It’s incredibly rewarding to have a stock that could potentially grow more than tenfold in a decade. Investors don’t necessarily need all their stock holdings to perform exceptionally well. Having just one or two stocks that can achieve a 10x increase can significantly boost the overall performance of a portfolio, making the risk of stock picking entirely worthwhile.
Such is the case with Delta Electronics (Thailand). Over the past ten years, the stock has soared by 1,464%, inclusive of dividend returns. An initial investment of $10,000 would have ballooned to $146,439. Remarkably, most of these gains occurred post-COVID, indicating that even investors who bought in five years ago would have seen a return of 989%, nearly tenfold, in a much shorter timeframe.
Delta is a blue-chip company and is part of Thailand’s SET 50 index. It operates as a subsidiary of Taiwan-based Delta Electronics. The Thailand unit functions as a regional head office and a manufacturing hub in India and Southeast Asia.
Geographically, Delta’s revenue streams are well diversified, with over half of its revenue coming from the US, Germany, and China collectively. With Thailand and India serving as key manufacturing centers, Delta stands to benefit significantly from the shift in supply chains away from China to these countries.
Delta is renowned for its expertise in power electronics, which include power supplies for computers, servers, office automation equipment, household electric appliances, and automotive electronic products.
As a supplier to Apple, Delta provides adapters, chargers, and power products for iPhones and MacBooks. Apple’s rigorous selection criteria for suppliers underscore Delta’s capabilities and the quality of its offerings.
Furthermore, Delta has established itself as a supplier to Tesla, integrating into the electric vehicle (EV) supply chain with its ability to provide power solutions for EVs and charging stations. This positioning represents a significant growth opportunity for Delta, and the management team deserves recognition for seizing this potential.
Importantly, Delta serves a diverse customer base, with no single customer contributing 10 percent or more to its revenues. This diversification ensures a more stable revenue stream, reducing dependence on a few key clients.
The power electronics segment is a major contributor to Delta’s business, accounting for 82.2% of its revenue and experiencing a year-over-year growth of 32%.
The second key revenue generator for Delta is its Infrastructure segment. This division is involved in the design, manufacture, and installation of information and communication technology (ICT) infrastructure as well as energy system infrastructure. The primary products encompass telecommunications systems, renewable energy, energy storage, and high-power solutions. In 2023, this segment contributed to 15% of Delta’s revenue.
Within this segment, Delta offers comprehensive data center solutions, including power management equipment, server racks, and management systems. This area holds significant growth potential, given the ongoing transition of digital services to the cloud and the escalating adoption of artificial intelligence (AI).
The third segment of Delta’s business is Automation, encompassing both industrial and building automation. This includes everything from manufacturing robots to lighting sensors for buildings. Although this is the smallest segment, contributing just 2.6% to Delta’s revenue in 2023, it demonstrated significant growth, with a year-over-year increase of 27%. This robust growth indicates a promising future for Delta in the automation sector, despite its current small share of the company’s overall revenue.
Delta boasts a commendable track record of growth and profitability. Over the past five years, its revenue has achieved a Compound Annual Growth Rate (CAGR) of 22%. Its Return on Equity (ROE) stood at an impressive 30%, maintaining double-digit percentages in most years. Similarly, its Return on Assets (ROA) is equally notable at 19%. These metrics highlight Delta as a well-managed manufacturing company, capable of capturing growth opportunities and pricing its products and services to achieve considerable margins.
Delta has consistently demonstrated its commitment to rewarding shareholders, distributing dividends every year for the past two decades. This commitment remained steadfast even during the challenges posed by the Covid pandemic, with dividends continuing to flow to shareholders. The company has adopted a dividend policy that commits to paying out at least 30% of its net profits. Given Delta’s robust margins, it is anticipated that the company will continue to deliver dividends to its shareholders for many years to come.
Regarding ownership, Delta Electronics Inc., through its subsidiaries in Singapore and the Netherlands, holds a 63.07% stake in Delta Thailand. Five years ago, this ownership level was approximately 20.93%. However, the parent company aimed to increase its shareholdings and initiated a tender offer, successfully elevating its ownership to the current level. This strategic move indicates the parent company’s recognition of Delta Thailand’s value and potential, as well as how it aligns with its global expansion strategy amidst the shifting dynamics of the supply chain.
Delta Thailand should be regarded as a high-quality growth stock, which typically means the stock will not trade at low multiples. A case in point is its Price-to-Earnings (PE) ratio of 49x, which, despite appearing high, is actually not expensive when compared to its 5-year average of 56x. However, its Price-to-Sales (PS) ratio of 6.2x is slightly above its 5-year average of 5.8x. Additionally, its dividend yield of 0.6% is lower than the average of 1.7%, while its free cash flow yield of 0.2% aligns with the average. These indicators suggest that the stock is fairly valued.
Despite this, Delta’s stock price has experienced a 26% decline from a year ago, likely cooling off after a significant run-up and influenced by Thailand’s weak economic growth and market performance over the past year. However, with Thailand’s economy expected to improve this year, bolstered by increasing tourism and a 500 billion baht stimulus package for the populace, the timing could be opportune to capitalize on the potential market rebound.
The exciting development for investors interested in Delta is that it will not be necessary to purchase Delta stock directly in Thailand. Starting from April 2024, Delta will be accessible through Singapore Depository Receipts (SDR) traded on the Singapore Exchange (SGX). The SDR program, launched in 2023, has already introduced three Thai SDRs for trading on the SGX: CP All, Airports of Thailand, and PTTEP. This offers the significant advantage of trading these stocks in SGD within the familiar SGX ecosystem, utilizing your regular brokerage services.
For those looking to understand how SDRs operate, a detailed explainer is available at https://drwealth.com/guide-to-investing-in-singapore-depository-receipts-sdrs/
Additionally, an upcoming webinar will provide insights into the newly initiated Thai SDRs, including Delta. You can join this session to learn more about these opportunities by registering at https://www.sgxacademy.com/event/webinar-unveiling-new-thai-blue-chips-trading-on-sgx/
This article is sponsored by SGX, the opinions expressed herein are those of the author.
