Delta Electroniics (Thailand)

Value stock with low 2013 PER at only 10x and 7% div yield BUY

Delta Electronics (Thailand) Plc (DELTA)

2013 still golden year for DELTA… every business shines

According to the analyst meeting (7 February 2013), DELTA's management is

more confident in the overall business outlook in 2013. The power supply

business of delta center business (40% of total sales) would still thrive

continuously along with the growth of smart-phone device business all over the

world. At the same time, the solar inverter business (5% of total sales) is

projected to generate more profit after DELTA has launched its aggressive

marketing strategy the prior year. Other than that, the company's policy to

control production cost by relocating the production plant from Europe to

Thailand has made DELTA advantageous for its lower cost while the production

quality is maintained, as operation is projected to begin during 2H13. Moreover,

the company has foreseen the growth of telecom power business (5.5% of total

sales) in Brazil, which would brings benefits from World Cup event in 2014 and

Olympics in 2016. In terms of the investment budget in 2013, it is projected to

stand at US$20m (lower than the previous ones with US$30-50m), mainly going

to expanding some production capacity in India. Accordingly, there would be

surplus liquidity of cash, leading to the dividend yield payment of 2012 higher

than projected. If DELTA has no additional plans for future investment, the

company is likely to bring cash to pay more dividend yield in 2013-14, which

would be higher than our current forecast.

2013 profit thrives continuously alongside data center and telecom businesses

We revise up 2013-14 net profit forecast by 10% and 8% respectively due

mainly to the total sales assumption that has been underestimated. After seeing

the signal of global economic recovery, the electronics growth in 2013 would be

boosted to shine even more brightly. After forecast revision, 2013 net profit

forecast of DELTA would hit the record high continuously for consecutive 2

years. The total sales are projected to grow by 10% YoY. According to

aforementioned reasons, the company's 2013 gross profit margin is likely to

weaken slightly from the prior year because the is no reversal of inventory

provision like one in 2012 (as effects from changes in product materials are

already included). However, DELTA's policy to control the selling and

administrative expenses mentioned earlier would be seen more concrete,

resulting in 2013 SG&A/sales declining from the prior year which would help

offset all effects from decelerating gross profit margin. Accordingly, 2013 net

profit forecast would still continuously be on the rise. In terms of risks from THB

appreciation, it might affect DELTA as an exported (illustrated on the following

page). At present, THB stands at B29.76/USD which is lower than our

assumption of average THB/USD at B30. From our study, B1 appreciation would

result in 3.8% decrease of DELTA's net profit forecast.

Recommend "BUY"… top pick with low PER and high dividend yield

We reiterate our recommendation of "BUY" for DELTA. The new fair value, using

DCF (11.58% WACC), at end-2013 stands at B42. The dividend yield in 2012 is

announced by the company at B2.4/share (payment once a year) or 6.5% p.a.,

going XD on 26 February 2013 (payment due date on 9 April 2013). We believe

that DELTA's share price would still outperform the SET continuously in 2013.