Delta Electronics (Thailand)

Delta Electronics (Thailand) Plc (DELTA)

3Q12 profit projected to grow 68% QoQ due to data center business
DELTA’s overall look in 3Q12 is still bright due to high season of electronics parts export. The company’s net profit is projected at B1.51bn (2012 record high) or 68% QoQ growth due to the following factors. 1) The total sales in 3Q12 are projected to thrive 8% QoQ due to the growth of data center business (45% of total sales). 2) The gross profit margin is projected to increase to 28.7% (from 24.8% in 2Q12) as a result of increased sales in the business with high margin (such as data center). Moreover, there’s the reverse of provision in solar inverter inventory at around B190m, so the company has to revise the total cost of goods sold in this quarter. 3) SG&A/sales in 3Q12 is projected to stay constantly low from 2Q12 at 15% due to the company’s policy to control
the operating expenses such as administrative expense and the expense of research and development. For other items, there’s projected not to be any significant change. Overall, 9M12 net profit forecast is projected to stand at B3.12bn or 41% growth from the same period of prior year,
considered 88% of our 2012 net profit forecast.

Maintain 2012-13 net profit forecast… projected to weaken in 4Q12 along with low season

The operating result in 4Q12 is projected to weaken significantly from 3Q12 due to the following reasons. 1) The total sales are projected to decelerate by 16% QoQ due to seasonal effects. 2) The gross margin in 4Q12 is projected to decline to the normal level at 25-26% because there’s no additional inventory provision in this quarter. Overall, we project DELTA’s FY2012 net profit to grow outstandingly by 23% YoY and continuously 9% YoY in 2013 due to the growth of revenue from data center business (45% of total sales) along with the thriving expansion of cloud computing industry. Moreover, the electronic components business (15% of total sales) is projected to benefit from the growth of auto industry. In addition, the company’s strategy of
aggressive global market expansion for solar inverter business (6% of total sales) would also help urge the revenue to increase.

2012 and 2013 FV, using DCF, is B28 and B33 respectively… “BUY”
We recommend “BUY” and select DELTA as a top pick of the sector. Fair value, using DCF, in 2012 stands at B28 which is lower than the current share price. However, compared with 2013 fair value at B33, there’s 15% upside from the current share price. Accordingly, we reiterate our
recommendation of “BUY”.