 KEX again reported disappointing results, with 2Q23 posting a larger loss QoQ and YoY. Though we expect some improvement QoQ in 3Q23F, it will remain in the red, insufficient to drive share price. We believe as long as there is no clear sign of a turnaround, share price will underperform. We have downgraded earnings and maintain our UNDERPERFORM, cutting our DCF-based TP (7.8% WACC and 1.5% LTG) to Bt8 (from Bt10). 2Q23 disappointed again. KEX reported a loss of Bt1bn, worse than last quarter’s loss of Bt787mn and the Bt732mn loss in 2Q22 and worse than consensus expectation of a Bt703mn loss. Revenue was Bt2.9bn, down 6.6% QoQ and 31.7% YoY. It again did not provide an exact parcel volume in 2Q23, but noted that it was down 3% QoQ and 27.6% YoY, driven by a continuing slide in demand from e-commerce platforms, likely a result of the country’s reopening that allowed people to return to the malls, and also the long holidays in the quarter. 1H23 losses account for 75.5% of our earlier 2023 forecast of Bt2.4bn losses and we see downside to that. KEX will brief analysts on August 10. Lower revenue per parcel with higher cost. Based on our analysis, we see worsening operating stats for KEX in 2Q23, with a QoQ and YoY drop in revenue higher than a drop in parcel volume, implying a fall in revenue per parcel both QoQ and YoY. According to its MD&A, competition - especially on the e-commerce platform - has been rising and it is seeing its competitors reducing prices in exchange for higher volume. In addition, e-commerce players are increasingly building their own delivery networks. On the cost side, total opex (COGS + SG&A) grew 3.7% QoQ to Bt4.3bn despite weaker volume and lower fuel cost, driven by rising cost for outsourced staff amidst a labor shortage caused by the recovery of tourism and service industries and the investment in an IT system. Overall, we saw a rise in cost per parcel in the quarter. Cut our earnings forecast. Based on the 1H23 results, we cut our 2023F earnings to a Bt3.2bn loss (from Bt2.4bn losses) on a cut in parcel volume assumption to -20% YoY (from -10%) to reflect lower volume than expected in 1H23. In 3Q23F, we expect some improvement in earnings QoQ on higher parcel volume, but expect it to remain in the red. Risks and concerns. More aggressive pricing strategy will erode earnings. Slower than expected efficiency improvement would lead to a lengthier time before its bottom line turns back into the black. |
