A mixed report from LG Display in Q4 2023

Positive earnings overshadowed by need for cash when LG Display (LPL) put in a mixed report on January 24. On the one hand, LPL reported, for instance, its first quarterly profit after six quarterly losses. On the other hand, the relief is not likely to last with further losses in the pipeline for a number of reasons. There is also the issue of the issuance of a huge number of new shares due to LPL’s need for cash to keep going.

Summary

• LPL reported its first profit in almost two years, but LPL is likely to fall into the red as soon as the next report.
• LPL has been forced to raise cash due to losses, which is set to continue with LPL set to issue a huge number of shares in 2024.
• LPL has become a bet on OLED technology, but the race for supremacy in the display market remains wide open.
• Long LPL does not look warranted given the circumstances, but short LPL does not look all that appealing either.

Out of the red, but not for long
LPL did rebound strongly with both the top and the bottom line showing big improvements in the Q4 2023 report released on January 24. LPL finished with net income of KRW51B, which converts to $38M using a USD:KRW exchange rate of 1:1,336. Q4 revenue increased by 55% QoQ to KRW7,396B or $5.54B, although it was up just 1% YoY.

In comparison, LPL posted a loss of KRW775B in Q3 2023 and a loss of KRW2,094B in Q4 2022. Keep in mind that Q4 2022 was weighed down by an impairment charge of KRW1,330B. EBITDA was KRW1,272B or $0.95B, an increase of 233% QoQ and 509% YoY. The table below shows how there was significant improvement to note in the most recent report.

Jan-Dec 2023. Revenue declined by 18% YoY to KRW21,331B or $15.97B. Net loss was KRW2,576B or $1.93B. EBITDA was KRW1,704B or $1.28B. Operating loss increased to KRW2,509B or $1.88B.

The table below shows the reasons behind the sequential improvement. Area shipments increased by 17% QoQ to 5.6M square meters, below guidance of an increase of 19%, but this was offset by average selling prices increasing by 32% QoQ to $1,064 per square meter, much more than the mid-20% guidance called for, thanks mostly to a better product mix.

Keep in mind the Q4 results got an assist from seasonality due to the December holidays. Furthermore, Q1 2024 guidance calls for area shipments to decline by 10% and ASP are expected to decline by mid-20%, both QoQ. Using these guidelines from LPL, area shipments are estimated at 4.32M with ASP of $798, which suggests Q1 2024 revenue in the $3.8-3.9B range, depending on the exchange rate. This is almost certain to cause LPL to fall back into the red with a projected loss of around KRW300B in Q1 2024.

This balance sheet is set for change. LPL has announced plans to raise KRW1.43 trillion or more than $1B in new capital with around KRW394B to be used to pay down debt and the rest to be used mostly for operating expenses and capex spending. The flip side is that LPL will need to issue about 142M new shares, which will raise the number of outstanding shares to around 500M, a fairly large increase of about 39.7%.

LPL has total assets of KRW35,759B and total liabilities of KRW26,989B as of Q4 2023, which means LPL has a book value of KRW8,770B or about $6.57B depending on the exchange rate. If the number of ADS is 943M as of January 26, then book value per depositary share is about $6.97. In comparison, the stock closed at $4.58 per ADS as of January 26.

This gives LPL a market cap of just $4.3B, which stands in contrast to the size of LPL as a company with, for instance, TTM sales of KRW32,331B or $15.97B. LPL trades below book value, which one could argue justifies adding the label undervalued to LPL. On the other hand, a counter argument can be made that while LPL is undervalued in the strictest sense of the word going by the book, LPL still deserves to trade below book value due to persistent losses.

Bleeding red will chip away at book value, especially after raising new capital by issuing new shares. If the number of ADS continues to increase since the end of the December quarter due to the new shares set to be issued, then book value will get closer to the current stock price. Book value is still above the current stock price, but it shows why LPL is not necessarily as undervalued as it may appear at first.

Investor takeaways
LPL was able to achieve its first quarterly profit in nearly two years, but it is very likely to report another loss as soon as the next report, which is the Q1 2024 report. These losses have led to all sorts of consequences for LPL. For instance, LPL has been forced to borrow through loans, which has found its way back to how the balance sheet has deteriorated in the last year. LPL has around $10B of net debt to pay off, which can be quite difficult when you are often in the red.

Most recently, LPL has announced plans to raise over a $1B in cash to finance a range of activities and to pay some of the older debt it has on the books. This time LPL is doing so by issuing a huge amount of shares. It will be difficult for the stock to do well when a large number of new shares are set to hit the market in 2024. The persistent need for additional cash is not likely to appeal to investors.

For detailed results, https://www.lgdisplay.com/eng/company/media-center/latest-news?contentId=5269

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