[Edaily Reporter Kim Kyung-eun ] On the 17th, DaishinSecurities projected that LG Display(034220)’s third-quarter earnings this year would fall short of market expectations due to a decline in the won-dollar exchange rate and slowing demand for information technology (IT) devices. Accordingly, the firm lowered its target price from 17,000 won to 12,000 won, a 29.4% reduction. However, the firm maintained its “Buy” rating, noting that the outlook for medium- to long-term profitability improvement—driven by the growing share of organic light-emitting diode (OLED) sales—remains valid.

In a report released today, DaishinSecurities projected LG Display’s third-quarter operating profit at 325.3 billion won. While this marks a return to profitability from the previous quarter’s operating loss of 108.0 billion won, it represents a 24.5% year-over-year decline. The figure also falls short of DaishinSecurities’ previous estimate of 436.0 billion won and the market consensus of 404.5 billion won by 25.4% and 19.6%, respectively. Revenue is expected to reach 6.666 trillion won, an 18.8% increase from the previous quarter but a 4.2% decrease compared to the same period last year.

The company cited exchange rates as the primary reason for lowering its earnings expectations. As of the 15th, the average won-dollar exchange rate for the third quarter fell 4.6% from the previous quarter and 12.7% compared to the end of June. Analysts note that the strong won is weighing on the profitability of LG Display, which relies heavily on exports.

Rising prices for semiconductors and key raw materials are also a concern. The company explained that rising component prices are leading to higher retail prices for IT devices such as smartphones, tablet PCs, and laptops, which in turn is causing demand to slow. With demand for finished products weakening, it is difficult to fully reflect the increase in raw material costs in panel supply prices, which is also putting pressure on margins.

However, improvements in product mix are continuing. Supplies of mobile OLED panels to strategic customers in North America are expected to increase in the third quarter, and the proportion of premium models is also projected to expand. It is estimated that OLED’s share of LG Display’s total revenue will rise from 60.3% last year to 63.5% this year and 66.8% next year.

Consequently, while short-term earnings expectations have been lowered, the trend of medium- to long-term profitability improvement is expected to continue. DaishinSecurities forecasts that LG Display’s annual operating profit will increase by 29.7% from 517 billion won last year to 670.7 billion won this year, and by 57.7% to 1.058 trillion won next year. The analysis suggests that reduced depreciation expenses for large OLED panels and an increased share of OLED sales will drive this improvement in profitability.

In particular, as the smartphone launch strategies of key North American clients are spread across the first and second halves of the year, the impact of the first-half off-season is expected to diminish next year. The firm believes that as the burden of fixed costs associated with seasonal declines in capacity utilization eases, the company’s profit resilience could improve significantly.

Reflecting this outlook, DaishinSecurities lowered its operating profit estimate for this year by 24.5%, from 888 billion won to 671 billion won. It also revised down its operating profit estimate for next year by 10.7%, from 1.184 trillion won to 1.058 trillion won. The forecasts for next year’s net income attributable to controlling interest and earnings per share (EPS) were each lowered by 44.5%.

Park Kang-ho, an analyst at DaishinSecurities, assessed that “the trend toward improved profitability remains valid in the medium to long term,” citing the expanding share of OLED sales and rising market share among strategic clients in North America.