Delta Electronics Thai

Delta Electronics Thai Plc (DELTA)

From the results briefing, we gathered that Delta expects more moderate growth amid the uncertain macro environment. This is in line with our current assumptions. But its strong finances position it for inorganic growth through
 acquisitions if opportunities arise. Delta’s muted guidance is in line with our low-single-digit growth forecast for FY13. Our forecasts are intact, as is our target price (based on 9x CY13 P/E, the 5-year average). Maintain Outperform. We see catalysts in steady yoy earnings growth in 2H and potentially higher dividends
What Happened
Below are the highlights of Delta’s post-2Q results briefing:
Review for 2Q:
1) Sales of power supply for data centres were flat because of the soft economic environment.

2) The solar business recorded an 85% yoy sales jump due to strong sales in Australia,
where Delta raised its market share from 1-2% in 2011 to 15%. It targets to expand it to 25%. 3) Auto-related business jumped 64% yoy due to a low base. 4) Gross margin shrank qoq due to higher material costs resulting from a change in product mix. Solar margin was lower due to ASP erosion.

Outlook:
1) Sales growth may be flat to +10%yoy in FY13. However, management highlighted that it is too early for accurate guidance. 2) It incurred one-off restructuring charges for the German solar unit which was downsized as solar inverters are becoming a commodity. For this business, it will focus its efforts on Europe and Australia in the near term.
3) The Indian market is unlikely to see much growth in the next 12-16 months before India’s election. It has reorganised to provide solution base instead of just selling hardware. 4) It
has yet to make a decision on the full-year dividend but wants to beef up its balance sheet for potential good acquisition targets.

What We Think
Management’s comments are fairly in line with our expectations as we have factored in a muted 2H12. However,Delta should still see healthy yoy growth due partly to a lower base in
2H11. We also like management’s conservative stance on costs in this tough macro environment.
 

What You Should Do
Stay invested as we continue to like Delta’s strong branding, good cash flow and balance sheet that