Delta Electronics

Delta Electronics Plc (DELTA)

- 3Q13 net profit grows well from good sales and gross margin
DELTA's 3Q13 net profit was B1.64bn, growing 12.4%qoq but falling 14.5%yoy
(close to projection), mainly due to the following: 1) Total sales were B11.3bn,
rising 16.9%qoq and 0.2%yoy, thanks to an export season for the electronics
industry that made income from every group of DELTA’s products increase,
especially power supplies for telecommunication and storage and data center. 2)
3Q13 gross margin rose from 26.2% in 2Q13 to 27.2%, due to 5%qoq average
depreciation of THB. The total income structure by product (product mix) has not
changed significantly.
However, as 3Q12 gross margin was as high as 30.8% due to B190m reversal of
inventory provision. The company had to revise the total cost of goods sold in
this quarter. 3) SG&A/sales fell from 15.4% in 2Q13 to 13.7%, making the 23-
quarter lowest, as expected, due to the change in sales policies and research and
development policies. Overall, 9M13 net profit was B4.32bn, growing 22.3%yoy,
making up 86% of FY2013 net profit forecast.
- FY2014 profit to prosper along with data center and telecom
businesses
DELTA's 4Q13 net profit is projected to weaken qoq after the end of export
season for the electronics industry, as expected. FY2014 earnings result is
expect to prosper continuously due to growing income from: 1) the power supply
business in telecommunication, as DELTA has changed the strategy from
focusing on product base to solution base, as well as using aggressive strategy
on expanding the business to emerging countries (e.g. India, Brazil and
Thailand), boosting DELTA's sales volume and decreasing risk from Fx loss. 2)
The power supply business related to data center industries, as it has benefited
from increasing popularity of smart phones and a development of a new
platform. Moreover, DELTA has been focusing on net margin as well as growth in
the core business. DELTA has effective policy to control operating cost and
replaces labor with machines to deal with increasing employee wages in Thailand
and India. Overall, we project that DELTA's FY2014 net profit would be as high
as B5.3bn, growing by 6.3%yoy, making a new high for the third year.
- "BUY". 33% upside, 5.5%p.a. dividend yield
We change to use end-2014 fair value (DCF, 11.58% WACC) at B64. We
reiterate "BUY" due to DELTA's strong financial position and high profitability in
next two years. The current share price has 33% upside. Dividend yield can be
expected at 5-6% p.a. (paying annually).