ETRON Sector

ETRON Sector
- Revise up Fx rate assumption to B33/US$ to reflect fund outflow
As THB has been weakening to B32.9/US$, we revise up FY2014-2015 Fx rate
assumption from B31.5/US$ to B33/US$. THB depreciation is caused by the
following factors: 1) The economy has been slowing as a result of the political
turmoil. Thus, we revise down FY2014 GDP growth forecast from 4.3% to
3.3%, and MPC is projected to decrease policy rate by 0.25% to 2% at its
upcoming meeting on 22 January. 2) U.S. economy has been rebounding
significantly, so QE cut would be in effect, speeding up foreign fund outflow
and depreciating THB further.
- Weak THB to boost FY2014-2015 net profit by 5.9%
Rapid depreciation of THB benefits electronic part sector. According to our
study, every B1 weakened would increase the sector's net profit by 5.4%.
Under the new Fx rate assumption, the sector’s FY2014-2015 net profit
forecast would be revised up by 5.9% and 6.2%, respectively. HANA would
be the most advantageous. 100% of HANA's income is in US$, while 85%
of its cost is in foreign currencies. Moreover, it has a small proportion of debt
in US$. Thus, HANA's FY2014 net profit is projected to rise by 8.1%. Next
advantageous companies would be DELTA, KCE, SVI and SMT. 100% of
their income is in foreign currencies (mostly US$). However, 80-90% of its
cost is in foreign currencies, and they have some proportion of foreign debt,
partially negating the benefit from weak THB. Thus, their FY2014 net profit
would increase by 6.5%, 6.1%, 5.7% and 5%, respectively. CCET would be
the least advantageous. 100% of its income is in US$. However, nearly
90% of its cost is in foreign currencies, and it has a large proportion of foreign
debt, greatly negating the benefit from weak THB. Thus, CCET's net profit is
projected to rise by only 1.6%, the lowest plus in this sector. Overall, under
the new assumption, the sector's FY2014-2015 normalized profit (excluding
extraordinary income from post-flood insurance claim) is projected to grow by
32%yoy and 17%yoy, respectively. Aside from weak THB, overseas orders for
electronic parts are also likely to increase, especially thanks to auto and
smartphone businesses. This is correspondent to economic recovery in the US
and Europe, which are main clients for electronic products.
- "OVERWEIGHT". Top pick is DELTA.
We recommend "OVERWEIGHT". FY2014 normalized profit is projected to
grow by 32%yoy, outperforming the SET's growth of 13%yoy. Moreover, the
sector's FY2014 PER is as low as 9.62x. Top pick is DELTA(FV@B67), as power
supply business (core business) is likely to grow well in next couple years,
along with its telecom and data center businesses. Auto business is also likely
to prosper thanks to growing demand for hybrid cars and electric cars. We
also recommend buying HANA(FV@B29) and KCE(FV@B27), as they benefit
most from THB depreciation.