Cutting-Edge Cooling Solutions And AI Synergy Drive Sustained Growth And Margins

Key Takeaways

• Delta Electronics' leadership in AI data center power solutions and liquid cooling offers revenue and net margin growth through high-demand, high-margin segments.
  
• Diversifying manufacturing and strategic focus on integrated solutions may stabilize revenue while enhancing operational efficiencies and profit margins.
  Please provide the financial narrative on Delta Electronics, and I'll craft the summary for you.

Catalysts

Provides power and thermal management solutions in Mainland China, the United States, Taiwan, Thailand, and internationally.

• Delta Electronics could benefit from the increasing demand for AI data centers, which require significant power and cooling solutions. This could positively impact revenue as Delta provides power conversion and energy management products critical for these infrastructures.
  
• The company's competitive advantage in liquid cooling system-level products, especially tied with leading hyperscalers, positions it for future growth in high-margin business segments. This could enhance net margins due to the inherent higher margins in system-level solutions compared to components.
  
• A strategic focus on providing integrated power and cooling solutions, particularly for energy-intensive AI applications, could drive future earnings growth due to the high demand for efficient energy management.
  
• The shift towards the production of more sophisticated and integrated cooling solutions could lead to improved operational efficiencies and economies of scale, which may increase the company's overall profit margins.
  
• Potential diversification in manufacturing locations to reduce geopolitical risks and cater to U.S. clients' preferences could stabilize and possibly increase revenue streams by retaining key customers and reducing operational disruptions.

Delta Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delta Electronics's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 9.6% in 3 years time.
• Analysts expect earnings to reach NT$57.3 billion (and earnings per share of NT$21.58) by about November 2027, up from NT$37.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NT$85.5 billion in earnings, and the most bearish expecting NT$49.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.0x on those 2027 earnings, down from 28.0x today. This future PE is greater than the current PE for the TW Electronic industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.5%, as per the Simply Wall St company report.

Delta Electronics Future Earnings Per Share Growth

Risks

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Valuation

• The analysts have a consensus price target of NT$483.0 for Delta Electronics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$525.0, and the most bearish reporting a price target of just NT$352.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be NT$598.4 billion, earnings will come to NT$57.3 billion, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of NT$399.0, the analyst's price target of NT$483.0 is 17.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.