Delta Electronics (Thailand)

Delta Electronics (Thailand) Plc (DELTA)

Promising business outlook. Solid order, weak Baht
For the rest of 2013, DELTA’s earnings would continue thriving as we have
projected. 2013’s net profit would make a historical high after the world
economy has increasingly exhibited a recovery, especially for the US, DELTA’s
major market (31% of its total income). The growth in 2013 would come from
following supporting factors. 1) The power supply business for data center
industry would be vigorous along with the promising industry outlook. At the
same time, the competitive advantage over its rivals would help the company
capture a greater market share. 2) The power supply business in India is
projected to prosper continuously after a development of a new 4G/LTE platform
in 2013. 3) The telecom power solution has been very robust, especially in
EMEA and Brazil. Moreover, a risk regarding the currency is declining after the
Baht has been weakening until standing at B30.8/US$ in the present (the largest
depreciation in 2013). This issue is considered as beneficial for DELTA’s
profitability during the rest of the year because almost all sales of the company
have been in foreign currencies (mainly U.S. Dollar and Euro) while around 20%
of the operating expenses (cost of goods sold and SG&A) has been in Baht.
Nevertheless, overall, the Baht has stood at B29.74/US$ on average since the
beginning of 2013, which is in line with our assumption at B30/US$.
- 2Q13’s profit to remain strong, thanking to data center and
telecom business
We estimate 2Q13’s net profit to remain high above B1.2bn due mainly to the
continuously magnificent sales, especially from the power supply business in the
data center industry and the trading business (displays and video walls) in India,
and low SG&A after the reorganization to conform to a policy of cost control. For
2H13, growth is still foreseen as a result of the high season of the electronics
industry worldwide. Accordingly, we estimate 2013’s net profit at B4.8bn,
making a new high for the 2nd year in a row with the growth of 11%yoy.
Financial liquidity is also healthy, evident by the low Debt/Equity ratio at end-
1Q13 at only 0.03x and high cash in hand at B13bn. CFO in 2013 is projected
high at B2.7bn, higher then DELTA’s investment budget of only B600m, so there
is a considerable chance that 2013’s dividend would be paid higher than
previously estimated (payout ratio is 52%).all business outlook in 2013 would
still be on the bright side from the prior year.
- Buy. Value stock with lower than 10x PER. Div yield expected at 5% p.a.
We recommend buying DELTA. 2013’s fair value, using DCF (WACC of 11.58%)
is B47. The current market price is equivalent to 2013’s PER of only 9.7x, lower
than the industry’s average of 11.5x. Regular dividend yield can be expected at 5% p.a.