ETRON Sector

ETRON Sector

- Downgrade recommendation to “Neutral”
ETRON Index have rebounded by 14% (YTD), compared to 8% rebound in
SET Index. The sector’s FY2014 normalized profit is expected to leap by
30%yoy. Thanks to global economic recovery, worldwide demand for
electronic part has increased. Moreover, the sector does not suffer from the
political turmoil because most of its income is from export. Since THB has
depreciated significantly in mid-2013, the sector's returns have rebounded as
high as 47% while the market return dropped to -4%. Benefit from weak THB
has been absorbed in the share prices already. From now on, Baht is not likely
to weaken further much, in line with our assumption at B33/US$. Thus, we
downgrade our recommendation from “Overweight” to “Neutral”.
- SVI: good fundamental factor but laggard
SVI (EMS business) is laggard, recently underperforming the sector and SET.
However, it is likely to outperform the sector soon. SVI's FY2014 normalized
profit is expected to leap strongest in the sector by 93%yoy. Its total sales
volume is projected to grow by 32%yoy, exceeding B10bn. Orders from
existing and new clients are expected to increase, especially high-end
products with high profit margin (e.g. digital CCTV camera, audio visual
equipment and medical equipment). SVI aims to expand its business to the
US, planning to rent or build factories in Mexico in 2H14 as a production base.
SVI's business is currently at growth stage with over B2bn net cash. SVI's
FY2014 P/E ratio is 7x, with over 5% p.a dividend yield.
- Top picks are SVI and DELTA
The sector's top picks are SVI([email protected]) and DELTA([email protected]) for their
attractive upside. For HANA and KCE, we downgrade our recommendation
from buying to holding for dividend yield due to their limited upside (if
B1.35bn post-flood insurance claims are included in the forecast, HANA would
have some upside).
ETRON Sector