Earnings cut for FY17 to reflect higher copper costs:
We cut our FY17 net profit outlook for KCE to a mere Bt2,692mn, which implies a drop of 11% y‐y. The earnings cut reflects (i) a surge in production costs due to a sharp rise of 18% from end‐FY16 in the price of copper, major raw materials for KCE, (ii) a delay in revenue realization as a result of a change in commercial terms to a consignment basis for some of its major customers, and (iii) a meager sales growth as a result of non‐price competition strategy in double‐side PCB segment. Under the new forecast, we assume full‐year sales will grow by a mere 5% y‐y to Bt14,510mn. Soaring raw materials prices should drag margins down by 3.3% y‐y to 31.6% while SG&A expenses look set to rise on the back of increased staff levels and pay increases.