Delta Electronics (Thailand)

Delta Electronics (Thailand) Plc (DELTA)

Exceed our estimate by 4%
DELTA reported a 1Q13net profit of Bt1.22bn, up by 49% QoQ and 70% YoY. The result was 4% higher than our estimate and 7% above the street. Stripping out an FX gain and extra items, core earnings would be Bt1.21bn, up by 56% QoQ and 95% YoY. The YoY jumps in net and core earnings were due to a higher top-line, expanded GM and a lower SG&A/sales ratio.
Results highlights
1Q13 sales slipped 9% QoQ but rose 9% YoY to Bt9.5bn. The YoY increase was led by greater sales of components related to data centers and display products (video walls and projectors). The QoQ decline was due to seasonality. GM was 27% (higher than our assumption of 26.5%), up by 295 bps QoQ and 128 bps YoY because of a sales mix shift in favor of high-margin product categories and a fatter GM at the trading business. Note that DELTA’s trading business in India has expanded strongly; the firm received sales commissions without incurring any additional COGS.
The SG&A/sales ratio dropped 350 bps YoY to 14.9% (lower than our assumption of 15.5%) on a cost-saving program. There was also an FX gain of Bt8m. As such, the bottom-line came to Bt1.22bn.
Outlook
We expect DELTA’s 2Q13 earnings to rise YoY but fall QoQ. The top-line is likely to decline QoQ on slower orders ahead of the launch of new products in late 2Q13. However, on a YoY basis, 2Q13 earnings should increase 10%, driven by a shallower loss at the solar componentry production line and a bigger profit contribution from the trading business in India. In addition, the SG&A/sales ratio should decline as a result of the cost-saving program—DELTA has set a long-term SGA/sales ratio target of 15%, down from 16.2% in FY12.
What’s changed?
We maintain our FY13 earnings forecast at Bt4.6bn, up 5% YoY. The main risks to our model are the possibility of weak demand for data center-related components and GM slippage during 2Q13.
Recommendation
DELTA’s recent stock outperformance has yet to fully reflect the strong FY13 earnings outlook. Its current valuation is a bargain—an FY13 PER of only 9.9x against a Thai Electronics peer mean of 12x. We maintain our BUY rating with a YE13 target price of Bt44, pegged to an FY13 PER of 12x, 1.5SDs above the stock’s long-term average of 10x.