Delta Electronics (Thailand)

Delta Electronics (Thailand) Plc (DELTA)

Q2 2013 profit to grow 14% qoq. Core business strong, with extraordinary profit
We estimate 2Q13 net profit of DELTA at B1.4bn, growing 14%qoq and 54%yoy,
better than projected because the company would book B200m in profit from
selling of investment in its subsidiary, Delta Greentech SGP. Excluding the
extraordinary item, norm profit would remain high at B1.2bn, close to our
previous forecast. Total sales have remained strong, especially from power
supply business in a data center industry and trading business (such as display
and video wall) in India. As income structure has not changed much, gross
margin would remain high at around 27%, close to that of the previous quarter.
With effective cost control, SG&A/sales in 2Q13 would stabilize at a low level of
15% as targeted. Overall, 1H13 net profit would comprise 54% of our FY2013
forecast.
- Up 2013 net profit forecast to reflect profit from investment sale
We revise up our net profit forecast for FY2013 by 4.2% in order to reflect the
profit from selling of investment in Detal Greentech SGP in 2Q13. The growth in
2H13 and 2014 would be driven by the following businesses. 1) The auto parts
business, especially sales of power supply chargers used in hybrid cars and
electronic vehicle cars that tend to grow vigorously in Europe. At the same time,
DELTA has also prepared to expand its production capacity to meet increasing
orders, which would benefit the company in terms of economies of scales,
boosting both sales and gross margin significantly. DELTA has targeted the sales
from this business to account for as much as 30% of total sales in the next 3-5
years, up from 15% at present. 2) The power supply business in emerging
countries - India and Brazil (12% of total sales) - would show remarkable
growth along with domestic economy and because of a change in the business
strategy from product base to solution base. 3) The power supply business in
data center industry (40% of total income) would benefit from increasing
popularity of smart phones and a development of a new 4G/LTE platform in
2013 that would make orders of smart phones models increase in 2H13. Overall,
we project new FY2013 net profit at B5bn, making a new high for the second
year or the growth of 15%yoy.
- New fair value is B55. Reiterate to buy
We reiterate to buy DELTA. New FY2013 fair value, using DCF (WACC at
11.58%) is B55. The current share price has around 18% upside from the fair
value. Regular dividend yield can be expected at 5%p.a. The Baht has returned
to weaken, helping alleviating concerns toward net profit of the electronics parts
sector. However, the share price would be able to outperform the market in the
rest of 2013.