ETRON Sector

ETRON Sector

Continuous fund outflow makes THB 3-year weakest
THB has become the 3-years weakest, benefiting net profit in this
sector. YTD average rate is B30.16/US$, slightly higher than our
projection at B30/US$. If THB is continuously weakened, exchange
rate might be revised. From our study, every B1 weakened would
raise FY2013 total net profit of this sector by 6.3% (higher than
change in net profit of agriculture-food sector).

2H13 profit to grow from 1H13 due to high season and weakened baht
Electronics component sectors' 2H13 net profit is likely to rebound
from 1H13, as this is global high season. Many companies (HANA,
SVI, KCE and SMT) have resumed production at their full capacity
after restoring damage from the flood. We believe that most
companies would be able to restore their production close to preflood
capacity in 3Q13, which is high season for the export.
Moreover, weakened THB would boost profit in this sector. Effects
on companies under our coverage for every B1 weakened are as
follow: 1) HANA is the most advantageous - 100% of income is in
USD, 85% of cost is in foreign currencies, and slight debt is in USD.
Thus, HANA would gain 6.7% additional net profit. 2) The next most
advantageous companies are DELTA, CCET, KCE and SMT - 100% of
their income is in foreign currencies (mainly USD), 80-90% of cost
is in foreign currencies. Slight debt in foreign currencies, including
total debt, negating benefit from weakened THB. DELTA, CCET, KCE
and SMT would gain 6.6%, 6%, 5.8%, 5.6% additional net profit,
respectively. 3) SVI is the least advantageous - Though 100% of
income is in foreign currencies (90% in USD, the rest in EUR),
nearly 90% of cost is in foreign currencies, and 100% debt is in
foreign currencies. Thus, benefit from weakened THB is severely
negated, granting only 5.2% additional profit, the least plus in the
sector.

"NEUTRAL". Top pick is SVI
We reiterate "NEUTRAL" for electronics component sector, as 2H13
is high season and benefit from weakened bath, with is good for
every company in this sector. Top pick is SVI, as the production
capacity is raised close to the same as pre-flood capacity, as well as
expansion in new markets, especially from high-margin products.
Share price is at 2013 PER of only 10.2x and high upside, 59% to
fair value.