4Q24: Results miss all forecasts
KCE reported 4Q24 net profit of Bt282mn, missing INVX by 13% and consensus by 29%. Core profit sank 56.7% YoY and 47.8% QoQ due to a 20.9% YoY and 14.8% QoQ plunge in sales, as well as a slash in gross margin to 19.3% in 4Q24 on a fall in total sales as the longer-than-usual New Year holiday generated a slowdown in overall product demand. Outlook remains challenging on concern over overall demand and downside on the uncertainty about Trump’s tariffs. We cut our 2025F by 16% and 2026F by 20% to reflect the weakness. We maintain our Neutral with a new target price of Bt23.0, based on 17x PE or -1.5SD of the 5-year PE mean.
Weak sales and gross margin lead to weak results. KCE reported a net profit of Bt282mn in 4Q24, 13% below INVX and 29% below consensus on lower-than-expected revenue and gross margin. Core profit plunged 56.7% YoY and 47.8% QoQ on a 20.9% YoY and 14.8% QoQ drop in sales, as well as a drop in gross margin to 19.3% in 4Q24, from 22.4% in 4Q23 and 20.2% in 3Q24, likely due to a fall in total sales during the longer-than-usual New Year holiday that dampened overall product demand.
Sales by region. Total sales fell 15.2% YoY to US$80mn in 4Q24 on weakness in all key export regions. Sales to Europe (49% of total sales) fell 15.3% YoY (volume down 17% YoY), to the US decreased 25.6% YoY (volume down 19% QoQ) and to China declined 18.3% YoY (volume down 18% YoY). Conversely, domestic sales surged 4.9% YoY.
2025 outlook. KCE's management has set a goal of keeping revenue flat YoY in 2025 in the face of continued weak demand, particularly in the automotive market, amid high interest rates and weak economic conditions in China and Europe. Management remains focused on improving the production process, specifically for higher-margin HDI products, and is in the process of ordering machinery, with the upgrade expected to be completed by mid-2025. It targets improvement in gross margin to 24-25% (INVX assumption: 22.7%) from 22% in 2024, backed by continued cost reductions, including reducing production staff and increasing automation. It will also be working to improve the production process and reduce electricity consumption. We see some downside on the uncertainty about Trump’s tariffs.
1Q25 outlook remains weak. After purchasing a sales office in the UK and Germany, it expects to lose Bt100mn in sales in 1Q25 due to slower revenue recognition, while gross margin is expected to be close to 4Q24 at around 19.3%.
Cut 2025-2026 forecasts. We have cut 2025F by 16% and 2026F by 20% to reflect the lower revenue and production volume and have adjusted our gross margin assumption down to 22.7% in 2025-26 from 23.5% previously.
Valuation and recommendation. Given the weak 1H25 outlook and concern over the uncertainty about Trump’s moves, we maintain our Neutral with a new target price of Bt23.0 (from Bt29.0), based on 17x PE or -1.5SD of the 5-year PE mean.
Key risks are changes in purchasing power, a weaker-than-expected automotive industry, higher raw material costs (copper and epoxy resins) and exchange rate volatility. Key ESG focus areas are labor management and suppliers.
