Delta Electronics

Delta Electronics Plc (DELTA)   

 

- 1Q15 profit to grow rapidly, gross margin to rise, expense to drop 

1Q15 net profit is expected at B1.4bn, leaping 27.3%qoq and 2.4%yoy. Total income is projected to grow by 2.0%qoq and 3.1%yoy to B11bn, mainly from data center and automotive products and the telecom investments in India. Gross margin is expected to improve to 25.9% in 1Q15 from 24.5% in 4Q14 (unusually low because B200m provision of impairment loss from unsold Solar products was booked; loss from Solar and wind turbine products will be recognized this quarter). SG&A/Sales is expected to drop to 14.0% in 1Q15 as investment in overseas sales offices have started to pay off and lower expense would be booked. 

- Profit to weaken in 2Q15 but maintain FY2015 forecast  

We maintain DELTA's earnings forecast in 2015-2016. 2Q15 profit is expected to fall from 1Q15 due to long holidays and weaker sales. FY2015 earnings are projected to grow by 21.2%yoy. Sales of data center products (40% of total income) would increase as the economy recovers and demand for computer storage equipment grows. Telecom products sales (20% of total income) are likely to continue rising, and the telecom infrastructure investments in India would boost DELTA's income from this business segment to 13% of total income (11% in 2014) after the new government was elected in mid-2014, mostly income from total solution service; this would boost DELTA's recurring income in a long run. 

- Buy when price weakens or switch to HANA 

The share price has already reflected strong fundamental factors and barely showed upside from FY2015 fair value (DCF, 11.58% WACC) of B78.00. We reiterate HOLD for 4.5%p.a dividend yield or recommend switching to HANA(Buy:FV@48B) with potential growth in fundamental factor and share 

price.