Maintain HOLD, target price of KRW16,000

We maintain HOLD and TP of KRW16,000 on LGD. We see (1) the mid-/large-size LCD (TV, IT) and large-size OLED (WOLED) segments remaining in the red as the global economic slowdown erodes demand and (2) the small-/mid-size OLED (P-OLED) segment’s profit margins affected by fluctuations in capacity utilization (caused by North American clients’ new model releases). Given the unpredictability of downstream demand,

LGD profit margins should be affected by (1) LCD line restructuring, (2) increases in large-size OLED panel shipments and (3) investment efficiency.

4Q22 preview: Earnings to miss market consensus     

We forecast 4Q22 revenue at KRW7.3tn and operating loss at KRW878.5bn (remain in red; -KRW759.3bn QoQ), which is below the market consensus (loss of KRW650bn). We attribute the shortcoming to (1) a decline in mid-/large-size LCD shipments (weak demand) and rise in fixed costs from the shutdown of the P7 LCD line in Paju and (2) the large-size OLED segment suffering from drops in utilization rates and ASP due to the slowing European economy (17% of global TV demand; 45% of global OLED TV demand).   

Expect gradual improvement in 2H23

LCD panel prices (TV, IT), which fell from July 2021 to October 2022, should tread water throughout 1Q23 on output reductions (utilization rate cuts) and set makers’ inventory reversion to prudent levels and then rise in 3Q23. The large-size OLED segment, which has been hindered by the slowing European economy, should see utilization rates rise toward 2H23. We note that the eurozone, which suffered from surging energy prices and a record-high trade deficit, has narrowed its trade deficit and seen a slight bump in economic growth projection. That said, we see LGD improving earnings after 1H23 and narrowing its annual operating loss (2022E KRW2.1tn→2023E KRW0.9tn).