[NEWS IN FOCUS] Will OLED investment save troubled LG Display?

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[NEWS IN FOCUS] Will OLED investment save troubled LG Display?

Published: 19 Dec. 2023, 17:48 Updated: 19 Dec. 2023, 17:58

JIN EUN-SOO
[email protected]

LG Display's Paju production facilities in Gyeonggi. [JOONGANG PHOTO]

LG Display shares plunged Tuesday as investors cast doubt on the panel-making company's financial stability following its plan to raise 1.36 trillion won ($1 billion) via the issuance of new shares.

LG Display shares plummeted by more than 7 percent when the market opened Tuesday. It closed at 11,830 won, a drop of 3.9 percent compared to the previous trading day.

Existing shareholders' concerns about ownership dilution resulting from the issuance of new shares were deemed to have played a major role.

Financial stability in doubt

LG Display announced Monday it would raise 1.36 trillion won by issuing new shares, marking the panel-making company's first-ever new shares issuance for a capital increase since it went public on the Korean bourse in 2004.

Some 30 percent of the funds raised will be spent on facilities investment for small and midsized OLED (organic light-emitting diode) panels while 40 percent will be spent on management, according to the company. The remainder will be spent on clearing debts.

"LG Display will fortify financial stability while securing funds preemptively to improve the safety and performance of the business," said Kim Sung-hyun, chief financial officer at LG Display, in a release.

A little less than 40 percent of the total capital increase will be shouldered by LG Electronics which owns 37.9 percent of the panel-making company.

LG Electronics said Tuesday it would purchase 500 billion won of the newly issued shares to help support LG Display's financial stability. It is the second time this year that LG Electronics has assisted the affiliate. It had lent 1 trillion won to LG Display early this year for a similar reason.

LG Display has experienced financial instability this year, plunging into the red due to the market downturn amid an aggressive influx of Chinese players armed with cheap prices. The LCD (liquid crystal display) market, a less-premium segment compared to OLED, has been nearly entirely engulfed by Chinese players in recent years.

The company, which had focused on large panels for TVs, endured an operating loss for six consecutive quarters as demand for TVs slowed amid macroeconomic woes. It resulted in 3.6 trillion won of accumulated operating loss this year as of the third quarter.

Its debt ratio hit 322.2 percent as of the third quarter of this year. Multiple credit rating agencies including the Korea Investors Service notched down the company's credit rate this year.

LG Display logo

Rosy picture ahead

LG Display aims to reverse its fortunes by shifting focus to the small and midsized panel market. With tablets and laptops increasingly adopting premium OLED panels over cheaper LCD ones, it has created a new market opportunity for panel makers.

Apple stands out as a representative case, with its inaugural OLED-equipped tablets set for launch next year. LG Display is anticipated to play a significant role as a major supplier of these products.

"The latest capital increase shows that LG Display has a high stake in the OLED transition in the laptop and tablet market," said one industry insider. "If Apple aggressively contributes to the move, LG Display will be able to benefit from it greatly."

LG Display is said to be in the final stage of expanding small and midsized OLED production facilities in Paju, Gyeonggi.

The market sees LG Display making a profit next year, logging 102.3 billion won in operating profit according to a consensus compiled by FnGuide.

"A share plunge from new share issuance is inevitable, but the expectation for growth from the additional fund is valid," said Kim Woon-ho, a researcher from IBK Securities.

The final issue price of the new shares will be determined on Feb. 29.

BY JIN EUN-SOO [[email protected]]