Date of Report
October 28, 2024

Broker
UOB Kay Hian

Company Overview

Delta Electronics (DELTA TB) is a leading electronics exporter and manufacturer, specializing in power supplies and electronic components such as cooling fans, EMI filters, and solenoids. The company operates primarily within the Information Technology sector and is publicly traded under the Bloomberg ticker “DELTA TB.”

Key Financial Highlights

• Share Price: Bt136.50
• Target Price: Bt128.00
• Market Capitalization: Bt1,702,676.4 million (approximately US$50.5 billion)
• Shares Issued: 12,473.8 million
• 52-Week Price Range: Bt63.25 – Bt137.50

Major Shareholders

• Delta Electronics Int’l (Singapore) Pte. Ltd – 42.9%
• Delta International Holding Limited – 15.4%
• Delta Electronics Inc – 5.5%

3Q24 Financial Results

Earnings and Revenue

Delta Electronics reported a 3Q24 net profit of Bt5.9 billion, reflecting a 9% increase year-over-year (YoY) and a 10% quarter-over-quarter (QoQ) decline. The earnings surpassed UOB’s estimates by 7% due to a robust gross margin, attributed to higher demand and a favorable product mix.

• Net Turnover: Bt43.2 billion (+6.8% YoY, +3.5% QoQ)
• Gross Profit: Bt11.9 billion (+30.4% YoY, +6.3% QoQ)
• EBITDA: Bt5.989 billion (a decrease of 4.3% YoY and 19.6% QoQ)
• Net Profit Margin: 13.7%

Revenue Breakdown

The power electronics segment, especially in AI-related products, contributed significantly to the revenue increase. The electric vehicle (EV) power solutions segment underperformed, particularly in the US and Asia, causing a flattening in revenue QoQ.

Key Ratios and Margins

• Gross Margin: 27.6% (+5.0 ppt YoY, +0.8 ppt QoQ)
• SG&A-to-Sales Ratio: 13.7% (+3.6 ppt YoY, +0.8 ppt QoQ)
• Net Profit Margin: 13.7%

Despite currency fluctuations, including baht appreciation, Delta maintained a high gross margin due to favorable revenue mix and a reversal of previous inventory write-downs.

Growth Drivers and Market Outlook

AI Technology as a Growth Driver

Delta’s management anticipates substantial revenue growth from AI-related products, which is expected to reach double-digit contributions in 2024. As AI technology advances, Delta projects continued improvement in gross margins, further supported by production scaling. The company anticipates that AI-related products will be a core revenue driver in 2025.

Factors Impacting Delta’s Stock Performance

• Positive Catalysts: Baht depreciation, declining raw material prices, and capacity expansion.
• Potential Risks: Baht appreciation, rising raw material costs, mechanical issues, increased interest rates, and potential global economic downturns.

Revised Earnings Forecast

• 2024 Earnings Forecast: Revised up by 6% due to stronger-than-expected gross margins and contributions from non-core items.
• 2025 Earnings Forecast: Increased by 7% on expectations of a favorable product mix and improved gross margin.

Valuation and Recommendation

UOB Kay Hian has maintained a “HOLD” rating on Delta Electronics with a revised target price of Bt128.00. This valuation is based on a 64x 2025F Price-to-Earnings (PE) ratio, pegged at +1 standard deviation to Delta’s four-year mean PE. This premium valuation is assigned relative to Delta’s industry peers due to expected growth in AI-related revenue and gross margin improvement.

Environmental, Social, and Governance (ESG) Initiatives

• Environmental: Delta is committed to developing energy-efficient solutions that align with global sustainability trends, including EV charging and renewable energy.
• Social: Delta focuses on creating an inclusive workplace that emphasizes health, safety, human rights, and diversity.
• Governance: Delta prioritizes transparency and systematic governance to add sustainable value to stakeholders.

Summary

Delta Electronics has demonstrated strong performance with a substantial gross margin in 3Q24, driven by demand in power electronics and AI-related products. While Delta maintains a “HOLD” rating with a target price of Bt128.00, its growth potential, particularly in AI and energy-efficient solutions, positions the company favorably in a rapidly evolving market.