Its share price increased 111% last month on expectation of a very strong 2Q profit. This is the fist time in 25 years that the DELTA share price increased so significantly, with last single month sharp price 54% in January 98. DELTA reported a stellar quarterly profit of 2.2 billion baht – its highest ever quarterly profit following a sudden and sharp rise in demand for its cloud based data products.
The work from home phenomenon caused by the coronavirus outbreak have forced IT product sellers to bulk order data products in anticipation of strong demand. This, combined with the weak baht, DELTA now sells in US dollars and reports back in Thai baht.
Since then, analysts have upgraded profit forecast for 2020 by over 100% with target price per share now between 85 baht and 124 baht.
In my opinion, the fundamentals of the company have not changed so dramatically by just a one quarter operational performance to cause doubling of the value of its business. The sharp rise in demand and margin in the second quarter was unprecedented. However over the next six months, supply for data products will increase and margin will fall. The company has admitted that demand for cloud data products may slow down and may be replaced by demand from the auto industry, as DELTA makes products for EV cars.
Further, its other profit making unit – Delta India – is still struggling with the country’s lockdown measures due to the pandemic. There is a high risk that analysts’ estimates may prove to be overly optimistic – as that has been the case many times in the past. The electronics industry is very volatile and demand supply equation changes each quarter.
I advise extreme caution in holding this stock in the medium term.
