MBKET Sees Continued Earnings Growth for KWM despite Seasonal Effects, Giving TP of ฿7.15

Maybank Kim Eng Securities (MBKET) has given a “BUY” recommendation on K.W. Metal Work Public Company Limited (KWM) with a target price at ฿7.15/share, as overall profit momentum is expected to continue and 3Q21 earnings tend to accelerate due to the harvest season.

The given target price is based on average P/E +0.5SD at 31x, as KWM’s earnings  outlook  remains within MBKET’s projection. The 2Q21 net profit may weaken on seasonal effects and rising steel costs. However, KWM will return to normal next quarter from the price adjustment according to the contract conditions. As for the development of the upside from the hemp extraction business, it continues to be positive.

MBKET expects KWM to report a 2Q21 net profit of 21 million baht, (-16.2% QoQ). Although  it’s the low season of sales, this year’s customer orders remain strong. MBKET expects  revenue to weaken only -3.0% QoQ, but still grow +25.5% YoY due to almost full capacity utilisation of disc plough production. However, with high volatility in imported steel costs that are rising around +5% QoQ, while the OEM contract price adjustment will be reflected in the next quarter, this quarter’s gross profit margin is pressured in the short term. MBKET expects gross margins to shrink to 23.0% from 25.2% last quarter, while overall net profit growth remains strong +24.4% YoY.

Regarding the hemp extractor business, KWM has received various demands from many customers. 3 sub-versions of KWM Extractor 1.0 (Supercritical CO2) were designed into 3 sub-models (10-20-15×2 liters). These are for rent. And there are two models for sales, including 7 KWM Modified models for sophisticated works. Prices range about 2-20 million baht per machine. And 5 Solvent Extraction models that use Ethanol extraction, priced 900,000 –7 million baht per machine.

MBKET has not included the upside from this hemp business due to the first full license, which is like a ticket to this business, has not yet come out. As for the rental model, MBKET  looks at 1 machine with an upside of about 0.24 baht per share. The disc plough and screw flight business will be related to agricultural activities in Thailand, which fluctuates according to weather conditions.