Delta Electronics (Thailand) – DELTA - BUY
12-month target price : Bt14.00
Recommendation : BUY
Closing Price (17 Feb 09) : Bt10.70
2008 results beat forecast by 5%
- For the whole of 2008, sales slipped 2.7% and net profit dropped 8.2% YoY, but operating profit improved.
- We revise our 2009 earnings estimate for DELTA upward.
- Our ACCUMULATE recommendation remains unchanged. At current levels, the stock is trading at a P/E of 5.3x. DELTA also declared a 2008 dividend of Bt1.10/share. To reflect higher earnings expectations, we lift our 2009 price target to Bt14/share, based on a P/E of 7x.
Better-than-expected 2008 results
DELTA posted a 2008 net profit of Bt2,897m. The result was 8.2% below the Bt3,155m profit it made a year earlier. Fourth-quarter net profit came in at Bt592.6m, which was 49% and 32.9% lower than the profit of Bt1,161.9m and Bt882.8m in 4Q07 and 3Q08 respectively. For the whole of 2008, sales slipped 2.7% YoY to Bt32,851m as DELTA exited the low-margin production of products. Fourth-quarter sales were down 9% YoY and 15.9% QoQ, blaming a slowdown in sales, especially from its Swiss-based Delta Energy Systems (DES). The exit from the low-margin production of LCD monitors in Video Display Business Group (VDBG) production pulled gross margin higher to 24.4% from 22.3%. The SG&A expenses to sales ratio edged higher on rising R&D expenses. Interest expenses retreated 23.7% YoY on partial debt repayments. Tax expenses also dropped on tax benefits.
Earnings upgrade for 2009
We expect sales at the Thai unit of DELTA to fall by 25% this year, but sales at its Swiss-based subsidiary DES are forecast to rise 15% YoY. On this basis, we predict that 2009 sales in dollar terms will drop 2% YoY to US$957m but sales in baht terms will be flat YoY at Bt33,011m, assuming the baht at 34.50 to the US dollar. In our view, the worldwide economic slowdown will put a dent in sales in the first half of 2009 and sales are expected to show signs of a recovery in the second half. The intensifying competition and higher sales of low-end products should drag margins lower on the year. The SG&A expenses to sales ratio is also anticipated to climb upwards as a result of falling sales. Effective tax rate should be lower on tax benefits. We raise our 2009 net profit outlook for DELTA to Bt2,509m, down 13% YoY.
2009 price target lifted to Bt14/share; ACCUMULATE rating maintained
The deteriorating economic environment will be a major drag on earnings, making electronics stocks less appealing, in our opinion. However, strong financial heath puts DELTA in a better position for expansion to broaden its client base. At current levels, the stock is trading at a P/E of 5.3x. DELTA also declared a 2008 dividend of Bt1.10/share, equivalent to an annualized yield of roughly 10%. To reflect higher earnings expectations, we lift our 2009 price target to Bt14/share, based on a P/E of 7x. Our ACCUMULATE recommendation remains unchanged.
By Phillip Securities (Thailand) Plc. on Feb 18, 2009
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