[email protected] the market’s transition to oled...
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Korea Information Technology
Investment case: We initiate on LG Display (LGD), a leader in LCD panels
and pioneer in OLED TV panels, with a Buy (1) call and TP of KRW36,000. We
expect earnings to improve in 2017 on the recent recovery in LCD prices. With
LGD’s strength in OLED TV panels and a potential rise in demand from the
mobile segment, we see OLED as the next earnings growth driver.
Catalysts: Key beneficiary of improved LCD market. LCD prices have
rebounded since 2Q16 on a rise in average panel sizes and reduced supply,
and we expect prices to be firm in 2017. Although overall TV and PC demand
is sluggish, we expect solid demand in the premium segment. With its market
share and strength at the high end, LGD will benefit from a market recovery, in
our view. While China panel makers’ plans to invest heavily in large-sized
panels are a threat to the market and LGD, we think it will take them time to
secure competiveness and stable yields on large-sized LCD panels. At the
same time, we see rising OLED investments by major LCD players, including
Samsung Display and the China panel makers, as positive for the LCD market.
Compared with the DRAM industry, a structural change in the LCD market
from consolidation looks unlikely any time soon — but we expect a similar
differentiation in profitability, where the makers with big proportions of premium
products in their product mixes do best. In sum, we see the LCD business
being LGD’s cash cow over our forecast horizon.
Transition to OLED is positive for LGD. We forecast OLED’s penetration of
the premium TV market by revenue to rise to 6.6% in 2018 (2016: 3.3%).LGD
is the sole supplier globally of OLED TV panels, having started mass
production in 2013, and as such it has a distinct edge in technology and
capacity. Indeed, we expect its technology lead to widen when LGD starts
production at its P10 line in 2H18. On the other hand, we expect the transition
to OLED from LCD to accelerate in the mobile arena, with Apple likely to adopt
plastic OLED for its 2017 iPhones. In the small-sized OLED business, though
LGD trails unlisted Samsung Display, we expect it to benefit from new business
opportunities as the No.2 player in OLED globally.
Valuation: We initiate with a Buy (1) call and 12-month TP of KRW36,000,
based on a PBR of 0.97x for 2017E. We compared LGD’s historical yearly
average forward-12-month PBR with its ROE to identify a period when it had a
similar ROE to our 2017E forecast (8.5%). Then we added a 10% premium to
the 2014 average PBR (0.88x) given the new business opportunities in OLED
panels.
Risks: 1) China makers’ early ramp-up of Gen-8 capacity on LCD price
increases, and 2) a delay in LGD securing a stable yield in producing plastic
OLED for mobile devices.
18 November 2016
LGD
Initiation: key beneficiary of the LCD market recovery
We expect LCD prices to remain stable going into 2017
The market’s transition to OLED should be positive for the company
Initiating coverage with a Buy (1) call and TP of KRW36,000
Source: FactSet, Daiwa forecasts
LG Display (034220 KS)
Target price: KRW36,000
Share price (18 Nov): KRW28,500 | Up/downside: +26.3%
SK Kim(82) 2 787 9173
Henny Jung(82) 2 787 9182
95
109
123
136
150
20,000
23,125
26,250
29,375
32,500
Nov-15 Feb-16 May-16 Aug-16 Nov-16
Share price performance
LG Display (LHS) Relative to KOSPI (RHS)
(KRW) (%)
12-month range 20,950-32,150
Market cap (USDbn) 8.67
3m avg daily turnover (USDm) 28.20
Shares outstanding (m) 358
Major shareholder LG Electronics (37.9%)
Financial summary (KRW)
Year to 31 Dec 16E 17E 18E
Revenue (bn) 25,536 26,424 27,360
Operating profit (bn) 953 1,578 1,665
Net profit (bn) 513 1,063 1,085
Core EPS (fully-diluted) 1,435 2,972 3,032
EPS change (%) (46.9) 107.1 2.0
Daiwa vs Cons. EPS (%) 6.0 5.6 5.9
PER (x) 19.9 9.6 9.4
Dividend yield (%) 1.8 1.8 1.8
DPS 500 500 500
PBR (x) 0.8 0.8 0.7
EV/EBITDA (x) 2.8 2.1 1.9
ROE (%) 4.2 8.5 8.1
2
LGD (034220 KS): 18 November 2016
Table of contents
Display industry overview ....................................................................................... 6
Demand and supply outlook ..............................................................................................6
OLED big wave ................................................................................................................ 12
Strong position in TV panels ..................................................................................16
LCD-TV panels: laying the groundwork for OLED ............................................................ 16
OLED TVs – a lucrative market ........................................................................................ 17
Another trend: migration to OLED in mobile ........................................................20
Big risk vs. opportunity ..................................................................................................... 20
New undertakings continuing ................................................................................22
LGD – seeking new applications for OLED ...................................................................... 22
Earnings outlook .....................................................................................................24
Expecting earnings recovery from 2H16 .......................................................................... 24
Capital expenditure .................................................................................................26
Capex rising, but financial structure remains solid ........................................................... 26
Usage of P10: still in question .......................................................................................... 26
Valuation: LCD upcycle is key ................................................................................28
12-month target price of KRW36,000 ............................................................................... 28
Risks to our call ............................................................................................................... 29
Company background .............................................................................................30
3
LGD (034220 KS): 18 November 2016
How do we justify our view?
Growth outlook Valuation Earnings revisions
Growth outlook LGD: revenue and operating-profit margin forecasts
We forecast LGD’s revenue and operating profit to decline
by 10%/41% YoY for 2016E as a result of the decline in
LCD panel prices, which lasted from 1H15 until 1H16. We
expect its operating profit margin to fall to 3.7% in 2016E
due to a deterioration in profitability for LCD panels. But we
forecast the company’s revenue to increase by 3-4% YoY
and its operating margin to widen to 6% in 2017/18E, due
we believe to: 1) an increase in sales of large-sized LCD
and OLED panels, and 2) a recovery in LCD prices from
2H16E from size migration and Samsung Display’s
shutdown of its LCD line at end-2016.
Source: Company, Daiwa forecasts
Valuation LGD: historical 12-month-forward PBR vs. ROE
Historically, LGD’s 12-month-forward PBR has a close
correlation with ROE. As we forecast a 2017E ROE of
8.5%, we focus on the stock’s PBR valuation during 2014-
15, when its ROE was at a similar level. Between these 2
periods, we found that LCD market conditions peaked at
end-2014 and embarked on a downtrend from 2015. Since
we expect 2017 to mark an upcycle for the LCD industry,
we use LGD’s average 12-month-forward PBR (0.88x) in
2014 as our benchmark. Given our view of the company’s
opportunities in OLED, we add a 10% premium to the
0.88x multiple to arrive at our target 12-month-forward PBR
of 0.97x.
Source: Company, Bloomberg, Daiwa forecasts for 2016-17E ROE
Earnings revisions LGD: Bloomberg-consensus earnings revisions for 2017E
The Bloomberg-consensus revenue and operating profit
forecasts for 2017E had been on a steady downtrend in
2016, due mainly to weak LCD panel price forecasts.
However, the consensus revenue and operating profit
forecasts started to be revised up from July, thanks to the
recovery in LCD prices and positive views on the outlook
for the LCD market in 2017E. The revisions to operating
profit forecasts were steeper than those for revenue, which
indicates the market sees the possibility of operating-
margin improvement rather than revenue growth itself. We
assume the market now expects a faster-than-expected
yield improvement for OLED panels, which should lead to a
reduction in production costs for LGD.
Source: Bloomberg, Daiwa Research Note: Bloomberg consensus based on BEst standard
0%
1%
2%
3%
4%
5%
6%
7%
0
5,000
10,000
15,000
20,000
25,000
30,000
2015 2016E 2017E 2018E
(KRW bn)
Revenue OP margin
(10%)
(5%)
0%
5%
10%
15%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
(x)
12mths Fwd (x) ROE(RHS)
0
500
1,000
1,500
2,000
2,500
3,000
25,000
26,000
27,000
28,000
29,000
30,000
31,000
32,000
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16
(KRWbn)(KRWbn)
Revenue OP (RHS)
4
LGD (034220 KS): 18 November 2016
Financial summary
Key assumptions
Profit and loss (KRWbn)
Cash flow (KRWbn)
Source: FactSet, Daiwa forecasts
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
Large-size panel area growth (YoY%) 47.2 34.7 11.6 16.6 (3.8) 4.5 6.6 3.6
Large-size ASP growth (YoY%) (13.9) 0.4 (3.2) (10.0) (16.6) (14.9) (1.4) (6.5)
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
TV 11,552 13,620 11,791 10,555 10,902 9,854 12,439 13,791
Monitor 5,010 5,087 5,328 4,654 4,537 3,857 3,843 3,627
Other Revenue 7,729 10,722 9,914 11,247 12,945 11,826 10,142 9,942
Total Revenue 24,291 29,430 27,033 26,456 28,384 25,536 26,424 27,360
Other income 0 0 0 0 0 0 0 0
COGS (23,081) (26,425) (23,525) (22,667) (24,070) (22,172) (22,391) (23,126)
SG&A (1,974) (2,093) (2,345) (2,431) (2,689) (2,412) (2,456) (2,570)
Other op.expenses 0 0 0 0 0 0 0 0
Operating profit (764) 912 1,163 1,357 1,626 953 1,578 1,665
Net-interest inc./(exp.) (86) (159) (119) (61) (71) (67) (57) (69)
Assoc/forex/extraord./others (231) (295) (214) (55) (121) (115) (155) (201)
Pre-tax profit (1,081) 459 830 1,242 1,434 770 1,367 1,396
Tax 293 (222) (411) (325) (411) (258) (301) (307)
Min. int./pref. div./others 17 (3) 7 (13) (57) 2 (3) (4)
Net profit (reported) (771) 233 426 904 967 513 1,063 1,085
Net profit (adjusted) (771) 233 426 904 967 513 1,063 1,085
EPS (reported)(KRW) (2,155) 652 1,191 2,527 2,701 1,435 2,972 3,032
EPS (adjusted)(KRW) (2,155) 652 1,191 2,527 2,701 1,435 2,972 3,032
EPS (adjusted fully-diluted)(KRW) (2,155) 652 1,191 2,527 2,701 1,435 2,972 3,032
DPS (KRW) 500 0 0 0 500 500 500 500
EBIT (764) 912 1,163 1,357 1,626 953 1,578 1,665
EBITDA 2,888 5,382 4,998 4,850 5,001 4,187 5,656 6,106
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
Profit before tax (1,081) 459 830 1,242 1,434 770 1,367 1,396
Depreciation and amortisation 3,651 4,469 3,835 3,492 3,376 3,235 4,078 4,441
Tax paid 293 (222) (411) (325) (411) (258) (301) (307)
Change in working capital 3,198 (1,156) (2,444) (940) (1,820) 2,398 (161) 12
Other operational CF items (2,396) 1,020 1,775 (605) 147 (547) 82 125
Cash flow from operations 3,666 4,570 3,585 2,865 2,727 5,598 5,065 5,667
Capex (4,063) (3,972) (3,473) (2,983) (2,365) (4,250) (5,050) (5,250)
Net (acquisitions)/disposals 1 59 40 40 447 118 72 72
Other investing CF items 568 225 (1,071) (508) (814) 109 0 0
Cash flow from investing (3,494) (3,688) (4,504) (3,451) (2,732) (4,023) (4,978) (5,178)
Change in debt (36) (67) (553) 345 (23) 1,168 218 52
Net share issues/(repurchases) 0 0 0 0 0 0 0 0
Dividends paid (179) 0 0 0 (179) (179) (179) (179)
Other financing CF items (64) 19 162 60 28 (41) (41) 31
Cash flow from financing (278) (48) (391) 405 (174) 948 (2) (96)
Forex effect/others (6) (13) (6) 50 42 0 0 0
Change in cash (113) 821 (1,317) (132) (138) 2,523 85 393
Free cash flow (397) 597 112 (118) 362 1,348 15 417
5
LGD (034220 KS): 18 November 2016
Financial summary continued …
Balance sheet (KRWbn)
Key ratios (%)
Source: FactSet, Daiwa forecasts
As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
Cash & short-term investment 2,333 2,654 2,323 2,416 2,524 4,078 3,939 4,246
Inventory 2,317 2,390 1,933 2,754 2,352 2,320 2,342 2,419
Accounts receivable 2,953 3,533 3,218 3,564 4,204 3,575 3,435 3,557
Other current assets 1,070 653 1,559 2,033 2,225 2,218 2,221 2,223
Total current assets 8,673 9,230 9,033 10,767 11,304 12,190 11,937 12,445
Fixed assets 14,697 13,108 11,808 11,403 10,546 11,780 12,938 13,797
Goodwill & intangibles 535 498 468 577 839 628 420 351
Other non-current assets 2,073 1,211 1,707 1,747 1,661 948 1,312 1,444
Total assets 25,163 24,456 21,715 22,967 22,577 25,547 26,608 28,036
Short-term debt 801 1,015 908 968 1,416 1,777 1,886 2,053
Accounts payable 3,783 4,147 3,000 3,392 2,765 3,043 2,962 3,087
Other current liabilities 5,328 4,044 2,881 3,190 2,426 3,879 3,684 3,771
Total current liabilities 9,911 9,206 6,789 7,550 6,607 8,698 8,532 8,912
Long-term debt 3,722 3,441 2,995 3,279 2,808 3,615 3,724 3,608
Other non-current liabilities 1,398 1,569 1,134 355 457 750 900 1,250
Total liabilities 15,032 14,215 10,918 11,184 9,872 13,063 13,156 13,770
Share capital 1,789 1,789 1,789 1,789 1,789 1,789 1,789 1,789
Reserves/R.E./others 8,327 8,421 8,822 9,642 10,404 10,207 11,192 11,946
Shareholders' equity 10,116 10,210 10,611 11,431 12,193 11,996 12,982 13,735
Minority interests 15 30 186 352 512 487 470 531
Total equity & liabilities 25,163 24,456 21,715 22,967 22,577 25,547 26,608 28,036
EV 12,018 11,628 11,557 11,973 12,025 11,600 11,920 11,705
Net debt/(cash) 2,190 1,802 1,579 1,831 1,700 1,314 1,671 1,416
BVPS (KRW) 28,314 28,619 30,176 32,932 35,507 34,887 37,593 39,870
Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E
Sales (YoY) (4.8) 21.2 (8.1) (2.1) 7.3 (10.0) 3.5 3.5
EBITDA (YoY) (37.4) 86.4 (7.1) (3.0) 3.1 (16.3) 35.1 8.0
Operating profit (YoY) n.a. n.a. 27.5 16.7 19.8 (41.4) 65.6 5.5
Net profit (YoY) n.a. n.a. 82.7 112.2 6.9 (46.9) 107.1 2.0
Core EPS (fully-diluted) (YoY) n.a. n.a. 82.7 112.2 6.9 (46.9) 107.1 2.0
Gross-profit margin 5.0 10.2 13.0 14.3 15.2 13.2 15.3 15.5
EBITDA margin 11.9 18.3 18.5 18.3 17.6 16.4 21.4 22.3
Operating-profit margin n.a. 3.1 4.3 5.1 5.7 3.7 6.0 6.1
Net profit margin (3.2) 0.8 1.6 3.4 3.4 2.0 4.0 4.0
ROAE n.a. 2.3 4.1 8.2 8.2 4.2 8.5 8.1
ROAA n.a. 0.9 1.8 4.0 4.2 2.1 4.1 4.0
ROCE n.a. 6.2 7.9 8.8 9.9 5.5 8.5 8.5
ROIC (4.5) 3.9 4.8 7.7 8.3 4.5 8.5 8.4
Net debt to equity 21.7 17.7 14.9 16.0 13.9 11.0 12.9 10.3
Effective tax rate 27.1 48.5 49.5 26.1 28.6 33.6 22.0 22.0
Accounts receivable (days) 46.8 40.2 45.6 46.8 49.9 55.6 48.4 46.6
Current ratio (x) 0.9 1.0 1.3 1.4 1.7 1.4 1.4 1.4
Net interest cover (x) n.a. 5.7 9.7 22.4 23.1 14.1 27.9 24.3
Net dividend payout n.a. 0.0 0.0 0.0 18.5 34.8 16.8 16.5
Free cash flow yield n.a. 5.9 1.1 n.a. 3.5 13.2 0.1 4.1
Company profile
LG Display (LGD), formerly LG.Philips LCD, is the largest TFT-LCD panel maker globally, with a 33%
market share (in terms of revenue) in 2015. The company provides OLED panels as well as LCD
panels for TVs, monitors, notebook PCs, and mobile devices. It was established through a 50:50 joint
venture with LG Electronics and Philips Electronics in September 1999, and was listed on the Korea
Stock Exchange and New York Stock Exchange in July 2004.
6
LGD (034220 KS): 18 November 2016
Display industry overview
Demand and supply outlook
Global demand for set devices likely to improve in 2017, yet remain weak
The business performance of display panel makers is considerably affected by the demand
for sets that feature displayers (eg, notebooks, tablets, desktop PCs). According to Gartner
(see chart below), global demand for set devices bottomed out in 2016 and it expects an
improvement in 2017.
According to iHS, LCD-TV shipments contracted YoY in 2015 and are likely to do the same
in 2016 before returning to positive territory in 2017 (see chart, below left). Meanwhile,
demand for notebooks/desktop PCs is still likely to record negative growth in 2016, though
the rate of decline should ease in 2017. According to Gartner (see chart, below right),
notebook demand declined by 13% YoY for 2015 and is set to post a similar decline in
2016 before improving to a 6% YoY decline for 2017. As for desktop PCs, demand is
expected to be flat in 2017 after a number of years of negative growth. Since TV panels
account for 70% of the industry’s total panel shipments based on area, we believe that just
2% YoY growth in LCD-TV set demand would be enough to cover a slight contraction in
notebook and desktop PC demand, which we expect to remain sluggish in 2017.
However, one notable trend in the global set devices market is more rapid growth in the
premium segment. While we expect total TV shipments to increase at a 2% CAGR for the
next 5 years (2016-20E), the premium TV segment should see a 30% CAGR over the
same period. The same thing is likely to happen in the PC market, where Gartner forecasts
premium ultramobile shipments to show a 16% 5-year CAGR (vs. a 5-year CAGR for total
PC shipments of -0.5%)
Note: iHS is a leading provider of detailed information on diverse markets and economies
around the world. With the addition of Display Search, which joined iHS in 2014, it now has
a rich portfolio of historical data on the display market.
Global LCD-TV demand forecasts Global set devices demand forecasts
Source: iHS, Daiwa forecasts Source: Gartner (Forecast: PCs, Worldwide, 2014-2020, 3Q16 Update by Ranjit Atwal, Kanae Maita, Annette Jump, Lillian Tay, Roberta Cozza , Bruno Lakehal, Tracy Tsai, Annette Zimmermann, Atsuro Sato, Mikako Kitagawa, Isabelle Durand, 29 September 2016)
(2%)
(1%)
0%
1%
2%
0
50
100
150
200
250
2015 2016E 2017E
(m units)
LCD TV y-y growth
(40%)
(20%)
0%
20%
40%
60%
80%
100%
2013 2014 2015 2016E 2017E 2018E
(YoY %)
Notebook Desktop Tablet
LCD-TV demand to turn
positive, while decline in
demand for desktops/
notebooks should slow
More rapid growth for
the premium segment
7
LGD (034220 KS): 18 November 2016
Premium TV shipment forecasts (vs. total TVs) Premium ultramobile PC shipment forecasts (vs. total PCs)
Source: iHS, Daiwa forecasts Note: Premium TV includes >4k resolution, both LCD and OLED
Source: Gartner (Forecast: PCs, Worldwide, 2014-2020, 3Q16 Update by Ranjit Atwal, Kanae Maita, Annette Jump, Lillian Tay, Roberta Cozza , Bruno Lakehal, Tracy Tsai, Annette Zimmermann, Atsuro Sato, Mikako Kitagawa, Isabelle Durand, 29 September 2016)
Note: Ultramobile includes Microsoft’s Windows 8 Intel x86 products and Apple’s MacBook Air
Panel area shipments by application (2015) Average panel size by application (2015, diagonal inch)
Source: iHS, Daiwa Research Source: Daiwa Research Note: Diagonal inch calculated assuming 16:10 base
Shipments: focus on area over units
According to iHS, global panel unit shipment growth was -1% in 2015 and is expected to
be similar in 2016 (-2%). We expect unit shipment growth to return to positive territory next
year, albeit modestly (1.4% YoY growth).
However, we highlight size migration as a key driver of demand growth across
applications. The average panel size of large-size LCDs has grown consistently since they
hit the market. In particular, the average sizes of monitor panels and TV panels, which
account for 82% of total panel area shipments (global, 2015), grew by 5%/11%,
respectively, over past 3 years (from 2Q13 to 2Q16).
This means that shipment area growth has always been higher than shipment unit growth,
and area growth was sometimes positive even when unit growth was negative (2015:
+5.4%, 2016E: +4.5%, 2017E: +4.9%). We believe this size migration trend will continue
and work in favour of the LCD makers in terms of area demand growth.
0
50
100
150
200
250
300
2014 2015 2016E 2017E 2018E 2019E 2020E
(units m)
Premium TV Total TV
0
50
100
150
200
250
300
350
2014 2015 2016E 2017E 2018E 2019E 2020E
(units m)
Ultramobile premium Total PC
LCD/OLED Monitor10.6%
LCD/OLED TV70.9%
Notebook/Tablet PC
7.3%
Public Display1.5%
Other9.7%
21.4
39.6
13.0
47.9
4.9
0 10 20 30 40 50 60
LCD/OLED Monitor
LCD/OLED TV
Notebook/Tablet PC
Public Display
Other
While shipment growth
remains muted,
increases in average
panel sizes should drive
overall area shipment
growth
8
LGD (034220 KS): 18 November 2016
Global display panel shipment (unit) Global display panel shipments (area)
Source: iHS, Daiwa forecasts Note: Data includes both LCD & OLED panels
Source: iHS, Daiwa forecasts Note: Data includes both LCD & OLED panels
Panel demand by application (unit) Panel demand by application (area)
Source: iHS, Daiwa forecasts Note: Data includes both LCD & OLED panels
Source: iHS, Daiwa forecasts Note: Data includes both LCD & OLED panels
Global panel shipments YoY growth (unit vs. area) Large-area LCD shipment unit growth forecasts
Source: iHS, Daiwa forecasts Note: Data includes both LCD & OLED panels
Source: iHS, Daiwa forecasts
Average size of LCD-TV panels – historical trend Average size of LCD monitor panels – historical trend
Source: iHS, Daiwa Research Source: iHS, Daiwa Research
(3%)
(2%)
(1%)
0%
1%
2%
3%
4%
3,000
3,050
3,100
3,150
3,200
3,250
2015 2016E 2017E 2018E
(m unit)
Global display shipment (unit) Growth YoY%
0%
1%
2%
3%
4%
5%
6%
7%
160
165
170
175
180
185
190
195
200
205
210
2015 2016E 2017E 2018E
(m sqm)
Global display shipment (area) Growth YoY%
(15%)
(10%)
(5%)
0%
5%
10%
0
50
100
150
200
250
300
350
2015 2016E 2017E 2018E
(m unit)
Monitor TV
Notebook/Tablet Monitor y-y growth (RHS)
TV y-y growth (RHS) Notebook/Tablet y-y growth (RHS)
(15%)
(10%)
(5%)
0%
5%
10%
15%
0
40
80
120
160
2015 2016E 2017E 2018E
(m sqm)
Monitor TV
Notebook/Tablet Monitor y-y growth (RHS)
TV y-y growth (RHS) Notebook/Tablet y-y growth (RHS)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E 4Q16E
unit growth (y-y%) area growth (y-y%)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16E 2Q17E
(QoQ %)
Monitor Notebook Tablet PC TV
35
36
37
38
39
40
41
42
43
Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16
(inch)
Average TV panel size
20.6
20.8
21.0
21.2
21.4
21.6
21.8
22.0
22.2
22.4
22.6
Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16
(inch)
Average Monitor panel size
9
LGD (034220 KS): 18 November 2016
Supply growth could be limited in 2017
LCD capacity growth has slowed in 2016 and we expect it to be limited in 1H17, due to: 1)
Samsung’ Display’s recent decision to stop producing LCDs at its Tangjong Line 7-1 to
further focus on OLED, and 2) Panasonic’s move to shut down its LCD-TV panel
production facility at Himeji. The current area capacity of the L7-1 is 1,370 k sqm, which is
around 10% of SDC’s total LCD capacity. According to iHS forecasts, global LCD capacity
will decline by 0.2-1% YoY from 1Q17-3Q17, which would be the first time LCD capacity
had shown negative growth since LCD displays entered commercial production. However,
as LCD prices are widely expected to increase in 2H16 and 1H17, we see the possibility of
a further supply increase from suppliers raising utilisation rates and adding capacity from
2H17.
Major LCD panel players’ capacity
LCD capacity** % to global capacity 2015
(’000 sheet) (k sqm) (substrates) (area) M/S* Revenue (USDm) OP (USDm) OPM (%)
LGD 3,818 13,781 16.9% 20.9% 27% 25,546 1,463 6%
Samsung Display 2,865 12,473 12.7% 18.9% 21% 24,741 2,061 8%
Innolux 4,416 9,507 19.5% 14.4% 17% 11,467 719 6%
AUO 3,030 8,123 13.4% 12.3% 16% 11,343 548 5%
Source: iHS, Daiwa Research Note: *market share in large-size LCD; **TFT capacity: quarterly data based on 2Q16
Area-based LCD capacity trend (’000 sqm)
Source: iHS, Daiwa forecasts
LCD glut to be stabilised until 2017 & stable ASP to continue in 2017
Along with slowing supply growth we expect continuously growing panel sizes and TV
OEMs re-stocking inventory to contribute to a tighter supply-demand balance in 2017.
Large-area LCD ASP growth, which had been in negative territory for 5 consecutive
quarters until 1Q16, turned positive in 2Q16 and we expect growth to remain positive in
2H16. Although large-area LCD ASP could show slightly negative growth in 1Q17 due to
seasonality, we expect it to be relatively stable throughout 2017 thanks to a stabilisation of
demand-supply conditions. We forecast supply growth (6% YoY) to exceed demand growth
(4% YoY) in 2016 based on area, but to lag in 2017 (supply growth: flat YoY, demand
growth: 4% YoY).
However, if LCD panel prices remain strong, there is the possibility of an oversupply
situation ensuing due to panel makers’ raising utilisation ratios, which in turn would likely to
lead to a decline in ASPs.
(2%)
0%
2%
4%
6%
8%
10%
48,000
50,000
52,000
54,000
56,000
58,000
60,000
62,000
64,000
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16E 1Q17E 3Q17E
LCD capacity (LHS) YoY growth (%)
LCD supply growth likely
to be capped by line
shutdowns
10
LGD (034220 KS): 18 November 2016
LCD demand-supply outlook
LCD oversupply looks
set to be relatively low
from 2H16 to 1H18
Source: iHS, Daiwa Research
Large-area LCD monthly ASP – historical Small-medium LCD monthly ASP – historical
Source: iHS, Daiwa Research Note: ASP per unit
Source: iHS, Daiwa Research Note: ASP per unit, Small/Medium – 9.0-inch and below
LCD TV panel quarterly ASP – forecasts Small-medium LCD quarterly ASP – forecasts
Source: iHS, Daiwa forecasts Source: iHS, Daiwa forecasts Note: ASP per unit, Small/Medium – 9.0-inch and below, also including >9.0-inch for Automotive display
China’s aggressive capacity ramp-up plan a threat from 2018
We note that the China panel makers are rapidly ramping up their capacity in large-size
LCDs, whereas the likes of LGD and SDC are being relatively passive about increasing
their capacity. According to forecasts by iHS, China’s capacity by area will account for 40%
of global capacity by 2018E, up from 23% in 2015 and 6% in 2011. In collaboration with the
local government, China’s BOE plans to invest CNY40bn to give it the capacity to produce
90k panels at Gen-10.5 by 2018, adding 3,567 k sqm of quarterly capacity. Meanwhile,
CSOT and its parent company, TCL, recently announced plans to invest CNY46.5bn with a
view to mass producing Gen-11 (3,100*3,440mm) panels by 2019. The plans call for
another 2,879 k sqm area of capacity per quarter (compared with LGD’s current >Gen-8
capacity of 2,310 k sqm/quarter). Separately, SDC has invested CNY2.1bn, keeping its
9.8% stake in CSOT’s LCD production line rather than directly producing >Gen-10 LCD
0%
5%
10%
15%
20%
25%
0
10,000
20,000
30,000
40,000
50,000
60,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
('000 sqm)
Supply Demand Seasonal Glut Level
70
75
80
85
90
95
100
105
Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16
(US$)
Large-area LCD ASP
3
4
5
6
7
8
Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16
(US$)
Small-medium LCD ASP
90
100
110
120
130
140
150
160
170
1Q15 3Q15 1Q16 3Q16E 1Q17E 3Q17E
(US$)
TV
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
1Q15 3Q15 1Q16 3Q16E 1Q17E 3Q17E
(US$)
Small-size
11
LGD (034220 KS): 18 November 2016
panels. By contrast, the Korean companies intend to invest mainly in OLED facilities while
remaining relatively passive about further investment in large-size LCD.
Other than >Gen-10 LCD, the Chinese panel makers are also preparing for Gen-8 LCD
panel facilities with a view to commencing mass production in 2H17. However, as the
Chinese panel makers are becoming interested in OLED as well, it is possible their LCD
investment and production plans could be delayed, which would be positive for the broader
LCD market, in our view. Six major Chinese panel makers plan to invest a total of CNY2trn
in OLED facilities by 2020. For example, BOE is establishing a mobile-OLED facility in
Qingdao and plans to begin mass production by 2019. Once operational, the plant will
have the capacity to produce OLED displays for 10m smartphones per month. In addition,
CSOT is investing in an OLED facility in Wuhan with a capacity similar to that of BOE’s
Qingdao factory.
China: large-size LCD investment plan
Company Total investment Gen Mother Glass *Capacity (k unit) *Capacity (k sqm) Mass production
BOE CNY40bn 10.5 2940 x 3370 mm 120/month 3,567/quarter 2018
TCL & CSOT CNY46.5bn 11 3100 x 3440 mm 90/month 2,879/quarter 2019
Source: Compiled from various media, Daiwa Research Note: Capacity at the end of the line, cannot be fully achieved at the point of starting mass production
China: large-size LCD capacity ramp-up forecast
Company Factory Gen Mother Glass
Planned capacity (k sqm/quarter)
1Q17E 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E
BOE Fuqing B10 8 2200 x 2500 0 413 990 990 1,320 1,650 1,980 1,980
Hefei B9 10.5 2940 x 3370 0 0 0 0 446 892 1,486 1,783
HKC Chongqing 8.6 2250 x 2600 0 614 1,141 1,229 1,229 1,229 1,229 1,580
LGD Guangzhou 2 8 2200 x 2500 825 1,238 1,485 1,485 1,485 1,568 1,650 1,650
Source: iHS, Daiwa Research
China: LCD capacity forecast China: LCD capacity share forecast
Source: iHS, Daiwa forecasts Source: iHS, Daiwa forecasts
LCD capacity: share by country (based on area)
China’s LCD capacity is
forecast to account for
40% of the global total
by 2018
Source: iHS, Daiwa forecasts
0
20
40
60
80
100
120
2011 2015 2018E
(m sqm)
China LCD capacity
6%
23%
40%
0%
10%
20%
30%
40%
50%
2011 2015 2018E
China M/S
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17
E
1Q18
E
1Q19
E
China India Japan Korea Taiwan Others
12
LGD (034220 KS): 18 November 2016
However, we believe that the Chinese companies are not yet proven in terms of technology
on >Gen-10 substrates and there are doubts as to whether they can achieve competitive
yields that would make them a threat to LGD within the next 2-3 years. We note that LGD
has no plans to develop a >Gen-10 facility, not only because of the cost and technology
considerations, but because if it does so there would be a trend shift toward larger panels,
which would likely favour the Chinese companies. Instead, LGD plans to focus more on
boosting its yield and glass efficiency, with the goal of further stabilising costs for its
existing large-size LCD facilities.
LGD’s Gen-8 line is currently optimised for 48” and 55” panels, for which it achieves 90%-
plus glass efficiency. However, based on our calculations, if the company produces >60”
panels on this line, it could produce only 3 panels/glass and glass efficiency would fall
below 70%. On the other hand, Gen-10.5 and Gen-11 glass is used mainly for >60” panels
and glass efficiency tends exceed 90% for these larger-size panels, on our estimates.
However, the average TV panel size in the market stands at around 40”, and given
average growth of just 3.5% pa in this average size over the past 3 years, we believe it
won’t be easy to shift mainstream demand to 60”-plus TVs. Furthermore, Samsung’s
recent decision to cease production on its 7-1 line and focus on OLED points to tighter
supply conditions in the LCD segment. In this context, we believe this is a good time for
LGD to focus on stabilising costs in its current production of LCD TV panels while
sharpening its competitiveness in OLED TV panels.
Number of panels available from each generation mother glass
Gen MG Size 40 43 44 47 48 50 55 56 60 65 70 71
8 2200 x 2500 8 8 8 8 8 6 6 3 3 3 3 3
Glass efficiency 64% 74% 78% 89% 92% 75% 91% 47% 54% 64% 62% 64%
10.5 2940 x 3370 18 18 15 12 12 12 8 8 8 8 8 8
Glass efficiency 80% 93% 81% 74% 77% 83% 67% 70% 80% 94% 92% 95%
11 3000 x 3320 18 18 15 15 12 10 8 8 8 8 8 8
Glass efficiency 80% 92% 80% 92% 77% 69% 67% 69% 80% 94% 92% 47%
Source: iHS, Glass efficiency calculated by Daiwa Research Note: >90% glass efficiency highlighted with red; 40”-65” based on 16:9 panel; 70”-80” based on 21:9 panel
OLED big wave
Trend shifting to OLED
Samsung Electronics has been using OLED displays in its flagship smartphone models
since 2010, when it launched the Galaxy S1, and many observers expect Apple to switch
from LCD to OLED displays for its next-generation iPhones in 2017. Away from the phone
segment, LG Electronics (066570 KS, KRW46,850, Outperform [2]) launched the world’s
first OLED TV in 2013, and it continues to expand its line-up of OLED TVs.
Global OLED capacity based on area capacity expanded by a 32% CAGR from 2013-15,
compared with a 5% CAGR for global LCD capacity in the same period. According to iHS
forecasts, the global area capacity of OLED will see a 51% CAGR from 2016-19, pushing
OLED penetration of area capacity to 10.4% by 2019 from 2.6% as of 2015. It is important
to note that while OLED penetration in terms of total areas capacity appears to be growing
slowly, mobile devices are rapidly adopting OLED displays. Hence, we expect OLED
penetration in mobile devices to reach 70% in 2020 (vs. 41% in 2016).
Korea is the clear leader right now in the OLED industry, accounting for 95% of area
capacity as of 2015, according to global capacity data from iHS. Given the Korea
companies’ plans for further investment in new facilities and OLED production lines, we
believe Korea will still account for around 85% of global OLED capacity in 2018, even
allowing for aggressive investments by companies in China and Taiwan.
We believe there are
question marks over
Chinese companies’
technology acumen at
>Gen-10 panels
OLED area capacity has
rapidly ramped up
globally, whereas LCD
capacity growth remains
low
13
LGD (034220 KS): 18 November 2016
Area capacity expansion (LCD vs. OLED) OLED penetration (based on area capacity)
Source: iHS, Daiwa forecasts Source: iHS, Daiwa forecasts
Mobile display revenue growth (LCD vs. OLED) OLED penetration in mobile phones
Source: iHS, Daiwa forecasts Source: iHS, Daiwa forecasts Note: Penetration calculated based on revenue
OLED capacity by country (‘000 sq m)
OLED area capacity
forecast to see a 48% 5-
year CAGR through
2019E
Source: iHS, Daiwa forecasts
What makes OLED attractive?
Display technologies are constantly evolving to feature better picture quality, more stylish
designs, and greater energy efficiency. LCD displays first arrived on the market as a
replacement for the then-mainstay cathode ray tube (CRT) displays, and OLED displays
are being progressively improved to the point that we believe they can be considered next-
generation solutions.
1) Life-like image quality
OLED displays deliver a broader colour gamut and offer better viewing angles than LCD
displays. Moreover, OLED displays have contrast ratios 13,000 times higher than those of
LCD displays. The result: OLED displays offer life-like images without being prone to
distortion at some angles.
0%
10%
20%
30%
40%
50%
2014 2015 2016E
(YoY %)
LCD OLED
2.1% 2.6% 3.2% 4.8% 7.1% 10.4%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E 2019E
LCD OLED
(30%)
(20%)
(10%)
0%
10%
20%
30%
40%
50%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2015 2016E 2017E 2018E 2019E 2020E
(USD m)
Total LCDOLED Total YoY growthLCD YoY growth OLED YoY growth
27% 33% 41% 49% 56% 65% 70%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E 2019E 2020E
LCD OLED
0
2,000
4,000
6,000
8,000
10,000
12,000
1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17E 3Q17E 1Q18E 3Q18E 1Q19E 3Q19E
(k m2)
China Japan Korea Germany Singapore Taiwan
14
LGD (034220 KS): 18 November 2016
2) Transformable form factors
Second, OLED technology can be applied to a number of different designs. As OLED
displays do not need to be backlit, it is easier to modify screen form factors to be thinner,
flexible and foldable.
3) Energy-efficiency
Moreover, OLED displays are more energy-efficient as they only require LED lights in a few
areas, whereas for LCDs the backlight remains continuously turned on. Thus, an OLED
consumes 30% less energy compared to LCD, so that batteries last for longer time.
4) Low manufacturing costs in the longer term
According to Barry Young, Managing Director of the OLED Association, depreciation
accounts for 45% of OLED manufacturing costs and material costs comprise 35%,
whereas for LCDs, depreciation accounts for 17% and materials 70%. In other words, LCD
displays have a larger component of raw material costs whereas OLED displays still have
room for cost reductions because depreciation costs decrease as economies of scale are
realised.
Colour gamut by display technology Flexible display
Source: Company, Daiwa Research Source: Company, Daiwa Research
OLED structure vs. LCD
Thin and flexible design
available without a
backlight unit
Source: Company, Daiwa Research
15
LGD (034220 KS): 18 November 2016
OLED technologies (RGB OLED vs. white OLED displays)
While LGD is leading the large-size OLED TV panel segment on the basis of its white
OLED (W-OLED) technology, Samsung Display is leading in small-size OLED panels for
mobile devices on the basis of its RGB OLED technology. While W-OLED requires a colour
filter and is inferior to RGB in terms of contrast/brightness, it is easier to produce in low-
cost large-size panels. On the other hand, RGB OLED technology is superior in terms of
display quality, but difficult to produce in large-sized panels due to yield and cost issues.
RGB vs. W-OLED
RGB OLED White OLED
Pixel Structure
Merits - Low power & long lifetime - Relatively good viewing angle
- Easy process with >Gen-8 glasses - High resolution
Demerits - Relatively difficult process - Color mixing issue - Thickness uniformity
- High power consumption - Viewing angle issue - Short lifetime
Source: Information Display, Daiwa Research
16
LGD (034220 KS): 18 November 2016
Strong position in TV panels
LCD-TV panels: laying the groundwork for OLED
Beneficiary of the LCD market recovery
LCD-TV panel ASPs marked positive MoM growth from June to October this year, while
32” open-cell HD and 43” open-cell FHD panels saw 43%/44% growth over this period. We
expect such a strong pricing environment to continue in 4Q16, due mainly to: 1) the
contraction in supply from the migration to large size panels, 2) Samsung Display cutting
back its 7-1 line production, which currently has Gen-7 panel capacity of 150k/quarter.
Samsung Display plans to stop LCD panel production at its 7-1 line within this year and
remove the equipment to be ready for Gen-6 OLED production.
As mentioned in the industry overview, we look for LCD supply-demand to continue to
improve in 2017, thus leading to a stabilisation of panel prices.
Size migration to offset muted quantity growth
LGD is a solid leader in LCD-TV panels, with a 25% global market share as of 1H16 (vs.
24% market share from 2014-15). As the LCD-TV market is already saturated, unit
shipment growth is likely to be muted over our forecast horizon. According to iHS
forecasts, LCD-TV YoY shipment growth was almost flat in 2015 and is expected to come
in at -1.3%/1.7% in 2016-17E.
However, as the premium TV market grows, we expect LGD to benefit from size migration,
while offsetting muted quantity growth. Average LCD-TV panel sizes have increased
continuously from 38” in 2013 to 40” in 2015, and we expect sizes to rise further to 44” in
2017. Meanwhile, LGD’s production mix is heavily skewed towards premium/large panels,
and as such we believe the company will benefit from size migration as well.
As LGD has a record of responding flexibility to market conditions by optimising glass
efficiency and fab utilisation, we believe it will take the proper action to deal with prevailing
market conditions. Based on the production area for 2Q16, we estimate there is still room
for LGD to increase its LCD production capacity by 5-6% assuming a 95% fab utilisation
ratio.
LCD-TV panel global market share LCD-TV ASP growth by size
Source: iHS, Daiwa Research Note: % calculated based on revenue
Source: iHS, Daiwa Research Note: Calculated based on monthly average price
24% 24% 25%
22% 22% 19%
14% 12% 12%
19% 17% 15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 1H16
LGD SDC AUO Innolux Sharp CSOT BOE Others
(5%)
0%
5%
10%
15%
20%
Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16
(MoM %)
32" open-cell HD 43" open-cell FHD 55" open-cell UHD
Panel size migration and
the tight supply of LCD-
TV panels should be
positive for LGD
17
LGD (034220 KS): 18 November 2016
TV panel shipments by size – shift into larger panel Average LCD TV panel size – trend and forecast
Source: iHS Source: iHS, Daiwa forecasts
Stable profit from LCD-TV panels to back up investment in OLED
Reflecting its years of expertise in LCD-TV panels, LGD earns a stable operating margin
from this product, peaking at around 20% in 1Q15-3Q15. LCD-TV panels generated
KRW9.2tn in revenue last year for the company, with a 14% operating-profit margin. We
believe stable operating profit from LCD-TV panels will support the company’s investment
in OLED displays, and make up the initial cost incurred by its OLED production facilities.
LGD: premium LCD TV panels LGD: revenue forecast – LCD-TV panels
Source: Company, Daiwa Research Source: Company, Daiwa forecasts
LGD: shipment area forecast – LCD-TV panels LGD: ASP forecast – LCD-TV panels
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
OLED TVs – a lucrative market
100% market share in OLED panels, with technology leadership
LGD currently has a 100% market share in OLED TV panels, with Gen-8 capacity of 34k
sheets/month on its P9 production line. The company plans to convert 52k sheets/month
capacity of a-Si LCD capacity into 26k sheets/month of OLED displays, to have 60k
sheets/month OLED capacity by 1Q17. Based on its leadership in technology and capacity,
we think the company is well-placed to remain a leader in the premium TV panel market.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16
<32" 32"~42" 43"~52" 53"~75" >75"
32
34
36
38
40
42
44
46
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16E 1Q17E 3Q17E
(inch)
TV panel
(30%)
(20%)
(10%)
0%
10%
20%
30%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
(KRW bn)
Revenue YoY growth (RHS)
(10%)
0%
10%
20%
30%
0
2,000
4,000
6,000
8,000
10,000
1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
('000 sqm)
Shipment area YoY growth (RHS)
(16%)
(12%)
(8%)
(4%)
0%
4%
0
50
100
150
200
250
300
1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
(US$/sqm)
ASP QoQ growth (RHS)
Currently LGD is the
sole supplier of OLED
TV panels in the world
18
LGD (034220 KS): 18 November 2016
According to iHS forecasts, OLED TV penetration is continuously growing and will reach
6.6% based on revenue and 2.4% based on unit shipments in 2018. LGE is the only TV
maker to use OLED panels at the moment. However, we expect Sony (6758 JP, JPY3,325,
Buy [1]) to decide to produce OLED TVs from next year using OLED panels supplied by
LGD, and other Japanese and Chinese TV OEMs such as Panasonic and Skyworth are
targeting to produce OLED TVs as well using LGD panels. We believe other TV makers’
adoption of OLED panels will eventually lead to higher demand and customer recognition
for OLED TVs, which would be positive for LGD as the sole OLED TV manufacturer
globally. While Samsung Electronics (005930 KS, KRW1,586,000, Buy [1]) dropped OLED
TVs, and Chinese panel makers still have a way to go in catching up in large-size OLED
production technology, we believe LGD stands to be the only beneficiary in the world of
rising OLED penetration.
OLED TV penetration in the premium TV market (revenue) OLED TV penetration in the premium TV market (unit
shipments)
Source: iHS, Daiwa forecasts Note: Premium TV includes >4k resolution
Source: iHS, Daiwa forecasts Note: Premium TV includes >4k resolution
Expected to make money from 2H17
During its 2Q16 earnings call, the company said it had achieved positive EBITDA in OLED
panels, although this business was still recording negative operating profit. What this
means is that LGD should soon be able to make an operating profit as the depreciation
burden decreases. We believe LGD will achieve positive operating profit in OLED-TV
panels by 2H17. Once the company achieves scale economies and cost rationalisation in
OLED panels, it will be able to realise a higher margin for this product than for LCD panels
because OLED panels effectively require fewer raw materials than LCD panels.
The company recorded 41% YoY revenue growth for OLED-TV panels in 2015 and we
forecast this amount to rise by 87% YoY for 2016. Although the ASPs for both LCD and
OLED panels have declined consistently each year, we believe OLED ASPs will decline
more slowly given LGD currently monopolises the OLED TV panel market.
LGD: revenue forecasts – OLED TV panels LGD: shipment unit forecasts – OLED TV panels
Source: Company, Daiwa forecasts
Source: Company, Daiwa forecasts
0.0% 1.5% 3.3% 5.2% 6.6% 8.8% 11.1%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E 2019E 2020E
LCD OLED
0.0% 0.3% 0.9% 1.7% 2.4% 3.6% 4.8%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E 2019E 2020E
LCD OLED
0%
20%
40%
60%
80%
100%
120%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2015 2016E 2017E 2018E
(KRW bn)
Revenue Revenue growth (YoY)
0%
30%
60%
90%
120%
150%
180%
0
500
1,000
1,500
2,000
2,500
3,000
2015 2016E 2017E 2018E
(k units)
Shipment unit Shipment unit growth (YoY)
LGD stands to be the
sole beneficiary of
OLED’s increasing
penetration of the TV
market
19
LGD (034220 KS): 18 November 2016
QD and QLED not so threatening in the near term
Quantum Dot (QD) is a competitor of OLED technology at the moment. However, QD TVs
are still LCD TVs, and QDs are used just to improve backlighting. Although QD TVs are
superior to LCD TVs in image quality and energy efficiency, they still lag OLED TVs in
speed of response, contrast and viewing angles. Indeed, the next-generation display
technology is said to be Quantum Dot OLED (QLED), and in this sense we think QD
displays represent a milestone towards the commercialisation of QLED TVs.
A QLED TV panel has a similar structure to OLED as it is self-emitting, but the technology
is still under development. We believe it will take more than 3-5 years before competitors
will be in a position to start mass production of QLED. Furthermore, given OLED
technology will be further developed over the next 3-5 years, while building up economies
of scale, we believe OLED will still have a competitive advantage in the premium TV
market even after QLED technology starts to be commercialised.
20
LGD (034220 KS): 18 November 2016
Another trend: migration to OLED in mobile
Big risk vs. opportunity
Proven technology for small-medium LCD displays
LGD has long been a leader in LTPS-LCD for mobile devices, with a unit-based market
share of around 20% in 2015. Of the KRW8tn in LGD’s mobile LCD revenue in 2015, we
assume 68% came from a US-based strategic partner, 13% from LG Electronics and the
rest from Chinese customers. In particular, LGD has a dominant market share in this US
strategic partner’s flagship models, with a 40% market share. Recent yield issues
encountered by one of its competitors, Sharp (6753 JP), led to LGD gaining a greater
share of the US customer’s business. Japan Display (6740 JP) and LGD subsequently
divided the share that had originally been claimed by Sharp (around 20% of the total). We
forecast LGD to secure over a 40% share of this US customer’s business in 2016.
US smartphone maker’s switch to OLED
It appears that the US customer will adopt OLED displays for its 2017 flagship model,
which should spur the trend of mobile displays shifting to OLED. As it stands, Samsung
Display is likely to provide 100% of OLED panels for this model, as Samsung Display is the
only company with proven technology in RGB OLED for mobile. Samsung Display had a
98% share of the global mobile OLED market as of 2015.
LGD invested in small-medium OLED panels at its E5/E6 lines though the company is
markedly behind Samsung Display at this juncture. It started to provide FHD OLED panels
to one of its Chinese customers on its E2 line by allocating 14k sheets/month capacity for
smartphone panels. The E2 line had been used to produce small-size OLED panels for its
US strategic partner’s smartwatch, but utilisation was below 60% in 3Q16 due to sluggish
demand for this smartwatch model.
LGD also plans to start mass production of smartphone OLED panels on its E5 line from
2H17 with a total capacity of 15k sheets/month. We expect it to first supply Chinese
smartphone makers in 2017 while ramping up the production yield during this period. The
company is also pushing to provide OLED panels for the US customer’s flagship model
from 2H18 on its E6 line ahead of Japanese competitors like Sharp and Japan Display.
Although investors may be concerned about the company’s technological expertise in
RGB-based OLED displays, we believe LGD is highly likely to be the second supplier for
the US customer because: 1) the company is in a more sound financial state than its
competitors, and 2) it has experience in supplying small OLED panels for the smartwatch
of the US customer/customised displays to various customers.
Regarding concerns in the market about a decline in the utilisation rate of LGD’s mobile
LCD production lines as shipment volumes to the US customer will be cut back in 2017,
the company plans to diversify its customer base. LGD has strength in premium mobile
LCD panels (LTPS-TFT LCD), which we believe will be another source of demand for it,
albeit not enough to fill the gap. Looking at iHS forecasts for mobile phone display
shipment share by technology, while a-Si TFT LCD demand has been largely replaced by
AMOLED, LTPS-TFT LCD’s shipment share remains at around 30%, which means
premium mobile LCD panels will not be fully replaced with AMOLED panels. Thus, we
believe LGD has enough time to prepare for mobile OLED.
The company has a long-term plan to switch some of these LCD production lines to OLED
lines for small-mid mobile panels. As it needs aggressive investment in OLED TV at the
moment, resource allocation (properly allocating capital expenditure in terms of R&D and
facilities) should be a key decision in LGD’s ramp up in small-mid OLED.
LGD is a major supplier
of mobile displays for a
large US customer
Set to be the number two
mobile OLED supplier
LGD gains time to
transition to OLED as
premium mobile LCD
panels should remain
robust
21
LGD (034220 KS): 18 November 2016
LGD: mobile customer base (2015) Mobile phone display shipment share by technology
Source: Company, Daiwa Research Note: Daiwa estimation based on company guidance
Source: iHS, Daiwa forecasts Note: % calculated based on shipment area
LGD: small/mid panels revenue forecasts LGD: small/mid panels shipment area forecasts
Source: Company, Daiwa forecasts Source: Daiwa forecasts
The largest US customer
68%
LGE13%
Chinese/other customers
19%
0%
10%
20%
30%
40%
50%
60%
70%
2014 2016E 2018E 2020E 2022E
AMOLED a-Si LTPS Oxide
(20%)
(10%)
0%
10%
20%
30%
40%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2015 2016E 2017E 2018E
(KRW bn)
Revenue YoY growth
(10%)
(5%)
0%
5%
10%
15%
1,300
1,350
1,400
1,450
1,500
1,550
1,600
1,650
2015 2016E 2017E 2018E
(k sqm)
Shipment area YoY growth
22
LGD (034220 KS): 18 November 2016
New undertakings continuing
LGD – seeking new applications for OLED
Auto displays and OLED lights
In an attempt to expand the applications for its OLED technology, LGD has started
supplying LCD auto displays to some of its customers and we assume it now has a
considerable size of backlog of orders for OLED auto displays. Although yearly revenue is
still modest, at below KRW1tn, the company achieves a high operating profit margin from
these applications. Besides, it expects a meaningful earnings contribution from OLED auto
display and lights from 2018-19. One of the advantages of the auto display business is that
once LGD starts providing displays for certain models, it can lock-in the supply to those
specific models. The company is preparing to ramp-up production volume of its auto
displays, and plans to allocate part of the 15k/month capacity on the E5 line to auto
displays.
Not just confined to dashboards, auto displays represent a wide range of opportunities
because such displays will likely feature more heavily (eg, rear-seat entertainment) as self-
driving cars come to fruition. As OLED displays have no limitations in terms of form factor,
they are attracting interest from premium car makers, through which manufacturers can
develop differentiated designs.
Moreover, LGD took over the OLED lighting business from LG Chemical at the end of
2015. LG Chemical was operating Gen-2 (370x470mm) capacity of 4K (glass per month) in
Ochang. With its Gen-5 capacity on its E5 line, LGD is currently the only company globally
that can mass-produce OLED lights. Since OLED lights are surface emitting, which are
different from LED’s point emitting, they allow unique and differentiated design. For this
reason, some of premium car brands required sample OLED tail lights for high-end
models.
Although the current revenue contribution of such new businesses is modest, we expect
them to be the next growth driver for LGD after 2018. While EV-based autonomous cars
are a rising theme, LGD is seeking business expansion in in-car displays as well as OLED
lights on the car frame. With LG Electronics keen to become a total solutions provider for
electric vehicles, we believe LGD will enjoy group synergies while other affiliates such as
LG Chemical (051910 KS, Not rated) and LG Innotek (011070 KS, Not rated) provide
battery cells and camera/sensors.
Synergy between LG Group affiliates – as a total solutions provider
Source: Company, Daiwa Research
LGD is seeking new
OLED business
opportunities in autos
and lighting
23
LGD (034220 KS): 18 November 2016
Various applications for auto display
Source: Company
An example of an OLED dash board An example of an OLED tail light
Source: Company Source: BMW Blog
OLED lights
Source: Company
24
LGD (034220 KS): 18 November 2016
Earnings outlook
Expecting earnings recovery from 2H16
Favourable LCD prices and increased sales of premium products to drive earnings growth
We forecast LGD’s revenue and operating profit to decline by 10%/41% YoY for 2016
(operating margin: 3.7%) given to the decline in LCD panel prices in 1H16. However, we
look for earnings to recover in 2H16 on the back of the recovery in LCD panel prices and
an increasing sales mix of premium products.
In 2017, we forecast its revenue and operating profit to increase by 3.5%/66% YoY
(operating margin: 6.0%) on the recovery in LCD prices and further enhancement in the
product mix. However, as its major mobile customer seems set to adopt plastic OLED for
new smartphone models to be launched in 2017, we forecast its revenue for small-medium
sized panels to decline by 15% YoY for 2017.
We look for the company’s revenue to increase by 4% YoY for 2018. Even though we
expect LCD panel prices to decline in 2018, a continuing increase in premium product
sales including OLED TV panels and plastic OLED panels should drive its earnings.
We estimate premium UHD TV panels will account for 38% of LGD’s TV panel shipments
in 2016 and 50% in 2017. Thanks to its strength in in-plane switching (IPS) technology,
LGD commands a high premium in price for the monitor and notebook segments
compared with its peers.
LGD: earnings forecasts by application
1Q16 2Q16 3Q16E 4Q16E 2016E 2017E 2018E
Revenue (KRW bn) 5,989 5,855 6,724 6,968 25,536 26,424 27,360
Large Size Total 4,612 4,274 4,908 4,581 18,375 20,365 21,218
Notebook 1,437 1,054 1,210 963 4,665 4,083 3,799
Monitor 898 937 1,076 946 3,857 3,843 3,627
TV 2,276 2,284 2,622 2,672 9,854 12,439 13,791
- LCD 2,119 2,090 2,373 2,315 8,898 10,512 10,747
- OLED 157 193 249 357 956 1,927 3,044
SM/Others 1,378 1,581 1,815 2,387 7,161 6,059 6,142
Revenue growth QoQ% / YoY% (20%) (2%) 15% 4% (10%) 3% 4%
Large Size Total (10%) (7%) 15% (7%) (10%) 11% 4%
Notebook 1% (27%) 15% (20%) (6%) (12%) (7%)
Monitor (20%) 4% 15% (12%) (15%) (0%) (6%)
TV (11%) 0% 15% 2% (10%) 26% 11%
- LCD (9%) (1%) 14% (2%) (14%) 18% 2%
- OLED (26%) 23% 29% 43% 87% 102% 58%
SM/Others (43%) 15% 15% 32% (10%) (15%) 1%
Shipment area growth QoQ% / YoY% (8%) 5% 9% (1%) 3% 12% 12%
Large Size Total (7%) 5% 9% (2%) 4% 13% 11%
Notebook (22%) (4%) 3% (17%) (18%) 0% 8%
Monitor (10%) 8% 13% (14%) (1%) 5% 1%
LCD TV panel (4%) 5% 8% 1% 5% 13% 10%
ASP growth QoQ% / YoY% (17%) (4%) 10% 2% (15%) (7%) (7%)
Large Size Total (7%) (8%) 10% (7%) (15%) (1%) (7%)
Operating profit 40 44 323 546 953 1,578 1,665
QoQ growth -35% 12% 628% 69%
YoY growth -95% -91% -3% 801% -41% 66% 5%
OP margin 0.7% 0.8% 4.8% 7.8% 3.7% 6.0% 6.1%
Source: Company, Daiwa forecasts
We look for LGD’s
earnings to recover from
2H16
25
LGD (034220 KS): 18 November 2016
LGD: sales revenue forecasts (2016-18E) LGD: operating-profit forecasts (2016-18E)
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
LGD: revenue forecasts by application LGD: revenue mix (%)
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
(12%)
(9%)
(6%)
(3%)
0%
3%
6%
9%
0
5,000
10,000
15,000
20,000
25,000
30,000
2014 2015 2016E 2017E 2018E
(KRW bn)
Revenue YoY growth
0%
1%
2%
3%
4%
5%
6%
7%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2014 2015 2016E 2017E 2018E
(KRW bn)
Operating profit OP margin
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2014 2015 2016E 2017E 2018E
(KRW bn)
Notebook / Tablet Monitor TV SM/Others
23% 18% 18% 15% 14%
18%16% 15% 15% 13%
40%
38% 39% 47% 50%
19%28% 28% 23% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016E 2017E 2018E
Notebook / Tablet Monitor TV SM/Others
26
LGD (034220 KS): 18 November 2016
Capital expenditure
Capex rising, but financial structure remains solid
Plans for capex equivalent to around yearly EBITDA …
The company guides for a capex level at around the level of its yearly EBITDA for 2016-
18E, and had spent KRW2.7tn in capex as at end-3Q16. We expect it to spend a further
KRW1.5tn in capex during 4Q16 for a total of KRW4.2tn in 2016. For the next 2 years, we
expect the company to spend slightly more than KRW5tn per year for investment
purposes. LGD plans to spend more on OLED production lines going forward, hence we
expect the OLED proportion of total capex to be 70% in 2017 and more than 70% after
end-2017 (vs. 51% in 2016). We believe the company will not make any additional
investment in LCD production lines, but we still expect some capital expenditure on LCDs
for the purpose of maintenance.
… but debt ratio should be stable
Despite the fact that our total capex forecasts for 2017-18 are more than double the figure
for 2015, we expect the company’s net debt to equity ratio to remain stable, at below 15%.
Historically, the company’s debt ratio has been proportional to its yearly capex. From 2010-
12, when LGD spent KRW4-5tn per year in capex, the net debt to equity ratio surged to
22%. However, LGD now has a more solid financial structure, given it has a sufficient base
of retained earnings.
LGD: historical capex vs. EBITDA comparison
(KRW bn) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Capex 3,076 1,577 2,776 3,807 4,942 4,063 3,972 3,473 2,983 2,365 4,250 5,050 5,250
EBITDA 1,760 4,334 4,276 3,905 4,614 2,888 5,382 4,998 4,850 5,001 4,187 5,656 6,106
Capex/EBITDA (%) 175% 36% 65% 97% 107% 141% 74% 69% 62% 47% 101% 89% 86%
Source: Company, Daiwa forecasts
LGD: capex breakdown – LCD vs. OLED LGD: yearly capex trend vs. debt ratio
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
Usage of P10: still in question
LGD is currently engaged in 4 ongoing investments, all of which are for new OLED
production lines. It plans to spend KRW460bn to convert its large-size LCD production line
into a large-size OLED production line by 2Q17. A further KRW1tn/KRW2tn will be spent
on the E5/E6 small-mid OLED panel production lines until 2Q17 and 3Q18, respectively.
The fourth ongoing investment is the construction of a new facility, the P10, in Paju. LGD
plans to complete construction by end-1H18 and start production from 2H18. The building
is spread over an area large enough to cover 14 football fields and is 100m high. According
to an announcement made by the company in November 2015, the capex requirement for
construction will be around KRW1.8tn, with a total capex of KRW10tn for this facility and
production lines. However, the company can revise the total capex in the event of changes
to the size and application of new production lines.
90% 85% 82%
45% 49%
30% 25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016E 2017E 2018E
LCD OLED
0%
5%
10%
15%
20%
25%
0
1,000
2,000
3,000
4,000
5,000
6,000
2007 2009 2011 2013 2015 2017E
(KRW bn)
Capex Net debt to equty ratio
Capex to increase driven
by OLED displays
27
LGD (034220 KS): 18 November 2016
The usage of the P10 is still in question, but it is highly likely that the company will start
with a small amount of Gen-8 OLED production, for which LGD already possess the
technology and equipment. Since Chinese panel makers are already investing in >Gen-10
LCD panels, LGD might decide to develop Gen-10 OLED in order to compete with them.
However, production of >Gen-10 OLED requires a totally different set of equipment, which
is currently not available in the market. If the company starts investing in >Gen-10 OLED,
total capex for the P10 is likely to exceed KRW10tn and we see a risk of delay in the
production yield ramp-up. However, the company’s decision to start investing in >Gen-10
OLED will depend on the demand for >60-inch TVs. The company seems to have a
conservative view on producing larger size OLED panels, and as such we believe it is
unlikely that LGD will start producing >Gen-10 OLED in the next few years.
LGD: ongoing investments and construction projects
Announcement Date Application & contents Total amount Objective Period
Jul. 23 2015 POLED production line KRW1,050bn Deals with foldable panels - smartphone, auto etc. 3Q15 - 2Q17
Nov. 27 2015 New factory & production lines KRW1,840bn Prepares for future technologies and market trend 4Q15 - 2Q18
Jan. 26 2016 Large-size OLED production line KRW460bn Improves competitiveness in OLED TV panels and prepares for demand hike 1Q16 - 2Q17
Jul. 27 2016 Small-mid size OLED production line KRW1,990bn Improves competitiveness in small-mid OLED panels 3Q16 - 3Q18
Source: Company, Daiwa Research
LGD: current facilities at Paju and expected P10 location
Source: Company, Daiwa Research
P10
P8 P7
R&D Center
P9
28
LGD (034220 KS): 18 November 2016
Valuation: LCD upcycle is key
12-month target price of KRW36,000
PBR correlates with the LCD industry as well as ROE
Looking at the historical data, we note that LGD’s forward 12-month PBR has had a strong
positive correlation with its ROE for the past 10 years, with a correlation coefficient of 0.85
except for FY06 and FY11. As such, we do not include FY06 and FY11 in our regression
analysis given the ROE for these 2 years was negative. Given this relationship, we tried to
find the historical period when ROEs were similar to our 2017E forecast of 8.5%. We note
that the company recorded ROEs of 8.2% in both 2014 and 2015.
However, the share-price patterns were very different in 2014 and 2015. While the share
price saw a continuous rise in 2014, it tumbled in 2015 because share-price movements
and valuations for display makers are largely dependent on LCD market conditions. The
chart on the following page shows the relationship between the global LCD panel index
and global LCD peers’ average 12-month-forward PBR for 2014-15. Looking at the long-
term picture, LCD has had repetitive up and down cycles while LCD makers’ PBRs have
moved in line with the trend.
The global LCD panel index shows that the LCD market peaked at end-2014 and then
started to shrink in 2015. As we believe the LCD market entered an upcycle in 2H16 and
should continue this uptrend in 2017, we believe the company was in a similar situation in
2014 to the one today. While the stock’s average 12-month forward PBR in 2014 was
0.88x, we believe a premium to this multiple is merited by LGD’s position of strength in
OLED. Thus, we assign a 10% premium to the 2014 multiple of 0.88x to get a 0.97x 12-
month forward target PBR. Applying this target PBR to its 2017E BVPS, we arrive at our
12-month target price of KRW36,000, and hence initiate coverage with a Buy (1) rating.
LGD: Dupont analysis for historical ROE
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
EBIT margin (%) -8.3% 10.5% 10.7% 5.2% 6.6% -3.1% 3.1% 4.3% 5.1% 5.7% 3.7% 6.0% 6.1%
Asset turnover (x) 0.79 1.05 1.04 1.12 1.18 0.99 1.19 1.17 1.18 1.25 1.06 1.01 1.00
Financial leverage (x) 1.96 1.80 1.77 1.90 2.05 2.32 2.44 2.22 2.03 1.93 1.99 2.09 2.05
Interest burden (x) 1.16 1.03 0.76 0.88 0.75 1.42 0.50 0.71 0.92 0.88 0.81 0.87 0.84
Tax burden (x) 0.75 0.87 0.83 1.09 0.91 0.71 0.51 0.51 0.73 0.67 0.67 0.78 0.78
ROE (%) -11.2% 17.7% 12.4% 10.6% 10.9% -7.3% 2.3% 4.1% 8.2% 8.2% 4.2% 8.5% 8.1%
Source: Company, Daiwa Research
LGD: 12-month-forward PBR band LGD: historical PBR vs. ROE
Source: Company, Bloomberg, Daiwa forecasts Source: Company, Bloomberg, Daiwa forecasts
0
10,000
20,000
30,000
40,000
50,000
60,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
(KRW)
Price 0.6 0.85
1.1 1.35 1.6
(10%)
(5%)
0%
5%
10%
15%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
(x)
12mths Fwd (x) ROE(RHS)
Initiating coverage with a
Buy (1) rating and TP of
KRW36,000
2014 looks similar to
2017E in terms of LCD
market conditions and
the company’s ROE
29
LGD (034220 KS): 18 November 2016
Global LCD panel index vs. global LCD peer average PBR
Source: Bloomberg, Daiwa Research Note: Peer includes LGD, BOE, Tianma, Innolux, AUO and JDI
Peer valuations
Company
Ticker
Recom.
Price Mkt cap PER (x) PBR (x) ROE (%) EV/EBITDA (x) Div yield
(Bloomberg) (Local curr) (USDm) FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17
LGD* 034220 KS Buy 28,500 8,459 19.9 9.6 0.82 0.76 4.2 8.5 2.8 2.1 1.8 1.8
Samsung Electronics* 005930 KS Buy 1,586,000 190,137 10.7 8.9 1.38 1.21 12 13 3.4 2.7 1.6 1.9
BOE 200725 CH NR 2.18 13,674 64.6 21.5 0.83 0.79 1.3 3.0 9.1 7.0 0.5 1.5
Innolux 3481 TT NR 10.95 3,397 na 12.2 0.49 0.47 -1.7 3.2 3.4 2.7 1.2 1.6
AUO 2409 TT NR 11.65 3,495 27.1 10.2 0.60 0.58 2.2 5.0 3.9 3.3 2.0 3.4
Japan Display 6740 JP NR 247.00 1,340 na na 0.37 0.43 -0.1 -3.5 1.2 1.7 1.0 0.2
Average
30.6 12.5 0.75 0.71 3.0 4.9 4.0 3.2 1.4 1.7
Source: Company, Bloomberg, share prices as of 18 November, 2016 Note: *Daiwa forecast numbers for LGD&SEC
Peer group historical forward 12-month-forward PBR movement
Source: Bloomberg, Daiwa Research Note: excluded Tianma/Sharp from peer groups due to exceptional numbers
Risks to our call
The main risk to our call is the possibility of an LCD oversupply in 2017 due to stagnating
end-demand for LCD displays. After application makers restock inventories over the next
several quarters, a destocking period could occur earlier than we had expected, which
could lead to an ASP decline for LGD and hence weigh on its profitability. An earlier-than-
expected ramp-up of Gen-8 capacity by Chinese manufacturers could also exacerbate
oversupply.
On the other hand, reaching appropriate production yields for OLED is also important and
could be a downside risk to our view on LGD if not achieved.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
50,000
55,000
60,000
65,000
70,000
75,000
80,000
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16
(x)(units)
Witsview global LCD panel index Global peer average PBR
0.0
0.4
0.8
1.2
1.6
2.0
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
(x)
LGD SEC BOE Innolux AUO JDI
30
LGD (034220 KS): 18 November 2016
Company background
Established as Goldstar Software in 1985, the company was renamed as LG Software in
1995 and began mass production of its first TFT-LCD panel in the same year. In 1999, LG-
Philips LCD was established with a 50:50 investment by LG Electronics and Philips, while
the software business was transferred to LG Electronics (LGE), solidifying its credentials
as a display maker. Since 2004, the company has been concurrently listed on the Korea
Exchange (KRX) and New York Stock Exchange (NYSE). LGE was renamed as LGD
(LGD) in 2008 while Philips liquidated all its remaining shares in 2009. As of end-2Q16,
LGE held a 37.9% stake in LDG while Korea’s National Pension Service (NPS) held
48.9%.
LGD has long been a major player in the LCD market, with a 33% global market share in
2015. It secured around 40% of its revenue from LG Group affiliates (23.5% from LGE,
18% from LG International) in 2015. LGD produces display panels for various applications
such as TVs, laptops, desktop monitors, mobiles. TV panel sales contributed the largest
share to sales revenue, at 38% for 2015.
LGD: shareholding structure (end-2Q16) LGD: customer base (2015)
Source: Company, Daiwa Research Source: Company, Daiwa Research
LGD: revenue breakdown by application (2015) LGD: regional revenue breakdown (2015)
Source: Company, Daiwa Research Source: Company, Daiwa Research Note: Others include Oceania, Africa, and the Middle East
LGD: historical background
Source: Company, Daiwa Research
LG Electronics38%
National Pension Service
9%Capital Group
4%
Others49%
LG Electronics23%
LG International4%
Top 8 end-brand customers
55%
Others18%
Televisions38%
Notebook computers
9%
Desktop monitors
16%
Tablet computers
9%
Mobile and other
applications28%
Korea7.8%
China68.3%
Europe7.8%
Asia (excluding China)7.1%
Americas7.0%
Others2.0%
Established
Goldstar Software
- Changed corporate
name to LG Software
- Began mass production
of TFT-LCD at P1, the first
fabrication plant, in Gumi,
Korea
Took over TFT-
LCD related
business assets
from LG Electronics
and LG Semicon
Launched LG.Philips
LCD, a joint venture
between LG
Electronics and
Royal Philips
Electronics
Became the first
Korean company
concurrently listed on
both the Korea
Exchange (KRX) and
New York Stock
Exchange (NYSE)
Developed the
world’s first and
largest 100-inch
Full HD LCD panel
Changed
corporate name
to LG Display
Co., Ltd.
Developed the
world’s first 55-
inch OLED TV
panel
Began mass
production of
the world's first
55-inch OLED
TV panel
1985.02 1995.01 1998.12 1999.08 2004.07 2006.03 2008.03 2011.12 2013.01
31
LGD (034220 KS): 18 November 2016
Daiwa’s Asia Pacific Research Directory
HONG KONG
Takashi FUJIKURA (852) 2848 4051 [email protected]
Regional Research Head
Jiro IOKIBE (852) 2773 8702 [email protected]
Co-head of Asia Pacific Research
John HETHERINGTON (852) 2773 8787 [email protected]
Co-head of Asia Pacific Research
Rohan DALZIELL (852) 2848 4938 [email protected]
Regional Head of Asia Pacific Product Management
Kevin LAI (852) 2848 4926 [email protected]
Chief Economist for Asia ex-Japan; Macro Economics (Regional)
Olivia XIA (852) 2773 8736 [email protected]
Macro Economics (Hong Kong/China)
Kelvin LAU (852) 2848 4467 [email protected]
Head of Automobiles; Transportation and Industrial (Hong Kong/China)
Brian LAM (852) 2532 4341 [email protected]
Auto Components; Transportation – Railway; Construction and Engineering (China)
Leon QI (852) 2532 4381 [email protected]
Banking; Diversified financials; Insurance (Hong Kong/China)
Yan LI (852) 2773 8822 [email protected]
Banking (China)
Anson CHAN (852) 2532 4350 [email protected]
Consumer (Hong Kong/China)
Adrian CHAN (852) 2848 4427 [email protected]
Consumer (Hong Kong/China)
Jamie SOO (852) 2773 8529 [email protected]
Gaming and Leisure (Hong Kong/China)
John CHOI (852) 2773 8730 [email protected]
Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap
Carlton LAI (852) 2532 4349 [email protected]
Small/Mid Cap (Hong Kong/China)
Dennis IP (852) 2848 4068 [email protected]
Power; Utilities; Renewables and Environment (Hong Kong/China)
Jonas KAN (852) 2848 4439 [email protected]
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Cynthia CHAN (852) 2773 8243 [email protected]
Property (China)
Thomas HO (852) 2773 8716 [email protected]
Custom Products Group
SOUTH KOREA
Sung Yop CHUNG (82) 2 787 9157 [email protected]
Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel
Mike OH (82) 2 787 9179 [email protected]
Banking; Capital Goods (Construction and Machinery)
Iris PARK (82) 2 787 9165 [email protected]
Consumer/Retail
SK KIM (82) 2 787 9173 [email protected]
IT/Electronics – Semiconductor/Display and Tech Hardware
Thomas Y KWON (82) 2 787 9181 [email protected]
Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games
Kevin JIN (82) 2 787 9168 [email protected]
Small/Mid Cap
TAIWAN
Rick HSU (886) 2 8758 6261 [email protected]
Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)
Christie CHIEN (886) 2 8758 6257 [email protected]
Banking; Insurance (Taiwan); Macro Economics (Regional)
Steven TSENG (886) 2 8758 6252 [email protected]
IT/Technology Hardware (PC Hardware)
Kylie HUANG (886) 2 8758 6248 [email protected]
IT/Technology Hardware (Handsets and Components)
Helen CHIEN (886) 2 8758 6254 [email protected]
Small/Mid Cap
INDIA
Punit SRIVASTAVA (91) 22 6622 1013 [email protected]
Head of India Research; Strategy; Banking/Finance
Saurabh MEHTA (91) 22 6622 1009 [email protected]
Capital Goods; Utilities
SINGAPORE
Ramakrishna MARUVADA (65) 6499 6543 [email protected]
Head of Singapore Research; Telecommunications (China/ASEAN/India)
David LUM (65) 6329 2102 [email protected]
Banking; Property and REITs
Royston TAN (65) 6321 3086 [email protected]
Oil and Gas; Capital Goods
Shane GOH (65) 64996546 [email protected]
Property and REITs; Small/Mid Cap (Singapore)
Jame OSMAN (65) 6321 3092 [email protected]
Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)
32
LGD (034220 KS): 18 November 2016
Daiwa’s Offices
Office / Branch / Affiliate Address Tel Fax
DAIWA SECURITIES GROUP INC
HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661
Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726
Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129
Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469
Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100
Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935
Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600
Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340
Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808
Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441
Daiwa Capital Markets Europe Limited, Moscow Representative Office
Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation
(7) 495 641 3416 (7) 495 775 6238
Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain
(973) 17 534 452 (973) 17 535 113
Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621
Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, OUE Downtown 2, Singapore 068809, Republic of Singapore
(65) 6220 3666 (65) 6223 6198
Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia
(61) 3 9916 1300 (61) 3 9916 1330
DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines
(632) 813 7344 (632) 848 0105
Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638
Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea
(82) 2 787 9100 (82) 2 787 9191
Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District，
Beijing 100020, People’s Republic of China
(86) 10 6500 6688 (86) 10 6500 3594
Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai China 200120 , People’s Republic of China
(86) 21 3858 2000 (86) 21 3858 2111
Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road,
Lumpini, Pathumwan, Bangkok 10330, Thailand (66) 2 252 5650 (66) 2 252 5665
Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India
(91) 22 6622 1000 (91) 22 6622 1019
Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam
(84) 4 3946 0460 (84) 4 3946 0461
DAIWA INSTITUTE OF RESEARCH LTD
HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603
MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021
New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417
London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550
33
LGD (034220 KS): 18 November 2016
Samsung Electronics: share price and Daiwa recommendation trend
Source: Daiwa
Note: where appropriate, historical target prices have been adjusted to reflect the current share count
LG Electronics: share price and Daiwa recommendation trend
Source: Daiwa
Note: where appropriate, historical target prices have been adjusted to reflect the current share count
Date Target price Rating Date Target price Rating Date Target price Rating
29/07/15 0 31/03/16 1,510,000 Buy 09/08/16 1,940,000 Buy
16/10/15 1,470,000 Buy 24/06/16 1,710,000 Buy 07/10/16 1,960,000 Buy
31/12/15 1,580,000 Buy 28/07/16 1,740,000 Buy 27/10/16 1,930,000 Buy
1,800,000
1,700,000
1,470,000
1,580,000
1,510,000
1,710,0001,740,000
1,940,0001,960,0001,930,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
1,600,000
1,700,000
1,800,000
1,900,000
2,000,000
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb
-16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Nov
-16
Target price (KRW) Closing Price (KRW)
Date Target price Rating Date Target price Rating Date Target price Rating
20/02/14 62,000 Hold 30/05/16 61,000 Outperform 14/11/16 53,000 Outperform
17/05/16 0 29/09/16 56,000 Outperform
70,000
62,000 61,000
56,000
53,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
80,000
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb
-16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Nov
-16
Target price (KRW) Closing Price (KRW)
All statements in this report attributable to Gartner represent [Bank’s/Issuer’s/Client’s] interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this [presentation/report]). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.
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LGD (034220 KS): 18 November 2016
Important Disclosures and Disclaimer
This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationship
For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Japan
Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.
Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.
Investment Banking Relationship
Within the preceding 12 months, the subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Neo Solar Power Corp (3576 TT).
*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa
Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd.
Hong Kong
This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures
Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK)
DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party.
Name of Analyst : SK Kim / Henny Jung
Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated. “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated. Additional information may be available upon request.
Singapore
This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.
Australia
This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
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LGD (034220 KS): 18 November 2016
India
This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates, may have received compensation for any products other than Investment Banking (as disclosed)or brokerage services from the subject company in this report or from any third party during the past 12 months. Daiwa India and its associates may have debt holdings in the subject company. For information on ownership of equity, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report.
Associates of Daiwa India, registered with Indian regulators, include Daiwa Capital Markets Singapore Limited and Daiwa Portfolio Advisory (India) Private Limited.
Taiwan
This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd. and it may only be distributed in Taiwan to specific customers who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd. and non-customers including (i) professional institutional investors, (ii) TWSE or TPEx listed companies, upstream and downstream vendors, and specialists that offer or seek advice, and (iii) potential customers with an actual need for business development in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Neither Daiwa-Cathay Capital Markets Co., Ltd. nor its personnel who writes or reviews the research report has any conflict of interest in this research. Since Daiwa-Cathay Capital Markets Co., Ltd. does not operate brokerage trading business in foreign markets, this research is “without recommendation” to any foreign securities and Daiwa-Cathay Capital Markets Co., Ltd. does not accept orders from customers to trade in such securities that are without recommendation. Recipients of this research in
Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd. in respect of any matter arising from or in connection with the research.
Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities.
For relevant securities and trading rules please visit SEC and PSE links at http://www.sec.gov.ph and http://www.pse.com.ph/ respectively.
Thailand
This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”).
This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents.
The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable. However, Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user.
Daiwa Securities Group Inc. and/or its non-U.S. affiliates perform and seek to perform business with companies covered in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research.
United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory.
Germany
This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.
Bahrain
This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113
United States
This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obl igation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solici tation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (Tel no. 212-612-7000).
Ownership of Securities
For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making
For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report.
36
LGD (034220 KS): 18 November 2016
"1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months. Disclosure of investment ratings
Rating Percentage of total
Buy* 64.0%
Hold** 21.2%
Sell*** 14.8%
Source: Daiwa
Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2016. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law
(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.
In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.
In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.
For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.
There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.
There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.
Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association