20180312-辉立证券-KCE_Electronics_FY18_earnings_outlook_clouded_by_raft_of_negative_headwinds_10页_348kb

KCE Electronics Summary

Core Content

KCE Electronics (KCE) is a manufacturer and exporter of printed circuit boards (PCBs), primarily serving clients in the automotive, consumer, and other sectors in Europe. The company faces challenges in FY18, with its earnings outlook affected by multiple negative factors.

Main Points

• Earnings Outlook: The company's FY18 earnings are expected to decline by 2% year-over-year (y-y), with net profit forecasted at Bt2,506mn, down from previous estimates due to the stronger Thai baht and weak demand affecting margins.
• Currency Impact: A 1 baht rise in the USD/THB exchange rate could reduce margins by approximately 1.6% to 1.7%. This is the most significant threat to earnings this year.
• Segment Performance: The HDI segment, which has higher margins, is expected to see sales growth of over 50% y-y due to increasing demand. However, margins are projected to be 1% narrower than the previous year.
• Capacity Expansion: KCE plans to increase production capacity at its KCE Ladkrabang plant by 33% to 2 million square feet per month, with the goal of boosting total production capacity to 3.6-4.0 million square feet per month. A new plant is under consideration for next year.
• Share Price and Valuation: The company's closing price on 12 March 2018 was Bt66.00, with a revised FY18 target price of Bt72.75, a 12.84% increase. The 'ACCUMULATE' rating remains unchanged due to potential for new clients and the belief that most negative factors have been factored into the share price.
• Financials:
  • Sales are expected to rise by 6.14% in FY18 to Bt15,067mn.
  • Net profit is projected to decline to Bt2,506mn, with a net profit margin of 16.63%.
  • EBITDA margin is expected to decrease to 23.21%, and EBIT margin to 16.87%.
  • The company's debt-to-equity ratio is projected to decrease to 0.74 by FY19.
• Valuation Ratios:
  • P/E ratio for FY18 is estimated at 15.4, with P/BV at 3.0.
  • Dividend yield is expected to be 2.6% in FY18 and 2.9% in FY19.
• Key Financials for FY18:
  • Revenue: Bt15,067mn
  • EBITDA: Bt3,497mn
  • Net Profit: Bt2,506mn
  • EPS: Bt4.27
  • DPS: Bt1.72
  • BVPS: Bt22.00
• Cash Flow:
  • Net income is projected to decrease in FY18 due to a drop in cash flow from operations and increased financing expenses.
  • The company has plans for capital expenditures and expects to maintain a stable cash flow.

Key Information

• Market Cap. (Btmn): Bt38,702mn (as of 12 March 2018)
• Market Cap. (USDmn): USD1,234mn
• 52-WK High/Low (Bt): 114.5 / 64.25
• 3M Average Daily Turnover (mn): 2.73
• Par Value (Bt): 1.00
• Major Shareholders:
  • Mr. Pitan Ongkosit: 13.7%
  • Thai NVDR: 10.6%
  • APCO CAPITAL PTE. LTD.: 7.5%
• Price Performance (vs. SET Index):
  • 1MTH: -15%
  • 3MTH: -23%
  • 1YR: -35%
• Peer Comparison (as of 09 March 2018):
  • KCE TB: P/E 15.2, P/BV 3.4, Div Yield 3.3%
  • Hana Microelectronics PCL: P/E 9.5, P/BV 1.3, Div Yield 5.8%
  • SVI PCL: P/E 18.9, P/BV 1.4, Div Yield 1.8%
  • Cal-Comp Electronics Thailand: P/E 7.4, P/BV 0.5, Div Yield 4.8%
• Risk Factors:
  • High scrap rate due to complex production processes.
  • Intense competition leading to potential price wars.
  • FX rate fluctuations affecting margins.

Company Participation in Thai CAC

KCE is part of the Thailand's Private Sector Collective Action Coalition Against Corruption (CAC) under the Thai Institute of Directors. The CAC comprises five levels of commitment, from Level 1 (Committed) to Level 5 (Extended), with KCE at Level 2 (Declared).

Industry Group

KCE is categorized under the Electronic Components sector, which is part of the Technology industry group.

PSR Rating System

• ACCUMULATE rating is maintained, indicating the stock is expected to perform moderately with a growth outlook that is not overly optimistic.

Contact Information

• Hong Kong Representatives:

  • Benny WANG: Dealing Director, (852)2277 6720, bennywang@phillip.com.hk
  • ZHANG Jing: Research Analyst (Transportation and Automobiles), (86) 2151699400-103, zhangjing@phillip.com.cn
  • John WONG: Research Analyst (HK & Mainland Properties, Hotels & Entertainment), (852) 2277 6527, johnycwong@phillip.com.hk
  • FAN Guohe: Research Analyst (Pharmaceutical, Health & Personal Care, TMT), (86)2151699400-110, fanguohe@phillip.com.cn
  • WANG Yannan: Research Analyst (New Energy), (86) 2151699400-107, wangyannan@phillip.com.cn

• Sales Team:

  • Aric AU: Manager, Corporate & Institutional Sales, (852) 2277 6783, corporatesales@phillip.com.hk
  • Matthew WONG: Manager, International Sales, (852)22776678, foreignstock@phillip.com.hk
  • Yoshikazu SHIKITA: Manager, International Sales (Japan Team), (852) 2277 6624, yshikita@phillip.com.hk