KEX - 3Q24: Still in the red

KEX reported a core loss of Bt989mn in 3Q24, improving QoQ but worsening YoY due to lower parcel volume from focusing on high-yield customers. Cost structure improvements have been slow. The recent capital call reduces short-term negative equity risk, but this remains a concern. We maintain UNDERPERFORM with a DCF-based TP of Bt1.7/sh, expecting continued underperformance due to weak earnings and unclear profit turnaround.

We have negative view on its 3Q24 results. KEX reported a core loss of Bt989mn from a loss of Bt1.1bn in 2Q24 and Bt902mn in 3Q23. The QoQ improvement was mainly from its cost optimization program while the YoY drop reflects lower parcel volume due to its strategy to focus more on high-yield customers (C2C). Although we see improvement in its cost structure, progress has been slow as reflected in only small improvement in its core operations. The recent capital call will lower the risk its equity will turn negative in the near term, but this risk needs to be monitored. Based on our estimates, its equity will turn negative in 2026F. We maintain UNDERPERFORM with a DCF-based TP Bt1.7/sh (7.8% WACC and 1.5% LTG). The share will continue to underperform the market due to its weak earnings outlook and unclear signs of a turnaround to profit.

3Q24 still heavily in the red. KEX reported a net loss of Bt1bn, relatively flat QoQ, but worsening from the loss of Bt902mn in 3Q23. In the quarter, it booked Bt46mn impairment losses, likely from rebranding after it changed its name to KEX from Kerry. Stripping this out shows a core loss of Bt989mn, slightly improved QoQ from loss of Bt1.1bn, but weaker YoY from a 3Q23 loss of Bt902mn. Core loss in 9M24 is 72% of our full-year forecast of a net loss of Bt4.5bn, which keeps it on track to meet our estimate. It booked total revenue of Bt2.5bn, down 5.6% QoQ and 13.5% YoY on lower parcel volume of 10% QoQ and 19% YoY. Behind the drop was its strategic focus on high-yield customers and reduction of volume from the e-commerce platform. In the quarter, revenue contributed by the C2C segment was 49% (from 47% in 2Q24), with 36% from the e-commerce platform or SKA (from 39%) and the rest from CKA or B2B.

Cost optimization coming. Cost of sales was Bt2.9bn, down 11.4% QoQ and 19.3% YoY. The decrease came from a reduction in outsourcing transport and network optimization. SG&A was Bt367mn, down 5.5% QoQ and 14.8% YoY as a result of its cost optimization program.

Expect 4Q24F to be softer QoQ and flat YoY. We expect 4Q24F earnings to be weaker QoQ due to more holidays that will eat into parcel volume. We also expect limited impact on parcel volume from its double-date promotions e.g., 11.11 and 12.12. On a YoY basis, its ongoing cost optimization should help stabilize earnings.

Lower our 2024F slightly. We revise our 2024F net loss, raising the loss 1% to Bt4.5bn after factoring in the impairment loss of Bt46mn booked in 3Q24. Core loss is unchanged at Bt4.5bn.

Risks and concerns. Pricing pressure on the e-commerce platform on the arrival of TEMU in Thailand. We continue to monitor its equity, although it did just complete a capital call. Based on our estimates, its equity could turn negative in 2026F since we still do not believe the company will get up into the black in the near-term. Key ESG risks are brand management and cybersecurity and data privacy.