Delta Electronics
Undergoes correction. Switch to laggard SVI BUY
Delta Electronics Plc (DELTA)
1Q14 profit skyrocketing
Even though sales volume is expected to decline by 4.9%qoq to
B10bn in 1Q14 as it is a low season for worldwide electronic part
business, we project DELTA's 1Q14 net profit at B1.4bn, growing
26.6%qoq and 14.1%yoy, thanks to the following positive factors:
1) Gross margin is expected to increase from 24.8% in 4Q13 to
26.5% in 1Q14, as DELTA has not made exceedingly high inventory
provision in 1Q14. 2) DELTA would also benefit from 2.8%qoq THB
depreciation. 3) SG&A/Sales is projected to drop from 15.4% in
4Q13 to 14.5% in 1Q14, thanks to a decrease in general
management expenses after the high season. 4) DELTA is likely to
book B200m additional profit from selling of 45.17% of its
investment in Delta Greentech SGP Pte. Ltd. Overall, DELTA's 1Q14
net profit is expected to make up 22% of DELTA's FY2014 net profit
forecast.
- Profit to slow down in 2Q14 but to leap in 2H14
We maintain our FY2014-2015 earnings forecast. DELTA's FY2014
net profit is projected to grow by 14.6%yoy and make a new high.
2Q14 net profit is expected to drop qoq due to lack of extraordinary
income and declining orders. The investment project in India has
been delayed as a result of the election in April 2014, and some
orders have been postponed for four months because companies will
clear their inventories in 2Q14. However, purchasing power is
expected to return in 2H14, especially from orders of power supply
products needed for data center and telecom businesses and
automotive products. Therefore, DELTA's net profit is projected to
rebound significantly in 2H14. Overall, there would be no need to
revise down DELTA's earnings forecast.
-Short-term correction. Switch to SVI
We reiterate to buy DELTA. We derive its FY2014 fair value (DCF,
11.58% WACC) is B70.40, implying 19% upside. However, since
THB has started depreciating, the share price has increased by
61.7% (compared to end-May 2013), already reflecting good
factors. We recommend buying DELTA when price weakens or
switching to laggard SVI([email protected]).
