KCE Electronics

KCE Electronics Plc (KCE)

4Q12F: Bt120mn core, Bt200mn net profit. We expect KCE’s earnings performance
to outshine peers in 4Q12F, thanks to the improvements in production efficiency at KCE
Tech in Ayutthaya. Based on a meeting with KCE management yesterday, the defect
rate at KCE Tech plant has been slashed to 4.6% in November from 8-9% before last
year’s flooding. This together with ~Bt17mn earnings contribution from Chemtronics
Technology (Thailand) Ltd., a chemical and copper recycling business bought on Oct 2,
leads us to expect KCE’s core earnings to shoot up to Bt120mn in 4Q12F from Bt33mn
the prior quarter. Adding in the estimated insurance claim of Bt80mn gives a projected
net profit of Bt200mn.

KCE-Tech: from drag to boost. KCE-Tech is the company’s biggest plant, with about
half of KCE’s total capacity (2.2-2.3 mn sqft/month). However, the low efficiency and
defect problems made this plant a drag on earnings. The flooding in 4Q12 gave KCE the
chance to rebuild production lines and add to efficiency by redesigning some processes.
As KCE-Tech contributes half of total capacity, a 3.5-4.5% reduction in its defect rate
alone adds a high 28-36% to the company’s earnings (assuming full utilization rate and
net margin of 6.2% in 2010). KCE-Tech is now poised to switch from being a drag to
being the star earnings driver in 2013F.

Look for new earnings record of Bt600mn in 2013F. Around five new clients who
began with small orders in 2012 have indicated that they will place large orders
(>US$10mn/client) in 2013F. These plus recovery from flooding, should lead KCE’s sales
up 20% to Bt7.8bn. Factoring in the new production efficiency at KCE-Tech, we look for
a new earnings record of Bt600mn in 2013F.

Maintain Buy and Bt11.5 TP. As an earnings turnaround play, we maintain Buy and a
2013 TP of Bt11.5 based on 9x PE, which is the sector’s -0.5SD ten-year average.