Fri, Dec 19, 2014 - Page 14 News List

Delta Electronics buys Eltek SAS

By Lisa Wang  /  Staff reporter

Delta Electronics Inc (台達電), the nation’s top power supply unit maker, is expected to gain a foothold in Europe and Africa, aided by the newly announced acquisition of Norwegian telecom equipment power supply maker Eltek SAS, analysts said.

The 3.9 billion Norwegian krone (US$530.6 million) deal is the first acquisition case by Delta in more than a decade, but analysts expect more such deals are in the pipeline. Companies related to industrial automation, electric vehicles and data centers could be potential Delta targets, they said.

Due to Eltek having a high level of exposure in Europe, the Middle East and Africa (EMEA) and the US, JPMorgan analyst Gokul Hariharan said that this “is quite complementary to Delta’s exposure in telecom power [supply segment], which is predominantly Asia-focused,” according to a report released on Wednesday.

Eltek has generated 46 percent of its revenue from EMEA and 28 percent from the US, he said.

On top of that, the acquisition will help lift Delta’s ranking to the No. 1 in the telecom equipment power supply sector, seizing more than 20 percent market share, Hariharan said.

Hariharan expects the deal to boost Delta’s earnings per share after the transaction is completed in the middle of next year, with meaningful synergies to happen in the long term.

JPMorgan has retained its “overweight” rating on Delta with target price set at NT$220, implying a 38 percent upside from Delta’s closing price of NT$182 yesterday, which rose 2.82 percent from Wednesday.

UBS analyst Arthur Hsieh (謝宗文) said he agreed that the Eltek deal could help Delta expand its reach to EMEA and the US, but the contribution from the deal is likely limited, citing slow growth in the telecoms equipment power supply market.

Eltek said the overall telecom power market could see an average growth of 3 or 4 percent next year, while UBS’ global telecom equipment team estimates that capital spending in the telecom sector will contract by 6 percent next year, as 4G coverage spending could peak, Hsieh said in a report released on Wednesday.

Eltek’s telecom and data center power business contributed to about 89 percent of its overall revenue in the third quarter of this year, while the remaining 11 percent came from industrial applications, the report said.

However, Hsieh said that “Delta’s acquisition of Eltek is an optimal use of its cash position.”

As of the end of last quarter, Delta has a cash and cash equivalent balance of roughly NT$63 billion (US$2 billion).

UBS has a “neutral” rating on Delta, given slow growth across the company’s power supplies for PCs, game consoles and telecoms equipment segments, along with a target price of NT$188.

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