KCE Electronics Public Company Limited (SET: KCE) has announced the establishment of a new subsidiary and investment in subsidiary via the Stock Exchange of Thailand (SET).
The Board of Directors has approved the establishment of a new subsidiary and additional investment in the subsidiary. This is part of the company’s business expansion strategy, with key details summarized as follows:
Transaction 1: Establishment of a new subsidiary
The new subsidiary, Circuit Holding Company Limited, will be established in early 4Q24 with a registered capital of THB 1,000,000, divided into 10,000 shares priced at THB 100 per share, all of which have been fully paid up. The company’s head office will be situated at 100/61 Vongvanij Building B, Floor 21 Rama 9 Road, HuaiKhwang Sub-District, HuaiKhwang District, Bangkok.
The primary focus of the subsidiary is to invest in other businesses and/or to partner with other entities in projects deemed suitable by management and/or aligned with the company’s business operations. The company anticipates reaping returns from these investments, which will contribute to generating consistent income in the future. Funding for these endeavors will be sourced from the working capital of KCE.
Transaction 2: Circuit Holding Company Limited invests in purchasing 100% of the shares in International Circuits Limited
The investment in shares of International Circuits Limited, a company incorporated under the laws of the United Kingdom with a significant customer base and assets vital to the business of distributing printed circuit boards, will be made by purchasing 100% of International Circuits Limited’s shares from existing shareholders. The total investment value will not exceed GBP 9 million, approximately equivalent to THB 396 million (based on the BOT exchange rate of October 29, 2024 at THB 44.16).
Price per share is GBP 90, totaling GBP 9 million. Payment scheduled on October 29, 2024, up to GBP 5 million, approximately THB 220 million (based on the BOT exchange rate as of October 29, 2024). The remaining amount, up to GBP 4 million, is expected to be paid in December 2024
This transaction is expected to be executed by early 4Q24, subject to the terms and conditions of the agreement between the buyer and seller, with the source of funds coming from bank loans.
Objectives and expected benefits from the investment are:
- To align the company’s marketing strategy with its strategic goals more effectively.
- To fully control sales through the company’s own distributors.
- To improve management of sales office expenses in the European region, contributing to increased profit share and assets in the company’s consolidated financial statements, which will benefit the group’s financial standing overall.
Transaction 3: Circuit Holding Company Limited repays the outstanding debt that International Circuits Limited owes to its group of shareholders
The investment value for this transaction is GBP 14 million, approximately THB 616 million (based on the BOT exchange rate as of October 29, 2024 at THB 44.16), with the source of funds coming from bank loan and International Circuits Limited working capital.
CGS International Securities (CGSI) projects additional annual interest expenses amounting to THB 60 million, equivalent to 3-4% of KCE’s core net profit in the full-year 2024-2025 forecasts. These financial developments are anticipated to trigger negative reactions from investors towards KCE in the short term, especially given the backdrop of sluggish sales growth and declining profitability.
CGSI’s forecast for KCE is pessimistic for the coming 6-12 months, citing challenges in the automotive industry, production constraints in HDI manufacturing, and the impact of escalating copper prices as key factors. The analyst predicts a downward adjustment in its valuation multiples over the next 3-6 months and maintains a “Hold” rating on the stock.
