Delta Electronics Thai: Subsidiary defies gravity – the USD55bn valuation anomaly
- 2Q25 net profit fell 30% y/y due to lower gross margin, impacted by a strong THB, higher expenses, and OECD tax
- Topline however surged 18% y/y in USD terms, driven by strong demand in Power Electronics and ICT Infrastructure
- Earnings forecast raised by 8-13% for 2025-2026 to reflect revised revenue guidance in the high teens
- Maintain FULLY VALUED with TP revised to THB88, based on 54x 2025F PE
2Q25 net profit plunged 30% y/y and 16% q/q to THB4.6bn (EPS of THB0.37. This was on the back of
- lower gross profit margin as a result of the strong THB against the greenback,
- 42% surge in R&D expenses,
- forex loss of THB58mn in 2Q25 vs forex gain of THB379mn in 2Q24
- OECD top-up taxes paid starting 1Q25
- patent-related settlement costs in 2Q25
Sales & service income surged 18% y/y to USD1.3bn. Growth was driven by strong momentum in Power Electronics and ICT Infrastructure. Demand continues to be fuelled by AI-related investments, supporting growth in data centers, cloud, and networking. Industrial Automation also maintained its growth path, while Energy Infrastructure (incl. EV charging) saw moderate expansion. However, Telecom power and Mobility remained soft, with the latter still affected by weak global EV demand, especially in the US.
Revenue in THB terms grew 6.5% y/y amidst a strong THB against the USD. Faced with the 10% appreciation of the THB against the USD, DELTA reported topline growth of 6.5% y/y and 4.1% q/q to THB44.5bn.
Gross margin narrowed to 25.0% in 2Q25, down from 26.9% in 2Q24 and 25.6% in 1Q25. Despite revenue growth, gross profit fell 1% y/y to THB11.1bn and margin declined 1.9ppts y/y, pressured by Baht appreciation and a high base from last year’s inventory provision reversal.
SG&A rose 11.3% y/y to THB 6.0bn, mainly due to higher selling expenses tied to newly imposed U.S. reciprocal tariffs, which led to higher export duty costs—recoverable later from customers under existing agreements. The company also booked a provision for doubtful accounts amounting to c THB127mn after identifying credit risk related to a financially distressed customer in the automotive fan segment. Meanwhile, R&D expenses increased 42% y/y from 2.1% to 3.1% of sales & service income in line with DELTA’s strategic push to enhance regional innovation support for global clients.
Operating profit margin also dropped. Operating profit came in at THB5.1bn (-12% y/y, -8% q/q), with margin narrowing to 11.4% (from 13.9% a year ago) due to higher selling expenses (tariffs), increased provisions for doubtful debt in the auto segment, and higher R&D expenses.
Patent-related settlement costs. In 2024, DELTA faced a patent infringement case brought by Vicor Corporation, which led to an investigation by the U.S. International Trade Commission (ITC). The ITC concluded in February 2025 that Vicor’s claim had partial merit. In parallel, Vicor also sued DELTA’s parent company and some of its customers in a U.S. federal court.
To resolve the dispute, the parent company reached a settlement with Vicor, under which DELTA agreed to cover certain payments on behalf of its customers as part of indemnity obligations. The court officially dismissed the case in May 2025, marking a final resolution. While the exact payment amount was not disclosed due to a non-disclosure agreement, the expense was recorded in this quarter. Management does not expect any further financial impact from this dispute.
1H25 net profit totalled THB10bn, down 7% y/y due mainly to the OECD top-up taxes. The Group falls under OECD Pillar Two rules, which takes effect in 2025. It expects to incur top-up tax expenses from its operations in Thailand, where relevant legislation has already been enacted.
Balance sheet remained rock solid. DELTA had a net cash position of THB11.7bn at end-2Q25.
OUTLOOK
Management raises revenue guidance to 15–20%, citing strong demand momentum. Following better-than-expected 1H25 sales and continued robust orders into 2H25, management has upgraded its full-year revenue growth guidance from 10–15% to 15–20%. While near-term challenges from global macro uncertainty and trade tensions persist, management remains optimistic on the outlook for its core segments, supported by structural, AI-driven demand trends.
Tariff risk remains, but negotiations may ease pressure. Thailand currently faces a 36% U.S. import tariff, but final terms are still under negotiation. A successful outcome to bring the tariff down to 19–20%—in line with regional peers—would be positive for exporters including DELTA, preserving Thailand’s competitiveness as a manufacturing base. Notably, the U.S. has linked the conclusion of trade talks to regional stability, with US President Trump recently calling for a ceasefire between Thailand and Cambodia as a condition for finalising trade agreements with either country. Note that USA remains DELTA’s largest market, accounting for about 30% of its total revenue.
Currency remains a key watch point. The recent strength of the Thai baht versus the U.S. dollar presents a margin headwind, as DELTA earns the bulk of its revenue in USD. According to management, a THB1/USD appreciation typically compresses the gross margin by about 1 percentage point, all else being equal.
Earnings forecasts raised by 8%-13% in 2025-26. This reflects stronger-than-expected revenue and gross margin in 1H25 and still buoyant outlook. Based on our revised forecasts, core earnings should grow 7% in 2025F, before rising 19% in 2026F. 1H25 net profit now accounts for 50% of our revised full-year 2025 forecasts.
Recommendation
Maintain FULLY VALUED with a revised TP of THB88. While we acknowledge DELTA's solid fundamentals and positive growth outlook as the company benefits from AI-driven demand for data center power solutions, the current share price appears significantly disconnected from intrinsic value. At a 2025F P/E ratio of 87x, DELTA trades at a substantial premium to its parent company Delta Electronics Taiwan (2308 TT), despite the parent's superior scale, global diversification, and R&D capabilities. Even assuming the company can sustain 15% revenue growth, the current valuation implies earnings growth expectations that appear unrealistic for an industrial manufacturing business facing input cost pressures and competitive dynamics.
Valuation inflated by structural and technical factors. The stock's rise to become Thailand's largest company by market cap has been amplified by structural factors including limited free float and forced index buying, as evidenced by the SET's introduction of a 10% weight cap on major indices. While these technical dynamics may continue supporting the share price in the near term, they create significant downside risk when market sentiment eventually normalizes.
Trade diversion impact priced in. Although Thailand’s relatively favourable U.S. tariff rate (currently 36% vs. 54% for China) could offer DELTA a competitive edge via trade diversion, this benefit is contingent on successful negotiations to bring the US tariffs down from 36% to be in line with regional peers at 19-20%. Importantly, it does not justify DELTA’s valuation exceeding that of its more diversified parent. We believe the potential upside from this supply chain shift is already more than fully reflected in the share price.
Valuation unjustified; risk-reward skewed to the downside. We maintain our FULLY VALUED rating on the stock. Our target price is now THB88, based on 54x P/E, in line with its historical average. This implies 38% downside from current levels, reflecting our view that the AI growth narrative, while valid, is already more than fully priced into the shares.
FY Dec | 2Q2024 | 1Q2025 | 2Q2025 | % chg y/y | % chg q/q |
Revenue | 41,772 | 42,736 | 44,490 | 6.5 | 4.1 |
Cost of Goods Sold | (30,549) | (31,809) | (33,381) | 9.3 | 4.9 |
Gross Profit | 11,223 | 10,927 | 11,109 | (1.0) | 1.7 |
Other Oper. (Exp)/Inc | (5,408) | (5,378) | (6,019) | 11.3 | 11.9 |
Operating Profit | 5,815 | 5,549 | 5,090 | (12.5) | (8.3) |
Other Non Opg (Exp)/Inc | 487 | 239 | 290 | (40.5) | 21.5 |
Associates & JV Inc | 0.0 | 0.0 | 0.0 | nm | nm |
Net Interest (Exp)/Inc | 35.3 | 45.2 | 73.6 | 108.3 | 62.9 |
Exceptional Gain/(Loss) | 379 | 437 | (58.4) | nm | (113.3) |
Pre-tax Profit | 6,717 | 6,271 | 5,395 | (19.7) | (14.0) |
Tax | (153) | (784) | (768) | 401.7 | (2.0) |
Minority Interest | 0.0 | 0.0 | 0.0 | nm | nm |
Net Profit | 6,566 | 5,488 | 4,629 | (29.5) | (15.7) |
Net profit bef Except. | 6,187 | 5,051 | 4,687 | (24.2) | (7.2) |
EBITDA | 7,928 | 7,662 | 7,497 | (5.4) | (2.2) |
Margins (%) |
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Gross Margins | 26.9 | 25.6 | 25.0 |
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Opg Profit Margins | 13.9 | 13.0 | 11.4 |
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Net Profit Margins | 15.7 | 12.8 | 10.4 |
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