KCE Electronics
Q1 2013 net profit beat our estimate (and the street); stronger quarters ahead
KCE Electronics Plc (KCE)
Beat all estimates
KCE reported solid earnings for 1Q13 of Bt273m, up by 29% QoQ and 51% YoY. The result exceeded our estimate by 7% and the consensus by 15%, due to a hefty FX gain. Stripping out extra items, core profit would be Bt155m (in line with our estimate), up 47% QoQ and a turnaround from a loss of Bt105m posted for 1Q12.
Results highlights
Revenue rose by 7% QoQ and 49% YoY to Bt2bn—orders jumped QoQ, driven by automotive PCBs. GM fattened by 320 bps YoY and 178 bps QoQ to 22.2% (above our assumption of 21.5%) in 1Q13 on a full quarter of profit at KCET. The SG&A/sales ratio normalized to 13.4%, down from 24% in 1Q12 (KCET didn’t operate during 1Q12; so depreciation expenses, which are normally booked to COGS, were booked to the SG&A row—no goods were sold during the quarter). However, on a QoQ basis, the SG&A-to-sales ratio increased 73 bps on salary adjustments. KCE also posted an FX gain of Bt118m, which flattered its bottom-line.
Outlook
The firm should post stronger core earnings in 2Q13 (up 15% QoQ). Management guides that KCE has secured orders equal to more than 90% of its PCB sales target for the quarter of US$70m. Moreover, lower raw material prices will boost margin—the price of copper has dropped 15% since YE12. Copper comprises about 14% of COGS, so we expect 2Q13 GM to expand to about 22.5% (from 19.3% in 2Q12 and 21.5% in 1Q13). Core earnings will peak in 3Q13, due to seasonality and new orders (PCBs for solar cells). GM should post QoQ growth in 2Q13 on a full capacity run at KCET.
What’s changed?
We have revised up our FY13 net profit forecast by 2% to Bt865m. However, our core earnings projection remains unchanged at Bt739m. Note that we have yet to factor in capacity at the future Ladkrabang plant (equal to 30% of total existing capacity; the facility is currently being designed; COD in 3Q14).
Recommendation
KCE remains our preferred pick in the Electronics sector for its superior order growth outlook. Furthermore, GM should expand on operational improvements and a lower copper cost. With a three-year core earnings CAGR of 13%, we think the current PER of 10.6x for FY13 still presents a good entry point. Our BUY rating stands with a YE13 target price of Bt19.
