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Delta Electronics

Undergoes correction. Switch to laggard SVI BUY

Delta Electronics Plc (DELTA)

1Q14 profit skyrocketing

Even though sales volume is expected to decline by 4.9%qoq to

B10bn in 1Q14 as it is a low season for worldwide electronic part

business, we project DELTA’s 1Q14 net profit at B1.4bn, growing

26.6%qoq and 14.1%yoy, thanks to the following positive factors:

1) Gross margin is expected to increase from 24.8% in 4Q13 to

26.5% in 1Q14, as DELTA has not made exceedingly high inventory

provision in 1Q14. 2) DELTA would also benefit from 2.8%qoq THB

depreciation. 3) SG&A/Sales is projected to drop from 15.4% in

4Q13 to 14.5% in 1Q14, thanks to a decrease in general

management expenses after the high season. 4) DELTA is likely to

book B200m additional profit from selling of 45.17% of its

investment in Delta Greentech SGP Pte. Ltd. Overall, DELTA’s 1Q14

net profit is expected to make up 22% of DELTA’s FY2014 net profit

forecast.

- Profit to slow down in 2Q14 but to leap in 2H14

We maintain our FY2014-2015 earnings forecast. DELTA’s FY2014

net profit is projected to grow by 14.6%yoy and make a new high.

2Q14 net profit is expected to drop qoq due to lack of extraordinary

income and declining orders. The investment project in India has

been delayed as a result of the election in April 2014, and some

orders have been postponed for four months because companies will

clear their inventories in 2Q14. However, purchasing power is

expected to return in 2H14, especially from orders of power supply

products needed for data center and telecom businesses and

automotive products. Therefore, DELTA’s net profit is projected to

rebound significantly in 2H14. Overall, there would be no need to

revise down DELTA’s earnings forecast.

-Short-term correction. Switch to SVI

We reiterate to buy DELTA. We derive its FY2014 fair value (DCF,

11.58% WACC) is B70.40, implying 19% upside. However, since

THB has started depreciating, the share price has increased by

61.7% (compared to end-May 2013), already reflecting good

factors. We recommend buying DELTA when price weakens or

switching to laggard SVI(FV@B5.08).


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