Delta Electronic

Delta Electronics Plc (DELTA)

- 3Q13 net profit to grow 18%qoq from high season and weak Baht
We estimate 3Q13 net profit at B1.7bn, growing 18%qoq but declining 10%yoy
due to the following reasons. 1) Total sales are projected to increase 16%qoq (to
US$356m, which is close to the peak the company did in 3Q12), thanks to a high
season for the electronics industry. Accordingly, income from every group of
DELTA’s products would increase, except solar inverter business that would slow
down continuously, which we have already projected. 2) Gross margin in 3Q13
would rise to 28.7% from 26.2% in 2Q13. The Baht has weakened 5%qoq on
average in this quarter, while the total income structure by product (product
mix) has not changed significantly. 3) SG&A/sales would stay slow at 15.4% as
targeted. Although the company would not recognize an extraordinary profit of
B254m from a sale of investment in subsidiary like it did in the prior quarter, this
would be outweighed by a positive factor from the growth of core business, so
we project to see continuous growth in 3Q13 net profit. Overall, 9M13 net profit
is estimated at B4.4bn, up 25% from the same period last year and comprising
88% of our FY2013 net profit forecast.
- 4Q13 to decelerate after high season. Continuous growth foreseen in 2014
Preliminarily, we project 4Q13 net profit to weaken 41%qoq to B1bn after the
high season passes. Nevertheless, FY2013 net profit would easily exceed our
forecast. For FY2014, continuous growth is foreseen due to growing income from
1) the auto parts business, especially a new product, power charger used in
hybrid cars and electric vehicle cars and 2) the power supply business relating to
the ICT and data center industries due to a benefit from increasing popularity of
smart phones and a development of a new 4G/LTE platform that would make
orders of smart phones models increase. In addition, good SG&A/sales control
would make profitability in 2014 higher than 2013. All these are the company’s
strategy to achieve ROE of 25% as targeted.
- Buy. Fundamentally strong with growth potential for next two years
We reiterate BUY. The company’s fundamental factors are very strong, reflecting
from its net cash position at end-2Q13 (no debt) and net cash of as much as
B12bn (B9.4/share), confirming its readiness for business expansion when there
is a good opportunity and its ability to pay high dividend for shareholders.
FY2013-2014 fair value, using DCF (WACC at 11.58%), is B55 and B64,
respectively. The current share price has around 16% upside. Dividend yield can
be expected at 5.6% p.a. (paying annually).