The tone at KCE’s analyst meeting on Feb 9 was negative, due to production problems tied to new machinery. The consensus profit forecast was pared back by 11%. KCE’s stock price dived almost 30% in a month. But the production problems should be fully resolved by the end of this month. Therefore, we expect market to soon re-rate KCE’s valuation back up to its growth-phase PER. Our call shifts up from HOLD to TRADING BUY.
Despite higher sales and baht depreciation against the greenback, KCE’s 4Q21 GM declined QoQ, due to higher copper prices, a higher scrap rate, and heavier costs related to capacity expansion. Unfor-tunately, the firm wasn’t able to ramp up new capacity as planned, due to teething problems with new machinery (a high defect rate), while it booked overhead costs and deprecation related to the new capacity. The consensus EPS forecast was pared back by 11% to Bt2.56, below our core EPS projection of Bt2.72.