Delta Electronics (Thailand)
Core earnings in line with our estimate
Delta Electronics (Thailand) Plc
Core earnings in line with our estimate
DELTA announced a 3Q13 net profit of Bt1,642m, up 12% QoQ but down 14% YoY. The number was 3% below our estimate and the consensus. Stripping out an FX gain of Bt101m, core profit would be Bt1,542m up a marked 39% QoQ but down 19% YoY. The YoY drops in net and core earnings were due to the absence of the reversal of a provision for obsolete inventory.
Results highlights
The 3Q13 top-line was flat YoY and up 17% QoQ to Bt11bn. The number was flat YoY because the effect of sales of embedded power solutions (customized power supplies that are integrated into the core of a device) was offset by lower plain-vanilla power supply sales. The QoQ rise was due to seasonality and rising data center componentry sales. GM was 27.2%, up 100 bps QoQ but down 357 bps YoY—in 3Q12 a US$6m provision for obsolete inventory was reversed and booked against COGS, which skewed up GM to 31%. The SG&A/sales ratio fell QoQ to 13.7%. There was also an FX gain of Bt101m for the quarter. As such, the bottom-line came to Bt1.6bn. DELTA remains in a strong net-cash position.
Outlook
We expect 4Q13 core earnings to rise YoY on stronger data center componentry sales, but drop QoQ on seasonality. As such, DELTA should post a record core profit of Bt5.2bn for FY13, up a hefty 24.5% YoY. For FY14, we expect the firm to post unprecedented core earnings of Bt5.9bn (up 14.8%), backed by rising sales related to data center components, automotive components and telecom power systems. A lower SG&A-to-sales ratio comprises a key facet of DELTA’s profitability improvement plan for next year. We believe that the firm will be able to limit its SG&A-to-sales ratio to 14.6% in FY14, against about 15.3% in FY13.
What’s changed?
Our FY13 core profit forecast stands unchanged at Bt5.2bn. 9M13 core earnings represent 75% of our full-year projection and 80% of the consensus.
Recommendation
We fundamentally like DELTA for its robust core earnings growth outlook backed by rising sales and a lower SG&A-to-sales ratio. With an FY14 core earnings growth profile of 14.8%, we think the current core PER of 10.2x for FY14 still presents a good entry point. As such, we have a BUY rating on the stock with a YE14 target price of Bt57.
