On Monday at 10:05 AM (Bangkok time), the share price of Delta Electronics (Thailand) Public Company Limited (SET: DELTA) slumped by 27.43% or THB 31.00 to THB 82.00, with a trading value of THB 1.91 billion.
Liberator Securities noted in its report, giving DELTA a ‘SELL’ recommendation and revises the appropriate price to THB 71.50.
The adjustment comes after a sharply contracting net profit in the fourth quarter of 2024, down 54% year-on-year and 63% quarter-on-quarter, reaching 2,155 million baht, significantly below expectations. This decline was attributed to increased cost of goods sold, rising expenses, and higher taxes.
The analyst also revised down DELTA’s 2025 earnings forecast by 20%. However, products related to Data centers, Cloud, and AI are expected to continue growing in line with increasing usage, suggesting that DELTA’s sales will maintain an upward trend.
In terms of gross margin outlook, an increase is anticipated year-on-year due to special items last year that inflated costs and reduced the gross margin by approximately 0.6%. Simultaneously, there will be increased administrative and product development expenses as royalty fees from the parent company will now extend beyond AI products to other items, alongside impacts from the Global Minimum Tax (GMT), prompting a new forecast adjustment.
Sales are expected to reach 5,006 million USD, a 9% year-on-year increase, with a revised gross margin of 26% and adjusted SG&A and product development expenses at 15%. The new net profit projection stands at 17,839 million baht, down 6% year-on-year.
While the market has awarded DELTA a premium over its peers due to its Data center and AI products which are growing along Mega Trends, the disappointing financial reports and accelerating expenses, coupled with the potential reduction in shareholding percentage according to the new SET50 index calculation criteria by the stock exchange, contribute to a challenging outlook.
Additionally, with the current share price trading at a P/E25E ratio of 79x, it is deemed excessively high compared to the projected growth increment. Therefore, the analyst gives a “SELL” recommendation to DELTA.
For the financial performance in 2024, the company’s total sales amounted to 1,199 million USD, reflecting a 17% year-on-year increase, but a 2% quarter-on-quarter decline. When converted to Thai baht, this equals 41,062 million baht, showing a 10% year-on-year growth but a 3% quarter-on-quarter decrease.
The gross profit margin declined from 27.5% in 3Q24 to just 22.2%, primarily due to a net increase in costs of 934 million baht stemming from various factors.
- A foreign exchange loss of 13.3 million USD occurred due to cost adjustments made quarterly and currency fluctuations.
- Customer discounts in the Data center segment increased with sales rising, leading to an expense of 6.8 million USD.
- The Magnetic product segment faced production issues, affecting finished products delivered to customers. This resulted in a 16.2 million USD provision for warranties.
- Weak EV sales contributed to a provision for inventory, but 300 million baht was transferred back from inventory provisions.
Excluding these special items would have increased the gross margin by approximately 2.3%.
