Delta Electronics Thailand PCL (DELTA): 3QFY17 profit 12% below forecasts due to higher expenses October 25, 2017

3QFY17 profit up 0.3% y‐y and 67.2% q‐q to Bt1,409mn: DELTA fell short of our profit estimates for 3FY17 by 12%, largely blaming a 35% y‐y surge in R&D expenses and a 12% q‐q rise in research expenses for new products notably in auto segment. Total sales rose 6% y‐y to Bt12,148mn driven chiefly by higher sales from power supply and auto segments. GPM dropped from 26.5% in 3QFY16 to 25.5% in 3QFY17 due to increased provisions for obsolete inventory. In this period, DELTA also recorded ex‐items of Bt21mn as a result of loss from divestment of a subsidiary and tax assessment expenses.

FY17‐18 profit outlook likely to be cut: We are likely to cut our FY17 profit outlook for DELTA on views that (i) its performance in 9MFY17 accounts for only 69% of our previous profit forecasts, (ii) bottom‐line growth in 4Q will be softer due to ex‐items, and (iii) sales will drop during the year‐end long holidays. We may also slash our FY18 profit forecasts because of the higher‐than‐expected R&D expenses.

‘NEUTRAL’ rating intact: We still rate ‘NEUTRAL’ on DELTA shares to reflect its lower‐than‐expected profit. We will place the target price under review after the Analyst Meeting today.

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