KCE Electronics (KCE TB)
3Q24: Results A Significant Miss; Downgrade To HOLD
KCE Electronics, known for manufacturing and distributing printed circuit boards under the KCE trademark, has reported a disappointing 3Q24 performance. The company, which primarily focuses on the automobile PCB segment, saw its net profit plummet to Bt216m, marking a significant decline of 58% year-on-year (yoy) and 66% quarter-on-quarter (qoq).
Financial Performance
The results fell short of both the company’s and consensus expectations by a staggering 60%. This underperformance was due to several factors:
- Lower revenue
- Squeezed gross margin
- Higher SG&A-to-sales ratio
Consequently, the earnings forecasts for 2024-25 have been revised downward by 24% and 15%, respectively. Additionally, the valuation of KCE has been de-rated from its mean PE to -1SD PE, leading to a downgrade to a HOLD recommendation with a lower target price of Bt30.00.
3Q24 Results Summary
| Year to 31 Dec (Btm) |
3Q24 |
3Q23 |
2Q24 |
yoy chg (%) |
qoq chg (%) |
| Net turnover |
3,802 |
4,326 |
4,012 |
(12.1) |
(5.2) |
| Gross profit |
769 |
951 |
994 |
(19.1) |
(22.6) |
| EBIT |
181 |
493 |
449 |
(63.2) |
(59.6) |
| EBITDA |
461 |
779 |
713 |
(40.7) |
(35.3) |
| Net profit |
216 |
520 |
635 |
(58.4) |
(65.9) |
| EPS |
0.18 |
0.44 |
0.54 |
(58.4) |
(65.9) |
| Core profit |
216 |
520 |
635 |
(58.4) |
(65.9) |
Detailed Analysis
The significant miss in KCE’s results is attributed to a combination of lower-than-expected revenue, squeezed gross margin, and higher SG&A-to-sales ratio. Specifically, the revenue in US dollar terms for 3Q24 was US\$110m, down 11% yoy and flat qoq. In Thai baht terms, the revenue dropped 12% yoy and 5% qoq to Bt3.8b, falling below estimates.
Key Financials
| Year to 31 Dec (Btm) |
2022 |
2023 |
2024F |
2025F |
2026F |
| Net turnover |
18,456.3 |
16,343.6 |
15,767 |
17,613 |
19,254 |
| EBITDA |
3,295.4 |
2,681.3 |
2,601 |
2,982 |
3,248 |
| Operating profit |
2,213.5 |
1,628.9 |
1,466 |
1,849 |
2,118 |
| Net profit (rep./act.) |
2,317.2 |
1,719.6 |
1,697 |
2,066 |
2,329 |
| Net profit (adj.) |
2,317.2 |
1,719.6 |
1,697 |
2,066 |
2,329 |
| EPS (Bt) |
2.0 |
1.5 |
1.4 |
1.8 |
2.0 |
| PE (x) |
19.6 |
26.4 |
22.3 |
18.3 |
16.2 |
| P/B (x) |
3.4 |
3.3 |
2.7 |
2.6 |
2.5 |
| EV/EBITDA (x) |
13.7 |
16.8 |
14.2 |
12.4 |
11.4 |
| Dividend yield (%) |
0.6 |
3.1 |
3.7 |
4.5 |
5.0 |
Revenue and Margin Analysis
KCE’s gross margin dropped to 20.2% in 3Q24, down from 24.8% in 2Q24 and 22.0% in 3Q23. The margin was affected by several factors, including the appreciation of the Thai baht to Bt34.8/US\$1, increased ratio of copper price to sales, negative consignment sales, and higher production costs due to machinery upgrades.
The SG&A-to-sales ratio also increased to 15.5%, up from 10.6% in 3Q23 and 13.6% in 2Q24. This was primarily due to lower revenue, higher selling costs from increased air freight, and elevated administrative expenses from recording forex losses.
Earnings Revision and Risks
For 2024-25, the net profit forecasts have been revised downward by 24% and 15%, respectively. This adjustment reflects the lower-than-expected revenue and gross margin, as well as higher-than-expected SG&A-to-sales. The ongoing machinery upgrades are expected to impact revenue until the end of 2024, and the gross margin for 4Q24 is anticipated to be lower due to baht appreciation and high raw material prices.
Valuation and Recommendation
KCE Electronics has been downgraded to a HOLD with a target price of Bt30.00, down from the previous Bt56.00. The valuation is based on 17x 2025F PE, pegging KCE’s target PE to -1.0SD from its five-year mean. The downgrade is attributed to expected revenue softness in 4Q24 due to machinery issues and a softer gross margin due to the appreciating baht.
Sector Catalysts
Potential catalysts for the sector include strong demand from the automotive industry, baht depreciation, lower raw material prices, and higher capacity and utilization rates.
Environmental, Social, and Governance (ESG)
KCE Electronics is committed to several ESG initiatives, including reducing greenhouse gas emissions, promoting sustainable production and consumption practices, supporting human rights, facilitating labor association participation, and conducting business transparently and fairly.
Key Operating Statistics
| Revenue by products (US\$m) |
3Q24 |
3Q23 |
2Q24 |
yoy ppt chg |
qoq ppt chg |
| 2 layers of PCB |
9.0 |
10.2 |
8.4 |
(11.5) |
8.0 |
| 4 layers of PCB |
32.6 |
32.8 |
34.6 |
(0.7) |
(5.9) |
| 06+ layer of PCB |
20.6 |
23.3 |
20.2 |
(11.8) |
2.0 |
| Special grade PCB |
28.6 |
26.9 |
31.5 |
6.1 |
(9.2) |
| Total |
90.8 |
93.3 |
94.7 |
(2.7) |
(4.1) |
Earnings Revision
| 2024F |
New |
Old |
Change |
2025F |
New |
Old |
Change |
| Sales |
15,767 |
16,699 |
-5.6% |
Sales |
17,613 |
19,308 |
-8.8% |
| Net profit |
1,697 |
2,241 |
-24.3% |
Net profit |
2,066 |
2,427 |
-14.9% |
| GPM (%) |
23.1 |
24.5 |
-1.4 |
GPM (%) |
24.1 |
24.9 |
-0.8 |
| SG&A-to-sales (%) |
13.8 |
12.2 |
1.6 |
SG&A-to-sales (%) |
13.6 |
13.3 |
0.3 |
Key Metrics
| Year to 31 Dec (%) |
2023 |
2024F |
2025F |
2026F |
| Profitability |
EBITDA margin |
16.4 |
16.5 |
16.9 |
16.9 |
| Pre-tax margin |
11.5 |
11.8 |
12.8 |
13.2 |
| Net margin |
10.5 |
10.8 |
11.7 |
12.1 |
| ROA |
8.6 |
9.2 |
11.8 |
13.2 |
| ROE |
12.7 |
12.2 |
14.5 |
15.7 |
| Growth |
Turnover |
(11.4) |
(3.5) |
11.7 |
9.3 |
| EBITDA |
(18.6) |
(3.0) |
14.7 |
8.9 |
| Pre-tax profit |
(24.5) |
(0.8) |
21.4 |
12.6 |
| Net profit |
(25.8) |
(1.3) |
21.7 |
12.7 |
| Net profit (adj.) |
(25.8) |
(1.3) |
21.7 |
12.7 |
| EPS |
(25.8) |
(1.3) |
21.7 |
12.7 |
| Leverage |
Debt to total capital |
14.1 |
13.6 |
13.2 |
12.8 |
