By Kim Yoo-chul
LG Display is expected to continue to struggle on the stock market this year as growing capacities from China’s advanced factories will hurt investor sentiment on the company.
The world’s largest supplier of liquid crystal display (LCD) screens suffered a more than 10 percent decrease in its stock price in the last two months, according to the Korea Exchange (KRX), as growing concerns over the industry’s imbalance between supply and demand led to price cuts in display screens.
In a report this week, HSBC said it maintains a “hold” rating on LG Display citing little contribution from LG’s organic light-emitting diode (OLED) display business and diminishing demand for large-sized LCD panels.
“We expect panel prices to go down by up to 15 percent next year. Also, increased costs for an expansion of small-sized OLED displays may affect LG’s operating profit,” the research firm said in the report.
LG Display’s overall profit structure is in sync with LCD panel prices. LCD panels, which are used in all electronic devices from smartphones to televisions, enjoyed brisk sales from the latter half of 2016 through the first half of this year.
But the products are becoming commoditized, meaning they are prone to price changes. This typically leads to stiff competition between suppliers and big price cuts.
Falling TV sales in the world’s top two economies _ the United States and China _ are cited as another reason to result a plunge in panel prices in the fourth quarter of this year. Usually, display panels makers report stronger earnings in the latter half of the year as manufacturers are clearing out their inventories ahead of new product launches in the new year
“The industry will continue to face an oversupply challenge in the large-sized panel segment during the fourth quarter,” IDC, a market research firm, said. “We are conservative about LCD shipments.”
With capacity expansion by Taiwanese and Japanese rivals, LG Display’s plan to add a new OLED panel-producing line in its LCD plant in the Chinese city of Guangzhou is still put on hold. Market analysts say any further delay for an approval about the project from the Korean government will also affect investors’ sentiment on LG.
LG Display is the top-tier display supplier for Apple’s iPhone. At the moment, LG’s cross-town rival Samsung Display is the exclusive supplier of OLED panels for the iPhone X, Apple’s first OLED display-equipped smartphone. It is now the only firm with enough production capacity to meet Apple’s stricter demands.
But Apple plans to diversify its OLED panel sourcing channels to LG Display.
“LG Display is adjusting the production of its LCD panels to prevent it from seeing further profit decline. Its momentum will be revived after it receives more demand for OLED panels from Apple and other vendors, as well as any turnaround of its unprofitable OLED TV business,” a local hedge fund manager said.