Delta Electronics Thai: Robust growth ahead for AI-related products
Outlook
Robust growth for AI-related products
Management still targets 10-20% revenue growth in 2024-25. 9M24 revenue grew 10% y/y to USD3,404mn. We expect stronger revenue growth in 4Q24 due to the low-base effect in 4Q23. We are assuming 15% revenue growth for this year and 18% growth for next year. Growth should be boosted mainly by the Power Electronics Group, thanks to the strong demand for high performance power solutions to support the AI technology.
Net profit to continue to reach new highs. DELTA saw revenue and net profit hitting a record high in 2023, thanks to the strong jump in EV power sales. Looking forward, we expect core earnings to surge 26% y/y to mark a new high this year, amidst the robust growth outlook for AI-related products.
2025 earnings subject to OECD’s global minimum tax rate of 15%. As for 2025, earnings should continue to grow, albeit at a slower rate of 2%, as we factor in a 15% effective tax rate to be in line with the OECD’s Pillar 2 on global minimum tax rate of 15%. Note that DELTA always receives BOI promotional privileges, and the company’s tax rate therefore has been in the range of 2-6%.
To alleviate the impact on companies subject to this top-up tax, the board of investment (BoI) has proposed to inject the top-up tax into the National Competitive Enhancement Fund. The fund can then provide some tax rebate to these companies in the form of support for their R&D expenses.
Key changes in assumptions. We lifted earnings by 1% in 2024F. This reflects our revised assumption on gross profit margin following the stronger-than-expected gross margin in 3Q24.
Recommendation
Maintain HOLD with a higher TP of THB125. This is based on a 2025 PE of 68x (+1.0SD of its historical average). While we like DELTA for its strong manufacturing capability, ongoing innovation in cutting-edge technologies to stay competitive globally, products that align with industry trends such as AI and EV, a solid balance sheet with net cash position, the current share price offers limited upside to our TP. We therefore maintain HOLD rating on the stock.
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