Delta Electronics

Delta Electronics Plc (DELTA)  

 

- 1Q15 profit beyond projection despite low season 

DELTA's 1Q15 net profit was reported at B1.6bn, leaping 37.9%qoq and 11.8%yoy (9% better than expected). Total income grew because sales of data center products rose significantly (DELTA produced new high-tech power supply products used to develop computer system), and automotive products sales grew remarkably. 1Q15 gross margin improved from 24.5% in 4Q14 to 27.7% in 1Q15 thanks to high-margin product mix and a decrease in impairment loss from Solar and wind turbine products. SG&A/Sales dropped to 13.8% in 1Q15 as investment expense decreased and overseas sales offices started to generate profit. 

- 2Q15 profit to weaken but FY2015 earnings to prosper 

We maintain DELTA's FY2015-2016 earnings forecast, estimating net profit to grow by 21.2%yoy in 2015 and 8.3%yoy in 2016. Sales of data center products (40% of total income) would increase, telecom products sales (20% of total income) are likely to continue rising, and the 4G LTE telecom infrastructure investments in India would boost DELTA's income from this business segment to 13% of total income (11% in 2014). DELTA's profit is expected to fall qoq in 2Q15 due to long holidays and weaker sales, and then rebound in 2H15 which is an export season. 

- Sell on short-term positive factor 

We reiterate HOLD for 4-5%p.a dividend yield. FY2015 fair value (DCF, 11.58% WACC) is B78. The share price has already risen for the short term to reflect better-than-expected earnings result, so we recommend selling to take profit or switching to HANA(Buy:FV@48B) with potential growth in fundamental factors and share price.