Electronics

Electronics
August semiconductor sales up 6.5% YoY. The Semiconductor Industry Association (SIA) reported 8M13 worldwide semiconductor sales growth of 2.4% YoY to US$195bn. August 2013 sales grew 6% YoY to US$25.9bn with the US market reporting the highest growth of 23%; the Japan market fell by 16%, mainly from the devaluation of the Japanese yen. However, MoM figures are already showing recovery for Japan, where sales grew 4%; the US market also gained 3% MoM and total sales grew 1% MoM. For the full year, SIA projects worldwide shipments growth of 2.1% to US$298bn in 2013F and of 5.1% to US$313bn in 2014F. North America-based semiconductor manufacturers had a book-to-bill in Aug 2013 of below 1.0 (0.98), indicating demand was higher than supply. Together, these figures suggest the clouds are beginning to break to allow sunlight to peek through.
Tablets to outpace PCs. Market researcher International Data Corp (IDC) forecasts a rise in worldwide tablet shipments of 58% to 227mn units and in smartphone shipments of 40% to 1bn in 2013. As consumers continue to “like” tablets and smartphones, the PC industry is suffering through its longest downturn ever. Worldwide PC shipments fell 11% YoY in 2Q13A and IDC forecasts a fall of 10% for the full year with slippage to continue through 2014. IDC expects tablet shipments to outpace PCs in 4Q13. Unfortunately, none of the companies in our coverage are getting in on this exciting growth in tablets and instead, those related to PCs are hurting– specifically HANA’s touchpad and mouse businesses.
3Q13F beginning to show recovery. The baht has depreciated against the US$ by 9% from peak close to five months ago. As exporters, this is good news for electronics companies. As the industry recovers, we look for YoY earnings growths in 3Q13F for all stocks under our coverage despite the fact that some segments (i.e. PC) are still feeble. Growth will be seen QoQ as well on seasonality and baht weakness against US$. KCE will enjoy a new high.
Top pick #1 DELTA. DELTA remains our top pick, with impressive earnings growth of 22% in 2013F as cloud computing grows and orders its power supplies for servers and data centers; it will also benefit from recovery in India and the launch of a new line for the auto segment (focusing on electric and hybrid cars). Although we forecast 11% earnings growth in 2014F, we see upside risks from: 1) potentially sizable orders from the automotive segment,
2) economic recovery in Europe that could bring the telecom and industrial segments back to life and 3) a goal to lower SG&A/sales to below 15% vs. our 2014 assumption of 15%. It continues to have a very strong financial status with Bt11.7bn or Bt9.35/share net cash as of 2Q13. We forecast 2013F DPS of Bt2.6, generous yield of 5.4% at current share price.
Top pick #2 KCE. After achieving a new high for earnings in 2Q13A, KCE is expected to continue to go on to make more new records in 3Q13F, all thanks to the big improvement in efficiency of its biggest plant, KCE Technology, which is now profitable after years of losses. Also underwriting its growth is strong order flows from the automotive segment and benefit from the recent baht depreciation against the US$. For the full year, we look for a new high for core earnings of Bt841mn. To eliminate the problem of capacity constraints, it is building a new factory. This will open in 4Q14 and boost sales from 2015.