Introduction

KCE Electronics Public Company Limited (KCE), a leading manufacturer of customized printed circuit boards (PCBs), has been under the spotlight due to its significant role in the automotive, consumer, and industrial sectors. This extensive report by Maybank Securities (Thailand) delves into the company’s financial performance, industry risks, and future growth prospects. The analysis also provides an updated recommendation and price target for investors.

Investment Thesis

The report highlights several key aspects of KCE’s financial performance and strategic positioning:

• Upgraded Recommendation: KCE’s recommendation has been upgraded to a “BUY” from “SELL” despite the persistent challenges in global automotive demand and trade war uncertainties.
• Valuation: The target price (TP) has been revised to THB27.0, indicating a 36% upside from the current share price of THB19.80.
• Dividend Yields: With dividend yields exceeding 7%, this is the highest level since 2019, marking an attractive valuation for investors.
• Focus on High-Growth Segments: KCE’s strategic focus on the high-density interconnect (HDI) PCB segment, primarily used in electric vehicles (EVs), positions it well to capture future growth.

Performance Analysis

Revenue and Profit Trends

KCE’s financial performance has been impacted by sluggish global automotive demand, which accounts for 70% of its revenue. The company’s revenue in FY24E is expected to decline by 6% year-on-year to THB15.3 billion, while core profit is forecasted to grow by 20% to THB2.07 billion due to cost optimization initiatives.

Q4 2024 Earnings Preview

The Q4 2024 core profit is expected to be approximately THB459 million, a 4% year-on-year decline but a 19% sequential growth. This rebound is attributed to improved gross profit margins following a slight depreciation of the Thai Baht. However, the quarter also faced headwinds due to increased public holidays in Thailand and Europe.

Cost-Cutting Measures

KCE has implemented cost-saving initiatives, including the development of a new chemical formula for PCB production and the acquisition of European distributors to reduce selling, general, and administrative (SG&A) expenses. The company aims to produce 30-33% of its chemical requirements in-house by FY25E, further enhancing cost efficiency.

Future Growth Prospects

New Factory Expansion

The planned Rojana factory, expected to be operational in the first half of 2026, is set to increase PCB production capacity by 25% in its initial phase, with the potential to scale up to 75% upon full completion. This expansion is anticipated to support long-term growth.

Market Outlook

Global automotive unit sales are projected to grow by 1.4% year-on-year to 82 million units in FY25E. However, demand remains subdued in key markets like Europe and the US due to high interest rates and weakening purchasing power. Additionally, KCE’s limited exposure to growth regions like Japan poses a challenge to its sales momentum.

Valuation and Recommendation

The valuation is based on a Dividend Discount Model (DDM), resulting in a revised TP of THB27.0. This implies a 15.9x FY25E price-to-earnings ratio, close to one standard deviation below its 10-year average. The company’s consistent dividend payout ratio of over 80% further bolsters its investment appeal.

Recommendation: Maybank Securities (Thailand) recommends a “BUY” for KCE Electronics, citing its attractive valuation, robust dividend yields, and strategic focus on high-growth segments like HDI PCBs for EVs.

Key Risks

The report outlines several risks that could impact KCE’s performance:

• Weak Automotive Demand: Persistent challenges in the global automotive sector could limit sales growth.
• Tariff Concerns: Rising tariffs may force automakers to pass on costs to customers, dampening demand further.
• Geographic Exposure: Limited revenue contribution from growth regions like Japan could constrain overall growth.

Environment, Social, and Governance (ESG) Highlights

Environmental Initiatives

KCE is committed to reducing greenhouse gas emissions by 30% by 2030 compared to its FY21 baseline. The company has increased its renewable energy usage to 3% in FY23, up from 1.2% in FY21. Water recycling initiatives have also improved, with 60% of water being recycled in FY23.

Social Responsibility

KCE promotes gender diversity, with 45% of its operational staff and managers being female. The company also supports responsible sourcing, ensuring suppliers adhere to ethical labor practices and conflict-free mineral sourcing.

Governance Practices

The company’s board comprises 44% independent directors, with women holding 35% of executive leadership roles. KCE’s governance policies are detailed on its website and annual reports, emphasizing transparency and ethical practices.

Conclusion

KCE Electronics presents an attractive investment opportunity due to its strong focus on high-growth HDI PCBs, robust dividend yields, and strategic cost-saving measures. While challenges remain in the global automotive market, the company’s proactive initiatives and expansion plans position it well for long-term growth. Investors are advised to consider the “BUY” recommendation by Maybank Securities (Thailand) to capitalize on the company’s potential upside.