Thai electronics sector to report powerful earnings growth after Q3: UOBKH

ROBUST demand for 5G services and the electric vehicle trend will be the main drivers of improving sales for Thailand's electronics sector in Q3 2021 and beyond, according to UOB Kay Hian (UOBKH).

The brokerage is projecting Q3 sector sales to increase 21 per cent year on year and 4 per cent quarter on quarter to 35.5 billion baht (S$1.4 billion) despite softer earnings growth for the quarter - dragged by lockdown restrictions, higher raw material prices and delayed capacity expansion.

In a report on Thursday (Oct 21), UOBKH noted that all electronic stocks under its coverage reported an improvement in sales over Q3, buoyed by the outperformance of KCE Electronics and Hana Microelectronics.

KCE is engaged in the manufacture and distribution of electric printed circuit products. It remains UOBKH's top pick as the brokerage maintains its "overweight" rating on the sector.

Hana's major product groups comprise printed circuit board assembly, as well as integrated circuit assembly and testing; light emitting diodes; and liquid crystal on silicon assembly. The EMS (electronic manufacturing services) provider has been upgraded by UOBKH from "hold" to "buy" on expectations of strong earnings to come from robust orders as well as its new silicon carbide product.

Managements of Thai electronic corporates under UOBKH's coverage foresee the global chip shortage situation will improve in Q4, said the brokerage, despite the recent increase in raw material prices caused by a "sizeable" global demand for chips.

In UOBKH's view, KCE is the only beneficiary of the current chip shortage as it is "less concerned" compared to its peers.

The brokerage believes companies whose products feature semiconductors as a main component - including Hana - will be directly affected in terms of cost exposures to raw materials, as chip production capacity will take 12 to 24 months.

"Despite strong top-line and baht depreciation, (Hana's) top line is expected to be flat quarter on quarter (at 749 million baht, up 134 per cent on-year), pressured by struggles from the chip shortage and supply chain disruption from the pandemic in many key operations," said UOBKH of its earnings forecasts for the company for Q3 2021.

On the other hand, it is projecting KCE to post both year-on-year and quarter-on-quarter net profit growth of 175 per cent and 8 per cent, respectively, to 666 million baht in Q3. This is to be driven by a strong year-on-year revenue growth of 44 per cent as well as "impressive" gross margin, said the brokerage.

"Excluding the currency effect, sales in US dollar terms are expected to come in at US$117 million. Gross margin could be 30.9 per cent from the currency effect, product mix, expansion of new capacity and economies of scale," noted UOBKH analysts.

They are also anticipating a boost to the company's net profit in 2022, with earnings to improve from Q4 2021 due to capacity expansion.