Electronics Sector in Thailand Faces Challenges: An In-depth Analysis
By UOB Kay Hian, December 4, 2024
The electronics sector in Thailand is currently navigating through a myriad of challenges, with no immediate signs of recovery, as detailed in UOB Kay Hian’s latest sector update. Despite some expectations of slight improvements in gross margins due to currency depreciation, the overall outlook remains cloudy, prompting a downgrade to MARKET WEIGHT. This comprehensive analysis delves into the performance and outlook of key companies within the sector: Delta Electronics, KCE Electronics, Hana Microelectronics, and SVI.
Delta Electronics: Facing a Tough Sell
Delta Electronics (DELTA) has been downgraded to a SELL recommendation with a target price of Bt128.00. The company’s 3Q24 performance saw a net profit of Bt5.9 billion, marking a 9% year-on-year increase but a 10% decline quarter-on-quarter. This performance was bolstered by higher revenues and stronger gross margins, primarily due to the power electronics segment benefiting from AI technology and fan & thermal management products. However, quarter-on-quarter revenue growth was stagnated, impacted by challenges in the electric vehicle power solutions segment in both the US and Asia.
Despite its potential, particularly in AI-related products, the valuation of Delta Electronics appears stretched, leading to the revised recommendation. The company’s revenue for 3Q24 was reported at Bt43.2 billion, a 7% year-on-year increase but flat quarter-on-quarter, reflecting pressures from its electric vehicle segment.
KCE Electronics: Machinery Issues Impacting Revenue
KCE Electronics (KCE) is currently rated as HOLD with a target price of Bt28.00. The company’s 3Q24 net profit fell significantly by 58% year-on-year and 66% quarter-on-quarter to Bt225 million, primarily due to lower-than-expected revenue, squeezed gross margins, and increased SG&A-to-sales ratios. Revenue in US dollar terms was flat quarter-on-quarter but decreased 11% year-on-year, translating to a 12% year-on-year and 5% quarter-on-quarter drop when denominated in Thai baht.
The decline in revenue was attributed to currency effects and reduced shipment volumes of printed circuit boards, exacerbated by machinery upgrades that disrupted production volumes. KCE’s reliance on the automobile segment, which faces subdued demand, further complicates its recovery prospects.
Hana Microelectronics: High-Base Effect and Soft Demand
Hana Microelectronics (HANA) has been downgraded to HOLD, with a lowered target price of Bt28.00 from a previous Bt48.00. The company’s 3Q24 net profit stood at Bt406 million, a 45% drop year-on-year despite an 8% quarter-on-quarter improvement. This decline is attributed to a high base in gross margins from the previous year and ongoing soft demand in both the EV and consumer electronics sectors.
Hana’s revenue for 3Q24 was reported at Bt6.1 billion, marking a 7% year-on-year and 10% quarter-on-quarter decrease. This was primarily due to weaker performance in the microelectronics and integrated circuit divisions. The outlook for 4Q24 and 1H25 remains uncertain, with expectations of continued pressure from subdued demand.
SVI: Diversification as a Buffer Against Industry Pressures
SVI maintains a BUY recommendation, albeit with a slightly reduced target price of Bt8.00 from Bt8.40. The company posted a 3Q24 net profit of Bt165 million, down 40% year-on-year and 72% quarter-on-quarter. This was impacted by lower-than-expected revenue and gross margin, alongside forex losses.
SVI’s revenue for 3Q24 was Bt5.6 billion, flat year-on-year but down 6% quarter-on-quarter. Despite these challenges, SVI’s diversified revenue streams, particularly from communication and network, industrial control, and automobile segments, provide some resilience against the broader industry downturn. This diversification strategy positions SVI more favorably compared to peers heavily reliant on the more volatile automobile and consumer electronics sectors.
Sector Outlook and Recommendations
UOB Kay Hian’s analysis suggests a challenging road ahead for Thailand’s electronics sector, with the first half of 2025 likely to remain under pressure. However, potential tailwinds such as baht depreciation, lower raw material prices, and expanded production capacities could offer some relief. Conversely, factors like baht appreciation, rising raw material costs, and global economic uncertainties pose significant risks.
The sector’s downgrade to MARKET WEIGHT reflects these complexities, and while gross margins might see slight improvements due to strategic cost-cutting, revenue growth remains a critical concern.
Investors should closely monitor these developments, particularly in light of the shifting global economic landscape and technological advancements that might influence demand dynamics in the electronics industry.
