KCE Electronics

KCE Electronics Plc (KCE)

Slightly above our estimate: KCE reported a 1Q12 net profit of Bt181m, up 19% YoY and a turnaround from the net loss of Bt99m posted for 4Q11. The result beat our estimate by 2% and the consensus by 8%. The earrings turnaround was mainly due to an FX gain of Bt100m and insurance payouts totaling Bt186m during the quarter. Excluding extra items, KCE would have posted a core loss of Bt113m, shallower QoQ, but a reversal from the 1Q11 core profit of Bt120m. The core loss was due to high SG&A expenses.
Results highlights: The top-line fell 28% YoY, which was still 3.7% higher than our estimate, due mainly to a smaller contribution from KCE Technology (Ayudhya). Gross margin came to 19% (in line with our estimate and management guidance), up 80 bps YoY, due to lower raw material costs. The SG&A/sales ratio was 24.0%, down by 9% QoQ (but up by 10% YoY), as depreciation at the Ayudhya plant was booked to SG&A rather than to COGS.
Outlook: We expect KCE’s performance to improve QoQ in 2Q11 and normalize in 2H12, driven by increased sales volume.
What’s changed? 1Q12 earnings represent 17% of our full-year forecast and 19% of the consensus projection. We maintain our FY12 bottom-line model and YE12 target price unchanged.
Recommendation: We like KCE in anticipation of the normalization of operations and sales in 2H12 and the significant gap between its current stock price and our YE12 target. It currently trades at an FY12 EV/EBITDA ratio of 6.6x, below its FY05-11 average of 6.85x. Our BUY rating stands with a YE12 target price of Bt7.0, pegged to its long-term mean EV/EBITDA ratio.