Delta Electronics

Delta Electronics Plc (DELTA)

- 2Q13 profit in line with projection. Sales strong, with extraordinary profit
2Q13 net profit of DELTA was reported at B1.46bn, growing 20%qoq and
62%yoy (close to our projection). The company booked B254m in profit from
selling of investment in its subsidiary, Delta Greentech SGP, while there was also
a Fx gain of B94m (comparing to B8m in 1Q13). Excluding the aforementioned
extraordinary items, the norm profit was B1.11bn, weakening 8%qoq but still
growing 33%yoy (slightly lower than our projection). Although total sales have
remained strong, especially from a power supply business in a data center
industry, they were hindered by decelerating sales of a telecommunication
power system and the solar inverter businesses. Income structure (product mix)
changed slightly, with an increase in a portion of income from low margin
products, so gross margin declined to 26.2% from 27% in the previous quarter.
SG&A/sales and other items were in line with projection. Overall, 1H13 net profit
was B2.67bn, growing 66% from the same period last year and comprising 53%
of our FY2013 net profit forecast.
- Maintain 2013 forecast. 2H13 profit growth to beat 1H13
We maintain our net profit forecast. The growth in 2H13 and 2014 would be
driven by the following businesses. 1) The auto parts business, especially sales
of power chargers used in hybrid cars and electronic vehicle cars tend to grow
vigorously. The company has prepared to expand its production capacity to meet
increasing orders, which would benefit the company in terms of economies of
scales, boosting both sales and gross margin significantly. DELTA has targeted
the sales from this business to account for as much as 30% of total sales in the
next 3-5 years, up from 15% at present. 2) The power supply business in
emerging countries - India and Brazil - would show remarkable growth along
with domestic economy and because of a change in the business strategy from
product base to solution base. 3) The power supply business in data center
industry would benefit from increasing popularity of smart phones and a
development of a new 4G/LTE platform in 2013 that would make orders of smart
phones models increase in 2H13. Overall, we project new FY2013 net profit at
B5bn, making a new high for the second year or the growth of 15%yoy.
- Value stock with ROE of above 20%. Average div yield is 4% p.a.
We reiterate to buy DELTA. New FY2013 fair value, using DCF (WACC at
11.58%) is B47 from B42. The current share price has PER of only 9.4x, still
lower than the industry average of 11.5x and the market average of 15x.
Dividend yield can be expected at 5-6% p.a. on average.