DELTA's share price has
fallen 18% since going XD a month ago. We believe this
represents an attractive buying opportunity given that the
stock is now trading on a 2003 PER of 7x and EV/EBITDA of
5x. This compares with its historic ranges of 8-10x and 6-8x
respectively.
We have trimmed our 2003
earnings forecast by 4.5% to reflect slower growth in the
global electronics industry this year due to the impending
US-Iraq war. Nevertheless, DELTA's net profit is still
expected to grow by 27% to Bt4.2bn due to a pick-up in
margins and improved economies of scales in its flat panel
operations.
Last week management said
DELTA is planning a Bt7bn bond issue this year, which will
be used to fund the acquisition of a major electronic
company in Thailand. Given its high cash reserves of Bt7.9bn
at end-2002 and an estimated free cash flow of Bt5.1bn this
year, DELTA should still be able to maintain a 100% dividend
payout ratio in 2003.
Based on our fair value
estimate of Bt40/share, DELTA offers potential upside of 57%
from its currently depressed level.
Table 1:
DELTA's earnings forecasts
|
Year to Dec |
2001 |
2002F |
2003F |
2004F |
2005F |
|
Sales (Btmn) |
30,557 |
40,542 |
42,415 |
44,352 |
53,051 |
|
Net profits (Btmn) |
3,865 |
3,323 |
4,211 |
4,771 |
6,445 |
|
EPS (Bt) |
3.27 |
2.80 |
3.55 |
4.02 |
5.43 |
|
Growth (%) |
(4%) |
(14%) |
27% |
13% |
35% |
|
Cash per share (Bt) |
3.2 |
3.6 |
4.1 |
4.5 |
4.5 |
|
PER (X) |
7.9 |
9.2 |
7.3 |
6.4 |
4.7 |
|
BPS (Bt) |
11.2 |
9.2 |
8.9 |
8.4 |
7.0 |
|
EV/EBITDA (x) |
5.0 |
5.3 |
5.1 |
4.7 |
3.6 |
|
Dividend Yield (%) |
13% |
11% |
14% |
16% |
21% |
Sales climb
7.4% yoy in 2M03
DELTA's sales in the first
two months of 2003 rose 7.4% yoy to US$139mn. Although this
accounts for just 14% of our full-year revenue forecast of
Bt1bn, investors should remember that the first quarter is
typically a weak one for DELTA. About 51% of total sales
came from SPS equipment (versus 43% in the same period last
year) while monitors accounted for 41%. Of DELTA's top five
customers, Sony accounted for 30% sales followed by Dell
(23%), Viewsonic (9%), HP (6%), and Black & Decker (3%).
Sony, Viewsonic and HP are major clients for monitors while
DELL mainly buys SPS products.
Graph 1:
DELTA's monthly revenues in US$
Converter
prices see strong rise
SPS prices were relatively
resilient in 2M03, averaging US$8.30/apiece after falling
5-8% in the same period a year ago. AC/DC converters, which
have high margins, account for 46% of SPS sales. Average
prices of AC/DC converters jumped from US$1.4/unit in 2002
to US$4.8 in 2M03.
LCD shipments
slump in February
Shipments of LCD/TFT monitors
halved from more than 60,000 units per month over the past
10 months to about 33,000 units in February. This was due to
the low season and a production slowdown following some
minor model changes. Meanwhile the price for TFT/LCD
monitors fell 8% to US$352. We expect prices to fall below
the US$200 level over the next 12-18 months although this
will be offset by sharply higher sales volumes. Management
expects gross margins to average 10% for this product in
2003 compared to 6-8% last year. Sales of flat LCD/TFT
accounted for 24.3% of total revenue in 2M03, down from
29.7% in 2002.
Table 2:
Sales breakdown in 2M03
|
|
1Q02 |
2Q02 |
3Q02 |
4Q02 |
Jan-02 |
Feb-03 |
|
SPS |
|
|
|
|
|
|
|
SPSD4(Desktop) |
29.6 |
20.9 |
13.2 |
12.2 |
3.3 |
2.6 |
|
SPSO4(Others) |
6.5 |
10.8 |
14.5 |
12.6 |
4.3 |
5.6 |
|
SPSS4(Server) |
18.6 |
17.3 |
20.1 |
21.7 |
7.5 |
6.5 |
|
SYS04(System) |
0.1 |
0.1 |
0.1 |
- |
- |
0.0 |
|
DDC04 |
7.9 |
11.3 |
12.5 |
14.2 |
18.3 |
14.7 |
|
ADP |
38.8 |
47.8 |
60.4 |
54.2 |
4.8 |
3.8 |
|
Total |
101.5 |
108.3 |
120.8 |
115.0 |
38.2 |
33.2 |
|
MNT |
|
|
|
|
|
|
|
14" |
- |
- |
- |
|
|
|
|
15" |
10.0 |
12.4 |
9.8 |
9.0 |
2.6 |
2.1 |
|
17" |
33.2 |
20.4 |
19.9 |
24.0 |
6.6 |
6.6 |
|
18" |
- |
- |
- |
|
|
|
|
19" |
1.8 |
1.0 |
2.8 |
- |
- |
- |
|
21" |
3.1 |
3.0 |
3.6 |
5.6 |
2.3 |
3.2 |
|
- |
48.1 |
36.8 |
36.1 |
38.6 |
11.5 |
11.9 |
|
TFT/LCD |
- |
- |
- |
|
|
|
|
15" |
22.7 |
27.3 |
42.4 |
39.3 |
7.1 |
4.1 |
|
17" |
0.5 |
17.0 |
23.4 |
34.7 |
9.1 |
3.2 |
|
18" |
10.7 |
12.0 |
24.2 |
25.2 |
4.0 |
2.2 |
|
19" |
|
|
|
0.5 |
1.8 |
2.2 |
|
Total |
33.8 |
56.3 |
89.9 |
99.7 |
22.0 |
11.7 |
|
EMI |
- |
- |
0.6 |
|
|
|
|
MAG |
- |
- |
- |
|
|
|
|
Total |
- |
- |
- |
|
|
|
|
DF Fan |
- |
- |
- |
|
|
|
|
FAN04 |
4.3 |
7.6 |
6.9 |
9.5 |
2.7 |
3.2 |
|
EMI04 |
5.8 |
4.9 |
3.9 |
4.2 |
1.6 |
1.4 |
|
POWP4 |
2.3 |
2.7 |
2.8 |
2.9 |
0.8 |
0.8 |
|
Total |
12.4 |
15.2 |
13.6 |
16.6 |
5.1 |
5.5 |
|
|
|
|
|
|
|
|
|
Total |
195.9 |
216.6 |
260.3 |
269.9 |
76.9 |
62.2 |
Flat sales
growth for conventional monitors
Prices and monthly shipments of
conventional monitors saw little change mom in February. Sales
accounted for just 14% of total revenue in 2M03, down sharply
from 37% in 2001. DELTA plans to gradually phase out this
business over the next 2-3 years as it concentrates on
production of more popular flat panel models. Gross margins on
conventional monitors, however, remain healthy at above 12%.
Capacity
utilisation for DC fans tops 85%
Revenues from DC fans averaged
US$5.3mn/month in 2M03, up from 2002 levels of US$4.8mn/month.
Price rose 17% mom to US$1.53/ unit in February while capacity
utilisation was more than 85%. DELTA aims to increase DC fan
capacity in 2H03 after developing more sophisticated products
for global contract manufacturers such as Flextronic,
Solectron and Celestica.
Table 3: Sales
contributions of DELTA's products
|
Breakdown |
2002 |
1Q02 |
2Q02 |
3Q02 |
4Q02 |
2M03 |
|
SPS |
47.3% |
51.8% |
50.0% |
46.4% |
42.6% |
51.3% |
|
MNT |
16.9% |
24.6% |
17.0% |
13.9% |
14.3% |
16.9% |
|
TFT/LCD |
29.7% |
17.3% |
26.0% |
34.5% |
36.9% |
24.3% |
|
DF Fan |
6.1% |
6.3% |
7.0% |
5.2% |
6.2% |
7.6% |
|
|
|
|
|
|
|
|
|
Gross margins |
16.0% |
17.1% |
17.6% |
14.4% |
15.3% |
|
Margins are
expected to improve throughout 2003
Rising contributions from SPS
and broader margins from flat panels are expected to lift
margins from 15.3% in 4Q02 to 17% in 1Q03. For the full year,
we expect gross margins to rise by 0.5% to 16.5% and operating
margins to improve from 9.1% to 10%.
Table 4:
Earnings revision
|
|
|
Original |
|
Revision |
Change |
|
|
2002 |
2003F |
2004F |
2003F |
2004F |
2003F |
2004F |
|
Sales |
40,542 |
42,810 |
44,352 |
42,415 |
44,352 |
(0.9%) |
0.0% |
|
Sales Growth |
32.7% |
5.6% |
3.6% |
4.6% |
4.6% |
|
|
|
Gross Margins |
16.0% |
16.5% |
16.9% |
16.5% |
16.8% |
|
|
|
Operating Margins |
9.1% |
10.0% |
9.9% |
9.4% |
9.8% |
|
|
|
Gains on working cap |
(399) |
(132) |
- |
(127) |
- |
(5) |
(0) |
|
Normalised
profits |
3,722 |
4,543 |
5,013 |
4,338 |
4,771 |
(4.5%) |
(4.8%) |
|
Net
profits |
3,323 |
4,411 |
5,013 |
4,211 |
4,771 |
(4.5%) |
(4.8%) |
1Q03
net profit forecast to jump 14% yoy to Bt944mn
In 1Q03, we expect DELTA to
report net profit of Bt944mn, up 14% yoy. Normalised earnings,
however, are expected to be flat at Bt1bn. We have revised
down our 2003 and 2004 earnings forecast by 4.5% and 4.8% to
reflect slower growth in the global electronics industry due
to the impending US-Iraq war.
Table 5:
Earnings revision
|
|
|
Net
profits |
|
Normalised
Profits |
|
|
2002 |
2003 |
%
Chg |
2002 |
2003 |
%
Chg |
|
Q1F |
828 |
944 |
14.0% |
1,008 |
1,004 |
(0.4%) |
|
Q2F |
495 |
1,066 |
115.1% |
1,070 |
1,096 |
2.4% |
|
Q3F |
1,107 |
1,088 |
(1.7%) |
892 |
1,102 |
23.5% |
|
Q4F |
893 |
1,113 |
24.6% |
980 |
1,136 |
15.9% |
|
Year |
3,323 |
4,211 |
26.7% |
3,950 |
4,338 |
9.8% |
|
Income
statement |
|
(Btmn) |
2001 |
2002 |
2003E |
2004E |
2005E |
|
Sales |
30,557 |
40,542 |
42,415 |
44,352 |
53,051 |
|
COGs |
24,317 |
34,071 |
35,406 |
36,887 |
43,879 |
|
Gross
margins |
6,240 |
6,471 |
7,008 |
7,466 |
9,173 |
|
SG&A |
2,724 |
2,788 |
3,012 |
3,105 |
3,183 |
|
Operating
margins |
3,516 |
3,682 |
3,997 |
4,361 |
5,990 |
|
Interest expenses |
36 |
29 |
25 |
7 |
6 |
|
Other income |
399 |
260 |
318 |
353 |
370 |
|
Pretax profits |
3,879 |
3,913 |
4,289 |
4,707 |
6,354 |
|
Income taxes |
4 |
4 |
5 |
5 |
- |
|
Associate Earnings |
(15) |
38 |
50 |
65 |
85 |
|
Minority Interests |
107 |
(3) |
(4) |
(4) |
(6) |
|
Extraordinary Items |
113 |
(627) |
(127) |
- |
- |
|
Net
income |
3,865 |
3,323 |
4,211 |
4,771 |
6,445 |
|
Balance
sheets |
|
(Btmn) |
2001 |
2002 |
2003E |
2004E |
2005E |
|
Cash equivalent |
11,363 |
7,960 |
7,892 |
7,479 |
7,285 |
|
Receivable |
5,908 |
8,024 |
7,205 |
7,898 |
8,430 |
|
Inventories |
2,653 |
3,785 |
3,589 |
3,537 |
3,847 |
|
Investment |
1,109 |
1,171 |
1,321 |
1,421 |
1,571 |
|
Fixed Assets |
3,629 |
3,855 |
3,834 |
3,773 |
3,912 |
|
Total
assets |
24,927 |
25,032 |
23,930 |
24,197 |
25,134 |
|
Credits |
5,992 |
6,975 |
6,596 |
6,872 |
7,814 |
|
ST-debts |
1,160 |
869 |
141 |
124 |
109 |
|
LT-debts |
- |
- |
- |
- |
- |
|
Other
liability |
2,427 |
2,410 |
2,414 |
2,419 |
2,425 |
|
Equities |
15,348 |
14,777 |
14,779 |
14,782 |
14,787 |
|
Cash
flow statement |
|
(Btmn) |
2001 |
2002 |
2003E |
2004E |
2005E |
|
Net Profit |
3,865 |
3,323 |
4,211 |
4,771 |
6,445 |
|
Depre./Amort. |
584 |
725 |
521 |
561 |
611 |
|
Net Working Cap. |
3,161 |
(2,266) |
636 |
(366) |
100 |
|
Unrealized F/X |
(107) |
348 |
127 |
- |
- |
|
Cash
flow from operations |
8,459 |
2,067 |
5,649 |
4,970 |
7,162 |
|
|
|
|
|
|
|
|
CAPEX |
(622) |
(619) |
(500) |
(500) |
(750) |
|
Investment |
(148) |
(62) |
(150) |
(100) |
(150) |
|
Cash
flow from investing |
(860) |
(1,008) |
(548) |
(600) |
(900) |
|
|
|
|
|
|
|
|
Debt Movement |
475 |
(291) |
(729) |
(16) |
(16) |
|
Capital Call |
138 |
- |
(1) |
- |
- |
|
Dividend Paid |
(2,143) |
(3,861) |
(4,211) |
(4,771) |
(6,445) |
|
Cash
flow from financing |
(1,530) |
(4,277) |
(4,941) |
(4,787) |
(6,461) |
|
|
|
|
|
|
|
|
Free
cash flow |
7,836 |
1,448 |
5,149 |
4,470 |
6,412 |
|
Financial
ratios |
|
|
2001 |
2002 |
2003E |
2004E |
2005E |
|
Gross margins |
20.4% |
16.0% |
16.5% |
16.8% |
17.3% |
|
Operating margins |
11.5% |
9.1% |
9.4% |
9.8% |
11.3% |
|
Net gearing |
(0.66) |
(0.48) |
(0.52) |
(0.50) |
(0.49) |
|
Interest coverage |
116.1 |
122.9 |
165.9 |
647.4 |
1,093.0 |
|
Inventory Days |
40 |
41 |
37 |
35 |
32 |
|
Collection Days |
71 |
72 |
62 |
65 |
58 |
|
Payment Days |
90 |
75 |
68 |
68 |
65 |
|
