KCE Electronics

KCE Electronics Plc (KCE)

Beat all estimates
KCE reported a 2Q13 net profit of Bt197m, up 174% YoY but down 28% QoQ. The result beat our estimate by 6% and the consensus by 9%, due to a smaller FX loss than assumed. Stripping out extra items, core profit would be Bt237m (in line with our estimate), up by 1,148% YoY and 53% QoQ. KCE’s board approved an interim DPS of Bt0.25.
Results highlights
Revenue rose by 13% QoQ and 50% YoY to Bt2.3bn—the YoY jump was driven by a bigger contribution from KCE Technology (Ayutthaya) and the QoQ rise was due to seasonality. GM shot up by 693 bps YoY and 267 bps QoQ to 24.9% (above our assumption of 24%) in 2Q13 on a higher utilization rate at KCET—to 92% from 85% in 1Q13 and about 40% in 2Q12—and lower raw material costs. The SG&A/sales ratio was 15%, down from 16% in 2Q12 (remaining 4Q11 flooding-related clean-up expenses from 1Q12 were booked during 2Q12), but up from 13.5% in 1Q13. KCE also posted an FX loss of Bt40m. As such, the bottom-line was Bt197m.
Outlook
The third-quarter is generally high season for electronics manufacturers. We anticipate that KCE should post stronger core earnings for 3Q13 (up 13% QoQ). Management guides that the firm has already secured orders equal to more than 93% of its PCB sales target for the quarter of US$75m. GM should be sustained historically high at about 25% on rising economies-of-scale brought about by a better run rate at KCET. The 4Q13 top-line is likely to soften QoQ on seasonality. As such, we assume that 4Q13 core earnings will rise YoY but drop QoQ. We expect KCE to achieve its full-year sales target of US$270m and post marked FY13 core earnings growth of 1,216% to Bt799m.
What’s changed?
1H13 core earnings represent 49% of our full-year forecast and 53% of the consensus projection. We maintain our FY13 model and YE13 target price unchanged.
Recommendation
KCE remains our preferred pick in the Electronics sector for its superior order growth outlook and GM expansion profile. With an FY14-15 core earnings CAGR of 17%, we think the current core PER of 12.2 x for FY13 still presents a good entry point. Our BUY rating stands with a YE13 target price of Bt18.4.