LG Display shares slide on Lehman downgrade

SEOUL (Reuters) - Shares in South Korea's LG Display (034220.KS) fell more than 8 percent after Lehman Brothers downgraded its rating on the liquid crystal display maker and several rivals, heightening worries about oversupply and slowing profits.

Lehman cut its ratings on the Asian display industry to neutral from positive in a note dated Thursday, saying profitability had likely peaked in the first quarter, with margins seen weakening in the subsequent two quarters.

Lehman cut its recommendation on LG Display, the world's No. 2 maker of liquid crystal display (LCD) panels, and Taiwanese rivals AU Optronics (2409.TW) and Chi Mei Optoelectronics (3009.TW) to equal-weight from overweight.

LG Display stock fell 8.3 percent to 46,400 won on Friday, against a 0.2 percent rise in the wider market . It was the second-most actively traded stock on the market.

LG Display's shares fell more than rivals in the sector as the downgrade, combined with worries about a stock overhang, raised doubts about the company's ability to weather an expected market oversupply in 2009.

Some investors were also taken aback by news that the company planned to spend less on new technology and equipment. As oversupplies in 2009 loom, it is essential that display makers keep investing in technology to make more profitable screens.

But some analysts thought the South Korean company has invested more than enough to keep it on top of the game, adding that curbing capacity could be good for the industry in the longer term.

LG Display confirmed that its CEO had said the company's 2009 capital investment would total only 1.8 trillion won, from a total of 3.6 trillion won in 2008.

"This helps the market's outlook for 2009," said Nomura's Chung.

"Even with reduced capex, LG Display should have sufficient capacity for 2009, with two new lines coming into operation," said Park Hyun, an analyst at Prudential Investment.

Domestic rival Samsung Electronics (005930.KS), the world's biggest maker of LCD panels, fell only 0.5 percent. Shares in AU and Chi Mei fell in Taipei, but also to a lesser extent.

Some analysts disagreed with Lehman's outlook.

"We are still maintaining a positive stance on the LCD sector," said Sun Chung, an analyst for Nomura Securities. "There is no real reason to panic."

LG Display on Friday confirmed a Reuters report that its CEO, Kwon Young-soo, had discussed plans during a meeting with analysts on Thursday to spend 1 trillion won ($951.6 million) on a sixth generation (6G) production line. The company said 600 billion won will be included in 2008's spending plan and 400 billion won in 2009's plan.

Despite concerns about overcapacity, LG Display said oversupply was likely to less severe than some had previously thought.

"We are more convinced that there will be a severe fall in panel prices from October 2008 through 1H 09," Lehman's James Kim said in its research report on the display industry.

Meanwhile, "on weaker than expected panel pricing, especially for TV panels, we do not expect LG Display's profitability to improve for the rest of 2008," Lehman said in a separate report on LG Display.

Some investors also sold LG Display shares on concerns that Kwon did not give details on the future of the 13.2 percent stake still owned by Dutch Philips (PHG.AS). Philips has been reducing its participation in the joint venture and may sell the remaining shares when a lock-up period expires in June.

"LG Display's CEO didn't give any clear answer on how to deal with Philip's percent stake in the company, and that boosted uncertainties among investors," said Lee Sung-june, an analyst at SK Securities.

($1=1050.8 Won)

(Additional reporting by Park Ju-min and Park Jung-youn; Editing by Keiron Henderson and Louise Heavens)