It’s Going to Hurt! KCE’s 1Q to Receive Impact as Major Customers Expect Lower Production
KCE's main customers, including Continental and Volkswagen are expected to take a huge blow from the impact of coronavirus, leading KCE's 1Q20 performance to decline.
The coronavirus outbreak has caused the global economy to slow down, while industrial and consumer sectors take the most hit during the crisis. As Thai’s economic driver, exports are expected to see a plummet in the first quarter.
The electronic parts and equipment exporters would face difficulty as China, the epicenter of the outbreak and Thailand and other countries’ main business partner, lowered their production and operation due to concerns of contagion.
Earlier, Continental AG, KCE Electronics Public Company Limited (KCE)’s main customer, announced a slight increase in net profit in 2019 amid business slowdown in the auto market. The company forecasted a decline in production of passenger cars and light commercial vehicles by 2-5% in 2020 due to the impact of coronavirus, and global production to plunge 10% YoY in the first quarter of 2020. In China, the decrease is likely to be at least 30% in this period.
More importantly, the market forecast does not include possible further disruptions to production and the supply chain as well as demand as a result of the continuing spread of the coronavirus.
The absolute decrease in the production of passenger cars and light commercial vehicles has now reached the level seen in the crisis years of 2008/09. This is being worsened further by the current spreading of the coronavirus and the corresponding reduction in production in China.
KCE, as a Printed Circuit Boards (PCB) producer, mentioned the name of Continental in its customers’ list in the annual report 2018. Further research showed that 96.7% of KCE’s sales revenue is from PCB business, and the distribution to Continental AG’s group is 18% of KCE’s total sales.
Meanwhile, the German Volkswagen, which had temporarily closed some of its factories in China in February due to the impact of coronavirus that damaged the supply chain, had restarted the operation in some department on February 24. According to various analysis, Volkswagen is also one of KCE’s main customers as well.
The spread of coronavirus that cuts global supply chain, the economic slowdown, the decline in passenger cars and light commercial vehicles market, may cause KCE’s 1Q20 operation to decline as well, resulting in lower sales revenue.