Delta Electronics (Thailand)

SCB Securities

Top pick of electronics parts sector. Time to outperform market

2Q12’s net profit to rise 25%qoq…sales grow on seasonal effect
Overall earnings outlook in 2Q12 of DELTA remains bright as
benefiting from a high season for electronics parts export. We
project net profit in the quarter at B888m, increasing 24.5%qoq due
to following contributions. 1) Total sales in 2Q12 are projected to
rise by 16.6%qoq from data center business (46% of total sales)
which has grown continuously as well as solar inverter business (8%
of total sales) which has improved significantly from the prior
quarter because the company has expanded its market to New
Zealand and Australia instead of focusing only to Europe. 2) Gross
margin in this quarter would stay at a high level close to that of
1Q12 at 25.5%. The rising cost of labor from the minimum wage
raise to B300/day is still manageable, so negative effects from the
issue will be insignificant. For other items, no significant change is
projected. Overall, net profit in 1H12 is estimated at B1.6bn,
thriving 9.1% from the same period last year and comprising 45%
of our FY2012’s net profit forecast.

Growth still foreseen in 2012-2013 despite dull world economic outlook

Although a dullness of global economic outlook might suppress
orders of DELTA in 2H12, earnings in 3Q12 would stabilize at a high
level close to that of 2Q12 due to a high season. For overall
business outlook in 2012, DELTA would still benefit from the growth
of data center and cloud computing businesses, together with its
aggressive growth strategy for solar inverter business by expanding
its market to many continents worldwide. At the same time, gross
profit margin in 2012 is projected to return to a normal level again
because the company does not have to set high provision for
impairment loss like it did in 2011. Moreover, the company also has
a policy of controlling operating cost such as selling and
administrative cost, aiming for SG&A/sale at 15% in the next 3
years (from 17% at present). All these are positive factors to boost
net profit since 2013 onward. Overall, we still maintain net profit
forecast for DELTA at the growth of 23%yoy in 2012 and 9%yoy in
2013.

Top pick of electronics parts sector. Time to outperform market

We recommend “Buy” for DELTA and select it as a top pick of the
sector. 2012’s fair value, using DCF (WACC 11.58%) is B28. The
current share price is still lower than average PER in the past 10
year contrary to profit in 2H12 which tends to grow. Accordingly, we
believe DELTA would return to outperform the market again.