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Etron Sector

Sector's profit to leap 16percent from forecast if THB weakens to B34/U$ Overweight

Etron Sector

THB depreciating due to political unrest

THB has been depreciating continuously due to fund outflow from Thailand, as

the stock market has been pressed by the unpredictable political unrest and

the slowing economy. Moreover, MPC might possibly cut policy interest from

2.25% by another 0.25% at the 22 January 2014 meeting, and FED is likely to

start QE cut as U.S. economy has been recovering well. Currently, THB is at

B32.9/US$, likely to reach B34/US$ in near future, weaker than our

expectation for 2014-2015 at B31.5/US$. Thus, we might revise up our profit


- Sector’s profit to leap 16percent from forecast if THB weakens to B34/US$

Weak Baht benefits electronic part sector, so we will revise up net profit

forecast in near future. According to our study on effect of THB depreciation

on the sector, every B1 of depreciation increases profit from the forecast by

the average of 6%. If THB weakens to the average of B34/US$ in 2014,

sector’s net profit would increase by 16%. HANA would be the most

advantageous. 100% of HANA’s income is in US$, while 85% of its cost is in

foreign currencies. Moreover, it has a small proportion of debt in US$. Thus,

HANA’s FY2014 net profit is projected to rise by 18%. Next advantageous

companies would be DELTA, KCE, SVI and SMT. 100% of their income is in

foreign currencies (mostly US$). However, 80-90% of its cost is in foreign

currencies, and they have some proportion of foreign debt. Thus, the benefit

from weak THB would be partially negated (see next page for the increase in

their FY2014 net profit). CCET would be the least advantageous. 100% of its

income is in US$. However, nearly 90% of its cost is in foreign currencies, and

it has a large proportion of foreign debt, greatly negating the benefit from

weak THB. Thus, CCET’s net profit is projected to rise by only 8%, the lowest

plus in this sector. Overall, under the assumption that THB would weaken to

B34/US$, the sector’s FY2014-2015 net profit (excluding extraordinary income

from post-flood insurance claim) is projected to grow by 44%yoy and

13%yoy, respectively. Aside from weak THB, overseas orders for electronic

parts are also likely to increase, especially thanks to auto and smartphone

businesses. This is correspondent to economic recovery in the US and Europe,

which are main clients for electronic products.

- "OVERWEIGHT". Top pick is DELTA.

We recommend "OVERWEIGHT". Share prices have undergone correction in

the previous week, along with the market, so they have attractive upside.

Political unrest and slowing economy have no effect on the sector’s earnings,

as most clients are outside Thailand. Top pick is DELTA(FV@B67) for its strong

financial position and good growth potential in next two years along with

power supply business related to data center and telecom businesses.

Moreover, DELTA focuses on variety of products in auto sector, responding to

growth in hybrid car and electric car businesses. We also recommend buying

HANA(FV@B29) and KCE(FV@B27), as they benefit most from THB

depreciation. HANA’s share price is still laggard in the sector, with FY2013 PER

at 10x and dividend yield expected at 6%p.a (paid twice a year).

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