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Delta Electronics: What Does a 30% Year-on-Year Revenue Growth Represent?

You may wonder how long Delta Electronics can maintain a 30% year-on-year revenue growth to be considered structurally growing. What risks are revealed by changes in gross profit margins amid this growth? What competitive advantages can be identified through comparisons with peers? And what does a shift towards conservative investment sentiment indicate about market concerns?

Recent Performance Overview

Delta Electronics (Ticker: 2308) recently announced a monthly revenue of NT$20.34 billion for February 2021, showing a month-on-month decline of 19.0%. The company’s operations remain stable, with a focus on power supply-related products, suggesting a solid demand outlook. In the first quarter of 2021, delays in laptop power supply shipments due to component shortages from the previous quarter are expected to impact overall performance.

Market Outlook

Looking ahead to 2021, Delta anticipates significant growth in the electric vehicle sector, although its current revenue contribution from this segment remains relatively low. The primary growth drivers are expected to come from passive components and data centers, which are projected to see a demand increase of 5% to 10% this year. To accommodate this trend, Delta plans to invest over NT$20 billion in capital expenditures, focusing on power supplies, fans, and integrated inductors.

Financial Projections

Overall, Delta’s revenue for 2021 is projected to reach NT$337.79 billion, a year-on-year increase of 19.5%. The after-tax net profit is expected to be NT$40.63 billion, marking a 48.4% year-on-year growth, with earnings per share (EPS) estimated at NT$14.90. Historically, Delta’s price-to-earnings (P/E) ratio has ranged between 12 to 22 times over the past five years. Given its strong operational momentum, maintaining a P/E ratio at the upper end of this range seems reasonable.

Market Trends

The Taiwanese stock market opened lower on Wednesday, influenced by the underperformance of major US indices. However, it quickly rebounded by over 100 points, driven by strength in traditional industries, despite ongoing concerns about the worsening pandemic situation in Taiwan. Among the 29 sectors, traditional industries such as steel, shipping, and electrical products showed strong performance, while electronics struggled.

Delta Electronics: Competitive Positioning

Founded in April 1971, Delta Electronics has become a leading global supplier of switching power supplies and thermal solutions. Initially focused on electronic components and magnetic products, the company has successfully transitioned into system integration, leveraging its innovative technologies to offer optimal solutions tailored to customer needs.

Revenue Breakdown

In 2019, Delta’s revenue was primarily derived from power supplies and components (49.6%) and infrastructure (36.1%). The company holds a strong position in the markets for power supplies, brushless DC fans, and critical miniaturized components. With over a decade of experience in automotive electronics, Delta has already supplied over 800,000 charging stations and has established itself as a key player in the electric vehicle supply chain.

Financial Health Assessment

Delta Electronics has a “normal” financial health assessment based on ten financial indicators, with only one failing to meet standards. The company’s revenue growth index has recently increased due to rising accounts receivable, suggesting the need for ongoing monitoring of collection speeds.

Recent Revenue and Dividend Policy

In February, Delta reported a revenue of NT$20.34 billion, a year-on-year growth of 33.3%. The revenue from power supplies accounted for 59%, infrastructure 27%, and automation 14%. Despite challenges in the supply chain and rising copper prices, Delta’s long-term supply contracts are expected to mitigate significant operational impacts.

Conclusion and Future Outlook

As of March 15, 2021, Delta’s share price of NT$277.5 is considered high. Investors are encouraged to wait for price corrections before entering the market. While the demand for laptops and PCs has surged due to the pandemic, it is expected to decline as conditions normalize, though the growth of data centers and electric vehicles will continue to provide opportunities for Delta.