Delta Electronics’ Q3 Beats Our Expectations; EVs, Data Centers Drive Long-Term Outlook

We increase our fair value estimate on narrow-moat Delta Electronics to TWD 300, corresponding to 26 times 2023 P/E, after raising 2022-26 revenue and 2022, 2025-26 EPS forecasts upon higher conviction in its fast-growing electric vehicle, or EV, and data center businesses. Delta is undervalued, in our view, as we anticipate the fast-growing businesses to maintain the above-corporate-average growth rates after contributing a larger slice of firmwide sales. Although we are confident in Delta’s long-term growth opportunities, there is some near-term downward revision risk to the stock because PitchBook consensus gross margin is near all-time highs at 29.6%, having not adjusted for potential recession in 2023. We forecast 28% gross margin for 2023.