Delta Electronics

Delta Electronics Plc (DELTA)  

- 4Q14 profit to drop after high season    

 

We estimate DELTA's 4Q14 net profit at B1.1bn, plunging 41.8%qoq but rising 3.3%yoy; B195m extraordinary profit from sales of Delta Greentech SGP and Delta Electronics Europe Ltd in 3Q14 would not be booked in 4Q14. Excluding extraordinary items, 4Q14 normalized profit is projected at B1.1bn, plunging 35.8%qoq but rising 9.1%yoy. Total income is expected to fall as a result of lower overseas orders after high season passed, which is normal for this industry. Gross margin is projected to drop to 26.5% because fixed expense (personnel and depreciation expense) has stayed unchanged while sales fall, and SG&A/Sales is expected to increase due to provision of impairment loss from unsold Solar products valued B65m. 

 

- New orders expected in 2015    

 

We maintain FY2015-2016 earnings forecast. 1Q15 profit is expected to rebound from 4Q14 as overseas orders would increase and boost gross margin. FY2015 net profit is estimated to rise 16.4%yoy as sales of data center and telecom products would grow. Also, the telecom infrastructure investments in India would boost DELTA's income from this business segment to 13% of total income (11% in 2014) after the new government was elected in mid-2014, mostly income from total solution service; this would boost DELTA's recurring income in a long run. 

 

- Share price already absorbs good news. Downgrade to HOLD for dividend  

 

We downgrade our recommendation to HOLD for 4-5%p.a dividend yield. The share price has already absorbed strong fundamental factors and good news about inclusion into MSCI Global Standard Indexes, thus having only 8% upside from FY2015 fair value (DCF, 11.58% WACC) of B78.00.