution to the overall area shipment growth is not going to be much. But in terms of the share percentage of its own growth, we believe that there's also going to be some growth coming from the plastic OLED in Q4.

And in some, yes, as you have mentioned, not much is expected from the LCD TV, but I would say that in other applications, there is expected volume increase coming from customer's demand..

[Foreign Language].

We will now close the Q3 2021 earnings conference call by LG Display. Thank you, once again, for joining us today. Please do contact us at the IR team for any additional questions. Thank you..