Delta Electronics

Delta Electronics Plc (DELTA)
Aiming to increase ROE in next 3 years
For DELTA’s business overview and outlook in the next 3 years, the company is
aiming to increase returns on equity (ROE) in 2016 to 25% from 20% at present
with the following strategies. 1) The company would accelerate total sales
growth to 5-10% on average, focusing on enhancing product variety, especially
for power chargers used in hybrid cars and electric vehicle cars that it has
planned to increase the production capacity to meet the demand growth.
Moreover, the company would widen its export market, particularly to emerging
countries like India and Brazil, focusing on both high-end and low-end products.
2) The company would increase the operating margin to 10-12% from 8-10% at
present by controlling selling and administrative cost, which would help to
reduce SG&A/sales to 15% from 17% at present. We believe DELTA’s strength in
the power supply business, with its continuous investment for new technology
and new product developments, will make it a world leader in the business and
allow the company to build good connection with top electronics customers
worldwide for the long term. All these factors would help DELTA achieve its
business goal.
- 2H13 to brighten from 1H13, thanks to high season and Baht weakness
We maintain our 2013-2014 net profit forecast, projecting average EPS growth
in 2013-2014 at 15.2%yoy and 6.3%yoy, respectively. Driving factors in 2H13
would be an arrival of a high season of the electronics industry and the growth
of a power supply business in the data center industry as benefiting increasing
popularity of smart phones and a development of a new 4G/LTE platform that
would make orders of smart phones models increase in 2H13. Weakening Baht is
another factor to boost the company’s gross margin because a 100% its income
is in foreign currencies (mostly Dollar), while only 80% of its cost is in foreign
currency. Moreover, the Indian economic recession would have an insignificant
impact on DELTA (the sales in India account for only 7% of the company’s total
sales) as mega investments in India, especially the government’s
telecommunication project, would help prevent the economy from further
deceleration.
- Reiterate to buy. Value stock with high ROE and div yield of over 6%
We reiterate to buy DELTA. FY2013 fair value, using DCF (WACC at 11.58%), is
B55. The current share price has around 16% upside. We raise our dividend per
share (DPS) forecast in 2013-2014 to B2.65 and B2.80, respectively, or a
dividend yield of 6% p.a. (paying annually), based on net cash flow from
operation instead of EPS.