Delta Electroniics (Thailand)

Get ready for FY2012 dividend yield at 5.1%, still choosing as top pick BUY

Delta Electroniics (Thailand) Plc (DELTA)

2013 business outlook focuses mainly on profitability

DELTA's overall business outlook in 2013 would rely on caution, aiming

at only 5% growth of 2013 total sales (lower than our projection at

10%) under an assumption of global economy in continuous weakness.

The main supports for the company's revenue growth would be from the

following factors. 1) The data center business (45% of the total sales);

new orders are projected to increase during 2H13 to take place of old

models after there has been a change of platform. 2) The auto parts

business such as cooling fans (13% of the total sales); after enhancing

the production capacity to meet the demand that tends to heighten, the

size of products would benefit profitability. 3) The telecom business

(25% of the total sales); there would be benefits from adjustment of the

aggressive strategy, focusing more on the solution base instead of

focusing only on the product base. 4) The solar inverter business (2% of

the total sales); there's an aggressive strategy to expand new markets

in Asia, together with New Zealand and Australia. Furthermore, DELTA

also focuses on the net margin along with the main business growth by

applying the policy to control the operating expense. Overall, DELTA's

operating profit in 2013 is projected to outgrow sales, increasing by

10% YoY. For the net profit, it is projected to only stabilize due to the

extraordinary income in 2012 from the reversal of inventory provision

worth of around B300m.

4Q12 net profit tends to shrink 58% QoQ, but better than projected earlier

The company's 4Q12 net profit is projected at B804m (better than

projected earlier) or 58.1% QoQ decrease (but rising by 24.8% YoY) due

mainly to the following reasons. 1) The total sales in 4Q12 are projected

to slow down by 18.4% QoQ due to the low season for the electronics

parts industries all over the world. Moreover, international customers

have temporarily slowed down orders in data center business which is

during the platform changing. 2) The gross margin is likely to decline to

26.5percent from 30.8% in 3Q12 due to That Baht that has appreciated by

2.2% QoQ approximately and no inventory provision like 3Q12. Overall,

DELTA's 2012 net profit is projected at B4.3bn, growing outstandingly by

51.4% YoY (higher than out current forecast by 4.8%). For the risks

from THB appreciation, it would affect DELTA as an exporter (illustrated

on the next page's table of revenue structure and expenses by

currencies). At present, THB stands at B29.77/USD which is lower than

our assumption of B30/USD, as B1 of appreciation would result in 3.8%

decrease in our net profit forecast of DELTA.

Top pick combined with low PER. Get ready for FY2012 dividend yield at 5.1%

We reiterate our recommendation of "BUY". Fair value, using DCF

(11.58% WACC), at end-2012 stands at B36. The current share price is

now equal to 2013 PER which is at only 10x, lower than the industry's

average at 11.5x. Moreover, investors can count on the dividend yield

from 2012 operating result at B1.7/share (payment once per year),

considered 5.1% p.a.