Highlights

• Positive surprise from a second round of PCB price increases in 4Q26-2027 and strong volume outlook in 2H26-2027. 
   

• Management guided for aggressive PCB sales growth of 20% yoy in 2027, driven by a second 9-10% increase in PCB prices and 10% volume growth from market share gain. 
   

• We upgrade KCE to BUY with a higher target price of Bt60.0, as we roll over our valuation to 2027 and turn positive on stronger 2H26-2027 earnings outlook.

Analysis

• Stronger-than-expected 2Q26 earnings driven by sales beat and higher prepreg & laminate contribution. KCE (Thailand) (KCE) reported a net profit of Bt275.9m (+51% yoy, +18% qoq) on 11 Aug 26, above our and Bloomberg estimates by 30% and 28%, respectively. Sales of Bt3.58b (+8.8% yoy, +15% qoq) were 8% and 6% above our and Bloomberg estimates, supported by special-grade High-Density Interconnect (HDI) printed circuit boards (PCBs) and prepreg & laminate sales of Bt446m (+155% yoy, +140% qoq) from Panasonic orders. Prepreg & laminate contributed 12% of 2Q26 sales, but growth is expected to slow after the sharp increase in 2Q26. 
   

• Gross margin beat expectations despite elevated raw material costs. Gross margin came in at 18.9%, above our and Bloomberg estimates of 18.0 18.2%, supported by a better special-grade PCB mix, earlier-than-guided partial PCB price pass-through, and internal laminate sourcing from Thai Laminate Manufacturer Co. (TLM) of 70% of KCE needs. 
   

• Stronger volume momentum and PCB price increases to support 2H26 2027 earnings. Overall, we expect KCE’s 2H26 earnings to be stronger than previously expected, particularly 19% qoq growth in PCB sales in 3Q26 (9 10% PCB price increase and 8-9% qoq shipment volume growth), before remaining broadly flat qoq in 4Q26 due to the usual seasonal slowdown from factory closures during the Christmas period. Although 4Q sales have typically declined qoq, KCE expects PCB shipment volumes to remain strong in October-November. For 2027, we expect KCE’s sales to grow 15% yoy, driven by around 17% growth in PCB sales, supported by market share gains as KCE offers price increases at the lower end of the industry range.

• Strong 2H26-2027 earnings outlook despite raw material shortage. We forecast 2H26 earnings to contribute 68% of our 2026 full-year forecast, reflecting very strong earnings momentum outlook driven by robust shipment volumes guidance, gross margin improving toward management’s 25% guidance (vs 18.4% in 1H26), and higher PCB prices. KCE expects customer order fulfilment to remain stable, despite having only 1-2 months of fibreglass inventory and about three months of copper inventory. Utilisation rates are expected to increase from 65% to about 70% in 2H26. 
   

• Second-round PCB price increases and AI-driven fibreglass shortages support KCE’s 2H26-2027 outlook. We are positive on the second round of PCB price increases, particularly as KCE mainly serves the automotive segment rather than the AI segment amid a soft automotive outlook in 2026. KCE expects strong volume growth in 3Q26-2027 from market share gains, as its PCB price increase remains at the lower end of the industry range, while TLM, its subsidiary, helps secure copper-clad laminate (CCL) amid the global fibreglass shortage. The shortage has been driven partly by suppliers shifting capacity toward AI-related fibreglass demand, reducing traditional non-AI fibreglass capacity from about 100% to 60%. While industry supply is expected to gradually ease in 2027-30 as new capacity comes online, we remain conservative on 2028 earnings due to potential normalisation in fibreglass tightness. As a result, KCE should continue to benefit from the AI related supply imbalance in 2H26-2027 from gaining market shares and already absorb some raw material costs (low gross margin base in 1H26) before rising PCB prices in 2H26-2027.