On Thursday, KCE Electronics PCL (KCE:TB) received a downgrade in its stock rating from 'Neutral' to 'Sell' by Citi, with a significant reduction in its price target to THB27.00, down from THB38.00.
The downgrade by the investment firm is attributed to a dimming outlook for the company's High Density Interconnect (HDI) sales, which have been a major growth catalyst, and the anticipated impact of high copper prices in the second half of 2025 to 2026.
KCE Electronics reported subdued earnings for the third quarter of 2024, which were impacted by production issues in HDI and a robust Thai Baht. As the company heads into the fourth quarter, it faces ongoing challenges in the HDI production process due to the transition to new technology. These hurdles are expected to lead to a low utilization rate and potentially high overhead costs in the near term.
Despite a recent easing of the Thai Baht against the U.S. Dollar, the technology firm may not see immediate relief. The timeline for resolving HDI production issues remains unclear, and while there may be some demand recovery early next year, the visibility on earnings improvement for the fourth quarter of 2024 is low.
Citi's revised price target reflects a new lower target Price-to-Earnings (P/E) ratio of 19 times, decreased from the previous 21.3 times. This adjustment is primarily due to lowered earnings growth assumptions for the years 2023 to 2026. Given these factors, Citi anticipates a negative reaction in KCE Electronics' share price following the disappointing third quarter results and the uncertain outlook for the near future.
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