Fri, May 03, 2013 - Page 14 News List

Q1 results lift Delta Electronics shares

By Kevin Chen  /  Staff reporter

Delta Electronics Inc’s (台達電) shares rose to their highest level in a decade yesterday after the firm reported stronger-than-expected results for the first quarter.

The shares also rose after several foreign brokerages upgraded their ratings on Delta on the back of the company’s structural product mix change to higher margin area and revived earnings growth momentum.

Delta, the nation’s top supplier of power supply units, saw its shares surge more than 6 percent at one point before closing at NT$147.5, up 4.24 percent from the previous trading session on Tuesday, the Taiwan Stock Exchange showed.

Yesterday’s closing price was the highest since 1990. Over the past 12 months, the stock has risen 58.94 percent compared with the broader market’s 5.88 percent increase, the stock exchange’s data showed.

On Tuesday, Delta reported its first-quarter net profit expanded 52.94 percent year-on-year and 41 percent quarter-on-quarter to NT$4.19 billion (US$141.76 million), or earnings per share of NT$1.73.

Gross margin hit 25.6 percent in the first quarter — the second-highest level in its history — with 10.9 percent in operating margin, Delta’s statement showed.

“First quarter EPS of NT$1.73 beat our and street estimates of NT$1.3 to NT$1.43 by 21 percent to 34 percent” respectively, Credit Suisse analyst Pauline Chen (陳柏齡) said in a note yesterday.

“Operating margin for the first time stayed above 10 percent in the slow first quarter, suggesting Delta’s diversification into non-PC areas is paying off. We expect further earnings upgrade on this name,” she said.

Credit Suisse forecast Delta will continuous expansion in margins this quarter based on its much better cost structure, with operating margin likely hitting historical high at 11.8 percent, although revenue would only grow mildly by 5 percent quarter-on-quarter because of a muted PC outlook and model transition at its miniaturized components.

Daiwa Capital Markets agreed that a better product mix and tight operating-cost control contributed to Delta’s margin improvement last quarter.

The brokerage said it remained positive on the company’s margin expansion this quarter and was optimistic about its revenue outlook, forecasting its sales to increase by 11 percent from last quarter, driven mainly by its industrial automated machine business, along with its passive-component business and development of high-margin data center business.

“We raise our 2013 and 2014 EPS forecasts by 11 percent and 4 percent respectively, reflecting increases in our operating-profit margin assumptions to 11.5 percent [from 10.8 percent before] for 2013, and to 11.7 percent [from 11.3 percent before] for 2014,” Daiwa analyst Christine Wang (王琦清) said in a note yesterday.

Credit Suisse and Daiwa maintained their “outperform” ratings on Delta’s shares.

However, Credit Suisse said it was raising its target price on the stock to NT$160 from NT$143, and Daiwa lifted its target price from NT$140 to NT$155.

JPMorgan Securities Ltd also increased its target price to NT$160 from NT$140 on Delta's better outlook, but said key risks for the company would be rising competition from Japanese vendors on passives and faster penetration of ARM-based CPUs in servers, analyst Gokul Hariharan said in a note.


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