LG Display (034220.Korea/LPL) was double downgraded from Buy to Sell by Morgan Stanley today amid signs of a sharp slowdown in demand for LCD panels. The Korean maker of display panels has soared over 20% since last June on strong LCD TV sales. The market for TV display panels started to look less crowded after Samsung Electronics (SSNLF), a key manufacturer, closed TV factories to focus on making OLED smartphone screens instead.
LCD panel prices have risen sharply in the last six months, with the 50-inch panel prices rising 36%. Since last November, prices for 40 to 43 inch panels have surpassed their previous peak seen in April 2015.
However, LCD price growth is slowing, a sign that the market has peaked, according to Morgan Stanley. LCD panel prices grew only 1% in January, a sharp slowdown from October’s 6% growth. (See chart)
In the meantime, the benign industry landscape is set to change again, as Chinese manufacturers ramp up production. Morgan Stanley’s Shawn Kim wrote:
Supply is unlikely to tighten for large size >40-inch TV panels following aggressive customer inventory restocking after LCD capacity closure and elevated panel prices impacting demand elasticity. Chinese 8G fabs’ incremental output should ramp up from 2H17, while pricing of small-size panels may prove hard to maintain, as we anticipate a reduction in utilization when OLED smartphone builds begin in 2H.
Morgan Stanley’s new price target of 26,000 won implies 0.6 times the bank’s forward book estimate and another 12% downside.