Electronics

Electronics

3Q13A recap. Core earnings of the five electronics companies under our coverage grew 11%
YoY and 39% QoQ to Bt2.5bn in 3Q13A. The top YoY performers were those who were hit by
the late 2011 floods. Chief of these is KCE, who scored its biggest core profit ever at Bt317mn
– up from just Bt13mn a year ago. #2 was SVI, with 81% YoY earnings growth to Bt154mn,
and #3 was HANA, which grew 46% YoY to Bt524mn upon the recovery of its Ayutthaya plant,
finally in the black after the floods. On the other hand, SMT, also hit by the floods, continues
to operate in the red. DELTA’s core profit continued strong at Bt1.5bn, though down 19% YoY
when it booked the reversal of inventory provisions of ~Bt190mn.
PC remains weak. Market researcher International Data Corp (IDC) reported that worldwide
PC shipments declined 7.6% YoY to 81.6mn units in 3Q13. Although there appeared some mild
improvement in some vendors in the quarter, 2014F is unlikely to be a good year for PCs.
Auto segment is a major growth driver. Based on our discussion with managements of
all companies under our coverage, the automotive segment is becoming the most important
growth driver. Heading the list is KCE, whose PCBs for the automotive segment is its biggest
contributor. DELTA just began producing components for hybrid and electric cars and HANA
produces sensors that serve a variety of functions in cars. Apart from the steady increase in
advanced functions in cars, the development of hybrids and electronic cars mean a steady
increase in electronic components. We see big potential in this market.
Sept semiconductor sales up 9% YoY. The Semiconductor Industry Association (SIA)
reported 9M13 worldwide semiconductor sales growth of 3.2% YoY to US$223bn. Sept 2013
sales grew 9% YoY to US$27bn with the US market reporting the highest growth of 24%; the
Asia-Pacific market grew 10% YoY to US$15bn. Although the Japan market fell by 13%, MoM
figures show a 4% recovery for Japan. For the full year, SIA projects worldwide shipments
growth of 2.1% to US$298bn in 2013F and by 5.1% to US$313bn in 2014F.
Top pick #1 SVI. SVI is our new top pick. Moving past its unexciting performance in 9M13,
earnings growth is expected to be outstanding in 4Q13F. We estimate a doubling in core
profit YoY to ~Bt204mn, back to pre-flood earnings of 3Q11A. It is also expected to book a
~Bt635mn insurance claim. Together, these will bring 4Q13F net profit to Bt839mn. Then in
2014 it will book sales from five new clients who will boost core earnings by 27% to Bt806mn,
with net profit at Bt1.2bn after the final insurance claim. There could also be inorganic
growth via M&A in 2014F, which is currently under study.
Top pick #2 DELTA. After the YoY earnings slip in 3Q13 and the usual fourth quarter low
season, DELTA share price has declined 8% MTD. We view this as an opportunity to buy as its
2014F-2015F outlook remains bright from expected growth in the automotive segment and
economic recovery in Europe and the US. We see upside risk to our 2014F. It is also a generous
dividend payer and we expect 2013 dividend yield of 5.9% (to be announced in Feb 2014).