ETRON Sector
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Still inviting due to weak THB Rec: NEUTRAL Neutral
ETRON Sector
-SVI, KCE, HANA to show strongest profit growth in 2Q15
The sector’s earnings tend to continue growing in 2Q15 and make a year’s high in 3Q15, which is a high season of global electronics business
and means increasing orders from overseas customers. SVI will return to use a normal utilization rate like before the fire accident, so its total
revenues would get back to US$70m in 2Q15 from US$43m in 1Q15. Likewise, KCE’s total revenues would grow 10%qoq because a new factory
in Lat Krabang (Phase 1) would have reached a breakeven point of 50% utilization rate in 2Q15, versus only 30% in 1Q15. HANA’s earnings would
also be good from increasing orders of hearing aids. Only DELTA’s net profit would weaken from 1Q15; since there is no significant increase in
production capacity like peers, its total sales would decrease during long holidays, before reviving again in 3Q15. In addition, the sector would benefit from average THB of B33.08/US$ on a quarter-to-date basis or the depreciation of 1.3%qoq and 1.9%yoy; HANA would benefit most, followed by DELTA, KCE, and SVI, respectively.
- Forecast up revision likely if THB weakens below assumption
We estimate FY2015 net profit growth at 25.3%yoy, led by SVI that will receive compensation claims of B1.4bn for the fire accident. Excluding the extraordinary income, the sector’s normalized profit would still grow 20.6%yoy. We begin to see an upside for earnings in 2015 if THB continues to weaken; average Fx rate since the beginning of the year until present is B32.83/US$, which is getting closer to our assumption of B33/US$; we are ready to upgrade our recommendation to OVERWEIGHT when THB is weaker than our assumption. At every B1 weakness of THB, the sector’s net profit would increase 5.8% from the current forecast. We are also planning to revise up earnings forecasts for single stocks: HANA, DELTA, KCE, and SVI.
- Top pick is HANA. BUY recommended for KCE
We maintain NEUTRAL for the sector. Top pick is HANA(FV@B48) and we also recommend buying KCE(FV@B60) since these stocks tend to show good
profit growth due to weak THB and have solid upsides.
