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Interface News reporter | Fang Shiqi
Jiemian News Editor | Song Jianan

The long-pending bidding for the equity of South Korean company LGD's Guangzhou factory has seen new progress - among potential acquirers, TCL Huaxing has temporarily taken the lead.

On the evening of August 1, TCL Technology (000100.SZ) issued an announcement stating that its holding subsidiary TCL Huaxing recently participated in the bidding for 70% of the equity of LG Display (China) Co., Ltd. (hereinafter referred to as "LG China") and 100% of the equity of LG Display (Guangzhou) Co., Ltd. (hereinafter referred to as "LG Guangzhou"), and received a letter from LGD on the same day. TCL Huaxing was identified as the preferred bidder for this equity auction.

Subsequently, TCL Huaxing will conduct exclusive negotiations with the seller on the transaction and agree on a transaction agreement. If a final transaction agreement is reached, TCL Huaxing is expected to use its own or self-raised funds for the acquisition.

Among them, LG China's core asset is the 8.5-generation LCD panel factory, which has two production lines, GP1 and GP2, which mainly produce large-size TV panels and MNT panels. There is also a GP3 production line that mainly produces WOLED, as well as two module factories.

According to Qunzhi Consulting statistics, the maximum production capacity of LGD's 8.5-generation LCD panel production line equipment in Guangzhou is 220K/month, and its production capacity area accounts for about 6% of the world's total. It is expected that annual shipments will exceed 10 million pieces in 2024. Its main customers include Samsung, LG, Skyworth, Kangguan, etc.

Judging from last year's financial data, although the parent company LGD still suffered a substantial loss in net profit, LGD's Guangzhou production line was profitable. In 2023, LG China's revenue was about 6.3 billion yuan and its net profit was 600 million yuan. By the end of 2023, the company's net assets reached 11.802 billion yuan.

The supporting module factory LG Guangzhou had revenue of 11.9 billion yuan and net profit of 500 million yuan in 2023. As of the end of 2023, the company's net assets were 2.8 billion yuan.

As a shareholder, LGD holds 70% of LG China, Guangzhou Hi-Tech Zone Technology Holding Group holds 20%, and Shenzhen Skyworth also holds 10%. LGD holds 100% of LG Guangzhou. Based on the acquisition equity ratio, the total net assets acquired by TCL Huaxing will exceed 10 billion yuan.

In fact, as early as 2022, there were rumors that LGD wanted to sell its Guangzhou LCD factory to ease financial pressure. Over the past two years, there have been constant reports about whether the Guangzhou factory would be sold and to whom it would be sold.

According to media reports, at the beginning of this year, LGD had received letters of intent from domestic panel giants such as BOE, TCL Huaxing, and Skyworth Group, and the sale price was expected to be 1 trillion won (about 5.4 billion yuan). At that time, people close to LGD revealed that whether the Guangzhou factory would be sold depended on the buyer's offer, and the acquisition target would be selected as early as the first half of the year.

However, due to the continuous rise in LCD TV panel prices in the first half of the year, LGD chose to keep the Guangzhou factory fully produced and sold in the face of huge profits, and the sale was repeatedly postponed. A few days ago, LGD executives even said at the second quarter performance briefing that they would actively promote the disposal of related assets. If there is more time, LGD will consider this matter from an angle other than selling.

On July 30, Jiemian News asked LGD whether the above statement meant a "change of heart". A relevant person responded that "the sale (of the Guangzhou factory) is a done deal and cannot be changed."

Industry insiders speculate that the recent negotiations between LGD, BOE and TCL Huaxing are imminent, and the LGD executives' statement is intended to put pressure on potential acquirers and add more bargaining chips to raise the price. According to current market news, TCL Huaxing has increased the acquisition price to 2 trillion won (about 10.8 billion yuan).

Among the many potential acquirers, Skyworth and LGD had a close cooperative relationship, but gradually withdrew from the competition due to price differences. In the later period, only BOE and TCL Huaxing were left in a stalemate.

A person close to TCL Technology told Interface News reporters that although the latest expected transaction price exceeds the price previously rumored in the market, it is still a good deal for the final buyer.

On the one hand, the depreciation of LGD's Guangzhou factory has been basically completed, and the price of LCD panels has risen above the profit level since last year. At a time when the industry's prosperity has greatly improved, it is expected that the production line will have good benefits in the future and will have a high cost-effectiveness.

On the other hand, the asset package that is traded together with the target project is likely to include a series of high-net-worth patents, including LGD's IPS display technology, which are also very attractive to Chinese buyers. IPS technology is a wide-viewing angle technology that can see clear images from any angle and is one of the important technologies for LGD's high-end products.

As for BOE, its LCD panel production lines are located in Beijing, Hefei, Nanjing, Wuhan and other places, but it has no layout in Guangdong. Guangdong is an important strategic region for TCL Huaxing, and if BOE can enter, it will definitely strengthen its own competitive advantage.

Even though TCL Huaxing has become the preferred bidder for LGD's Guangzhou factory, it does not mean that BOE is completely out of the game.

On the afternoon of August 2, regarding whether BOE will continue to participate in this acquisition, its insiders revealed to Interface News that they had just seen the announcement from LGD and TCL Technology yesterday. The company will closely monitor subsequent industry developments and is not in a position to make a statement for the time being.

Zhang Hong, deputy general manager of the large-size business unit of Qunzhi Consulting, believes that if TCL Huaxing's acquisition is successful, it will have a profound impact on the global large-size LCD display panel industry, especially LCD TV panels.

Zhang Hong pointed out that LGD was once the largest manufacturer of LCD TV panels. Due to the expansion of Chinese manufacturers, it turned to the OLED track and its LCD business shrank. Currently, only the Guangzhou production line and a small amount of production capacity of P8 in South Korea correspond to LCD TV panel production. LGD's Guangzhou factory is also the largest stock LCD project of Japanese and Korean panel manufacturers. If the LGD Guangzhou factory changes hands, it means that starting from 2025, Korean panel manufacturers represented by LGD will completely withdraw from the LCD TV panel market supply.

This will further consolidate the dominant position of Chinese panel manufacturers in the LCD panel industry. According to Qunzhi Consulting statistics, BOE and TCL Huaxing will account for a combined 52.6% of global LCD production capacity in 2025, and Chinese panel manufacturers are expected to account for 72.7% of the global LCD panel supply.

As for TCL Huaxing, its 8.6th generation LCD factory (T9 project) built at a cost of 35 billion yuan was officially put into mass production in April last year. Zhang Hong believes that if TCL Huaxing successfully acquires LGD's Guangzhou factory, the two factories can play a synergistic role. After the superposition of production capacity, it will greatly enhance TCL Huaxing's position in the LCD panel market and rewrite the supply pattern. Qunzhi Consulting predicts that in 2025, TCL Huaxing's share of global LCD production capacity will climb to 25.2%, an increase of 5.5 percentage points from 2024.

However, TrendForce analyst Chen Qiaohui also pointed out to Interface News reporters that if TCL Huaxing successfully acquires LGD's Guangzhou factory, how to maintain the Guangzhou factory's existing customers and seek more customer resources will become its primary challenge.

This acquisition worth tens of billions of yuan brings both opportunities and challenges to the entire panel industry. Chen Qiaohui believes that Sharp's Gen10 production line will be closed in 2025, and if the acquisition of TCL Huaxing is successfully completed, the entire LCD industry will need some time to integrate, which will be conducive to reorganizing the industry order next year. In addition, LGD's previous layout in the OLED market has caused its financial pressure to increase sharply. It is expected that after obtaining funds from the sale of the Guangzhou plant, it will make every effort to sprint related investments to meet the needs of its main customers.

According to Zhang Hong, after the merger, the LCD TV panel market may fall into short-term shocks, and the strategies of manufacturers may also diverge, which may bring risks to the operation and profitability of each panel factory. However, in the long run, the overall market supply concentration will be further improved, and the pattern will be stabilized, which will have a positive effect on the market cycle from strong to weak, and will help to stabilize the volatility of the industry and stabilize the overall profitability of the industry.