DELTA’s downside risks grow despite the rise from strong second-quarter results

In the past three months, stocks in the electronics sector have seen a robust increase in the prices of their shares – up by 127 per cent for DELTA Electronics (Thailand), 45.22 per cent for HANA Microelectronics and 60.61 per cent for KCE Electronics. 

The demand from the work-from-home trend has accelerated flow in cloud-based and computing products amid the coronavirus outbreak that brought most industries downward. 

Stocks in this group have been receiving attention from analysts as they have prospects for improvement over proven first-half strength, but they also expect a slower growth ahead.

According to the analyst covering electronics, the demand for PC and cloud products will drop in the second half of 2020, but the hardware for automobiles and smartphones are expected to surge.

DELTA Electronics

DELTA, one of the rising stars, reported an enormous quarterly profit of 2.2 billion baht, reaching a milestone peak for the business in 25 years.

On Wednesday, its shares closed with a 10.76 per cent increase or at 139 baht per share.

The company outlook for 2020 was upgraded by analysts to over 100 per cent with a target price per share now between 85 baht and 124 baht.

Enquistock stated earlier that the company’s margin will fall while the data products increase in the next six months and the single factor should not drive the shares to be overvalued. 

Meanwhile, analysts from Bualuang securities said that quarterly cloud-related revenue will decline in the second half due to slower cloud CAPEX growth even though various new projects are in the pipeline, such as EV-related products and DC fans.

Another downside risk for DELTA is the worsening outbreak situation in India where its unit is still coping with the city lockdowns and economic recession, said analysts.

DELTA India operation accounted for a mere 12 per cent of total product sales. 

KCE Electronics

Surprisingly, the automotive-related firm KCE has been chosen as the top-tier performer in the Thai electronic market with a strong outlook toward 2020.

The positive sentiment on the automotive industry for the rest of the year will likely lead KCE to pass the bottom in the second quarter and gain profit growth with its cheap valuation at PER of 23x.  

Bualuang analysts believe that KCE is undergoing a bottom-line recovery with a greater scope for profit forecast upgrades than DELTA.

Another electronic firm that will not stand out is HANA as the PC sales will shift downward and it might be outperformed by its competitors such as Xiaomi, Vivo, Oppo and Samsung.

As of Thursday noon, DELTA shares stood at 134 baht per share, a decrease of 5 baht or -3.60 per cent with a transaction value of 260.7 million baht.

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