Delta Electronics (Thailand): (DELTA)

Delta Electronics (Thailand) Plc (DELTA)

Q1 2013 net profit projected to grow notably despite low season
DELTA’s 1Q13 net profit is projected to be reported at B1.05bn or 30% QoQ
growth and 48% YoY growth, which is better than our preliminary forecast
despite low season of global electronics industries. In 1Q13, the company’s total
sales are likely to decline by only 12% QoQ but would rise by 5% YoY, which is
better than expected, due to power supply business in data center business that
has grown continuously solid. Moreover, sales of trading business, display and
video wall in particular, in India have grown significantly due to new projects.
Since this type of business possesses substantially high margin, 1Q13 gross
margin is boosted to 27% from 24% in 4Q12. Combined with successful control
in selling and administrative expenses, SG&A/sales in 1Q13 has decreased to
15.5% from 17% in the previous quarter. In terms of other items, they’re
projected not to exhibit any significant changes. Overall, DELTA’s 1Q13 net
profit is projected to contribute 23% to FY2013 net profit forecast.
- Likely to revise up forecast after financial result announcement
We are likely to revise up our 2013 net profit forecast after an analyst meeting
on 7 May 2013, mainly because of revising down selling and administrative
expenses which were overestimated. The company’s operating result in 2013 is
projected to hit new high in consecutive 2 years due mainly to the following
supports. 1) Power supply business in data center business (40% of total sales):
There have been benefits from the growth of smart-phone device business.
Combined with a change of new platform, new orders are projected to increase
to take place of old models during 2H13. 2) Auto parts business (15% of total
sales): After enhancing the production capacity to meet the demand that tends
to heighten, DELTA would gain benefits from the size of products. 3) Telecom
power supply businesses in newborn countries like India and Brazil (altogether
12% of total sales) have thrived as a result of vigorous growth of domestic
economies. Moreover, the company has adjusted its aggressive strategy by
focusing more on the solution base instead of focusing only on the product base.
Other than that, SG&A/sales would decrease continuously during the rest of
2013 due to an expense control policy, which would be another factor to help
boost the company’s net profit. Overall, we’re confident that DELTA’s overall
business outlook in 2013 would still be on the bright side from the prior year.
- Value stock with low 2013 PER of only 10x… reiterate “BUY”
We reiterate our recommendation of “BUY” for DELTA. Fair value, using DCF
(11.58% WACC), at end-2013 stands at B42. The current share price is equal to
2013 PER which is low at only 10x, even lower than the industry’s average of
12x (market’s average is 15x) which is considered substantially laggard
compared with the market. At present, Baht’s return of appreciation has
considerably eased concerns toward the electronic parts sector’s net profit.
Accordingly, we’re convinced that DELTA is likely to outperform the SET
continuously during the rest of 2013.