Friday, April 25th, 2025

Delta Electronics Stock Analysis: AI Growth Potential Amid Challenges – SELL Rating









Delta Electronics: Comprehensive Financial and Stock Analysis

Delta Electronics: Facing Challenges Amidst Growth Opportunities

Broker: UOB Kay Hian

Date: Tuesday, 18 February 2025

Overview of Delta Electronics

Delta Electronics, a prominent electronics exporter and manufacturer, specializes in power supplies and electronic components, including cooling fans, EMI filters, and solenoids. Its primary focus lies in the Information Technology sector, with a strong emphasis on AI and data center products.

Despite its potential, the company is currently facing several challenges that could hinder its growth trajectory. UOB Kay Hian has maintained its SELL recommendation for Delta Electronics, with a revised target price of Bt75.00, down from the previous Bt99.00, indicating an upside of 24.0% from the current share price of Bt96.50.

Key Financial Highlights

Delta Electronics saw its revenue grow by 12.5% in 2024, with an anticipated 12% growth in 2025 driven by AI and data center-related products. However, gross margins are expected to only slightly improve to 24.9% in 2025 due to currency effects, product mix, and warranty provisions. The company’s net profit is forecasted to remain flat in 2025, with costs such as royalties, R&D expenses, and legal fees exerting pressure on its earnings.

Year Net Turnover (Btm) EBITDA (Btm) Net Profit (Btm) EPS (Bt) PE (x) Dividend Yield (%)
2023 146,371 22,529 18,423 1.4 81.7 0.4
2024 164,733 24,598 18,939 1.4 78.2 0.4
2025F 185,035 28,779 19,012 1.6 70.8 0.4

Challenges and Revenue Drivers

AI and Data Center Products

Delta Electronics aims to capitalize on the growing demand for AI and data center-related products. Management expects revenue growth of 10-15% in 2025, supported by a 50-60% increase in AI-related products and a 10-15% improvement in non-AI data center products. AI-related products are projected to contribute 15% to total revenue in 2025, up from 10% in 2024.

Fluctuating Gross Margins

The gross profit margin is expected to improve slightly to 25% in 2025, up by 0.4 percentage points year-over-year. However, various factors such as currency fluctuations, product mix, and provision expenses could add volatility to margins.

Pressure on SG&A-to-Sales Ratio

Delta Electronics targets a SG&A-to-sales ratio of 13.0% in 2025, a 0.7 percentage point improvement year-over-year. However, costs related to royalties, R&D, and legal fees remain significant challenges. The company is also addressing ongoing litigation, further contributing to financial uncertainty.

Q4 2024 Performance

Delta Electronics’ Q4 2024 results fell significantly below expectations. Net profit dropped by 54.3% year-over-year and 63.5% quarter-over-quarter to Bt2.1 billion. Key factors included lower-than-expected revenue, squeezed margins, higher SG&A-to-sales, and increased tax expenses from its India operations.

Metric 4Q24F 4Q23 3Q24 YoY Change (%) QoQ Change (%)
Net Turnover (Btm) 41,747 37,759 43,225 +10.6 -3.4
Gross Profit (Btm) 9,376 9,264 11,927 +1.2 -21.4
Net Profit (Btm) 2,155 4,711 5,911 -54.3 -63.5

Valuation and Recommendation

UOB Kay Hian maintains its SELL recommendation for Delta Electronics, with a revised target price of Bt75.00. This valuation is based on a 64x 2025F PE, aligned with the company’s four-year mean PE. The downward adjustment reflects the expected slower earnings growth and uncertainties affecting gross margins and SG&A-to-sales ratios.

Environmental, Social, and Governance (ESG) Initiatives

Environmental

Delta Electronics is committed to energy-efficient innovations and greener solutions. Its initiatives align with global megatrends like EV charging and renewable energy.

Social

The company fosters an inclusive workplace, emphasizing health, safety, diversity, and social participation.

Governance

Delta strives for systematic transparency to add sustainable value for shareholders.

Disclaimer: This article is based on research conducted by UOB Kay Hian. The content is for informational purposes only and does not constitute investment advice.


Malaysian Property Sector Outlook: Strong Q3 Earnings Expected as Developers Ride Growth Wave

Malaysia Daily: In-Depth Analysis of Key Companies Malaysia Daily: In-Depth Analysis of Key Companies Broker: UOB Kay Hian Date: Wednesday, 6 November 2024 Sector Update: Property – Malaysia 3Q24 Results Preview The property sector...

Genting Singapore’s Gamble: Will 2025 Mark a Comeback?

Renewed Casino License Highlights Challenges Ahead for Resorts World Sentosa Resorts World Sentosa (RWS), the crown jewel of Genting Singapore, is doubling down on its future with the launch of the ambitious RWS 2.0...

CICT Q3 2024 Results: Strong Rental Reversions but Moderation Expected in FY25

Comprehensive Analysis of CapitaLand Integrated Commercial Trust and Peer Comparisons OCBC Investment Research – 5 November 2024 The latest equity research report from OCBC Investment Research provides an in-depth analysis of CapitaLand Integrated Commercial...