Delta Electronics

Delta Electronics Plc

DELTA’s profit might decline temporarily in 2Q14 as an election in
India has depressed its sales in the short term. Furthermore,
although 2H14 is a high season, there is still risk from strong Baht,
which might affect the forecast. We recommend buying on
weakness.
- 2Q14 net profit to weaken 5.2%q oq
We estimate 2Q14 net profit at B1.3bn, down 5.2%qoq and 9.3%yoy due to
total sales that have dropped 3.6%qoq from 0.6%qoq appreciation of the
Baht against US Dollar and a slight decrease of sales in US$. Despite benefit
from an approach of a high season for the electronics export worldwide, a
negative factor to hinder the company’s earnings in 2Q14 is decreasing
power supply sales in India since the infrastructure investments in the
country had to be halted temporarily because of the general election. This
has entirely offset an advantage from the high season. Gross margin and
SG&A/sales are projected to stay close to those of 1Q14. Overall, 1H14 net
profit is estimated at B2.7bn, increasing 1.8%yoy and making up 44% of
our full-year forecast.
- Profit gets into high season in 2H14, still at risk from strong Baht though
We maintain our forecast for FY2014-2015. 2H14 profit is projected to grow
from 1H14 due to seasonal effects and a recovery of a power supply
business in India from a mega telecommunication infrastructure investment
project after the election already finished. However, the Baht appreciation
might make 2H14 profit growth lower than expected. Every B1 appreciation
will depress DELTA’s net profit by 5.7% from the previous forecast, the
second most impacted among peers.
- Buy on weakness
We still recommend buying DELTA but only when the price weakens since it
has risen until there is only 10% upside from 2014 fair value, DCF (WACC of
11.58%) of B70.40.