Delta Electronics (Thailand) Public Company Limited (DELTA) Earnings Call Transcript & Summary

A very good morning to investors. Thank you for joining the earnings call for Delta Electronics Thailand this morning. I'd like to introduce our top management who joined the session today. First of all, Mr. Victor Cheng, Chief Executive Officer; Secondly, Ms. Nipaporn Jiarajareevong, Chief Financial Officer; And my name is Anchalee Jieratham of Investor Relations. [Foreign Language] Without further a do, I would like to pass on to Mr. Victor Cheng to begin the presentation today.

Yes. Good morning. First, I'd like to start with the executive summary. Delta Thailand delivered a strong quarter 2 2026 top line revenue at USD 2,011 million. It's a 50.7% year-over-year growth and 3.4% quarter-over-quarter. Delta's robust operation was supported by broad-based strength in power electronics and ICT infrastructure solutions. While AI momentum remains intact, raw material shortage posted a near-term risk, which disrupt shipment and pressure margin for Q2 '26, leading to a record net profit of USD 186 million, a 33.4% year-over-year growth, but a negative 35% quarter-over-quarter reduction. Geopolitical instability continued to put pressure on energy and logistic costs. Headline inflation remained elevated, but broadly stable compared with Q1 2026. While the growing demand in AI-related industry drove investment in data center and computer infrastructure. The global economy experienced slower growth in Q2 2026 amid persistent energy market pressure and geopolitical uncertainty, while strong investment in AI-related technologies and infrastructure partly offset these headwinds. Delta Thailand's near-term outlook remains positive, supported by continued demand and healthy order pipeline for AI and data center-related solutions. However, inflationary pressures, geopolitical uncertainty, elevated operating costs and supply chain constraints remain key challenges. For the global market outlook, the global economy remains shaped by the Middle East conflict and technological advances IMF's July 2026 update projected 3% growth in 2026 with inflation rising to 4.7% before easing to 3.9% in 2027. Strong AI demand could improve the outlook while commodity price volatility and renewal inflation remain key risks. The IMF July update named Thailand amongst the world's top 4 net export of AI hardware alongside Taiwan, South Korea and Malaysia. Strong AI export and recent fiscal measures are supporting Thai government's broader industrial strategy, which led to the IMF to raise Thailand's 2026 growth forecast to 1.9%. Thailand established the National Semiconductor Board in June of 2026 to produce made in Thailand chips by 2050 and to attract THB 2.5 trillion in investment through infrastructure and skilled workforce development. The initiative aims to strengthen supply chain and Thailand's position as a leading ASEAN manufacturing hub. According to BOT May 2026 report on Business Sentiment Index, Thailand's 3 months, should be July to September, business outlook improved on stronger expectation for investment, production and performance. Now for Delta's business outlook for Thailand region. Industrial Automation in Q2 2026 revenue-wise increased 23% quarter-over-quarter and 29% year-over-year, supported by demand from Thailand and Vietnam, particularly in Thailand's PCB and AI server assembly sectors. Energy infrastructure delivered a stable performance quarter-over-quarter, while first-half revenue rose significantly by 121% year-over-year. Growth was supported by improved project execution and demand for integrated energy solution that enhanced grid resilience and renewable energy integration. Data Center showed a strong growth with Q2 2026 revenue rising 79% quarter-over-quarter. However, revenue remained slightly lower year-over-year due to major customer projects being postponed to the second half of 2026. The revenue pipeline remains healthy. For India, India's recorded slight revenue growth in Q2 2026 with 2.5% Q-over-Q and 5% year-over-year, supported by order wins across key business segments, particularly Data Center, Energy Infrastructure and Industrial Automation. Key contribution include the data center and telecom infrastructure and solar inverters. Performance remained resilient despite challenges such as pricing pressure, currency volatility and battery supply constraints. For Sea region and Australia New Zealand. Australia business delivered strong performance in Q2 2026 with overall revenue increasing by 144% quarter-over-quarter and 287% year-over-year. Growth was driven by the ICD business, which recorded 144% quarter-over-quarter and 301% year-over-year in revenue growth, supported by strong demand for AI cooling products amid the continued expansion of Australia's data center industry. The energy infrastructure business recorded significant growth of close to 500% Q-over-Q and 266% year-over-year, driven by demand for microgrid solution and reliable, scalable power infrastructure to support expansion. For European region, Industrial & Medical recorded growth in Q2 2026 with revenue up 9.7% Q-over-Q and year-over-year remaining stable. There were also material supply challenges observed due to AI industry demand. The business outlook remains positive for the near term. Automotive business revenue was slightly lower quarter-over-quarter, while European battery-based EV and hybrid EV production and onboard power supply demand across the entire EV types and OEM remained stable. Government incentive and charging infrastructure continue to support EV demand, while the development of new onboard power unit for major German OEMs remain on schedule. For some of the award recognition, Delta Electronics Thailand has been included in the S&P Global Sustainability Yearbook 2026 as a Sustainability Yearbook member in the Electronic Equipment, Instrument & Component industry. The recognition is based on its relative performance in S&P Global 2025 Corporate Sustainability Assessment or CSA Score, and marks the company's 11th consecutive year of inclusion in the yearbook since 2016. Delta Electronics Thailand has been recognized in the 2026 Asia Executive Team Survey by Extel, formerly Institute Investor Research for its outstanding corporate government standard for Investor Relations performance across financial disclosure, service and communication. The Company achieved the #1 rank in the Best IR Professional category on a buy-side basis in the Thailand country rankings. Delta Electronics Thailand has been included in the Dow Jones Best-in-Class Indices. This is formerly known as Dow Jones Sustainability Index for the fifth consecutive year since 2021. The recognition followed Delta Thailand's continued progress in sustainability, including its net zero greenhouse gas emission target across the value chain by 2050. On the operations side, for sustainable development, Delta Electronics Thailand opened the Industrial Automation Training Center on 19th June 2026 to prepare vocation students -- vocational students for careers in future industries and strengthen Thailand's future industrial workforce. Delta signed MOU with Office of the Vocational Education Commissions to strengthen collaboration in vocational education and align skill development with industry needs. Training center serves as a learning hub for high -- higher vocational certificate students nationwide with hands-on training from Delta Expert and exposure to industrial technology early on. Initiative helped align vocational training with industry needs supported a skilled workforce and sustainable industrial development in Thailand. On some of the business aspects, Delta Electronics opened a new R&D center in Soest , Germany on May 5, 2026, to strengthen its localized innovation and product development capability across EMEA region. R&D center support the development of advanced power solution for AI and high-performance computing data center as well as electric mobility applications. We expanded local R&D capability, accelerate product development, strengthen customer collaboration and support scalable solutions and long-term business growth in the EMEA region. On the production side, Delta Thailand delivered strong production performance in Q2 2026 with production value increasing by 59% year-over-year. Performance was supported by ramp-up of automated production lines and lean improvement initiatives, which expand manufacturing capacity and ensure quality excellence. Delta India's production performance in Q2 2026 was slightly below budget. The Rudrapur and Gurugram sites maintained healthy performance, outperforming budget by close to 11%, partially offsetting a shortfall at our Krishnaagiri site, financial highlights.

[Foreign Language]

The first question has 3 portions. First of all, what is the business outlook for the third quarter of this year in comparison with last quarter and the same quarter of last year? Second portion is about the full year target for 2026 in terms of the revenue. And lastly, what is the pressure that result in our profitability dropping for the second quarter?

We continue to see a healthy business pipeline. And I mean, the orders for the remainder of the year, especially from AI and the Data Center segments. So I would say on the revenue side, we'll aim for our double-digit revenue growth without any issues. That's our first and foremost priority target to make this sales growth. In terms of actual target, we do not disclose those numbers as to indicate the trend that is still strong and healthy. For the factor that reduced the profit percentage in Q2, the main reason here is that raw material price has started to rise since beginning of the year. We've seen the IC fabrication costs going up and then the DRAM price has gone up substantially. And this trend has percolated to other segments, PCB, Power MOSFET, MLCC, some of these precision acid components, metal parts, even chemical raw materials. So because of the demand -- strong demand for AI that sort of have a how do you say, the effect to pressure the supply chain for priority to supply to AI and data center, the other segments of the supply becomes tight and therefore, created a price increased pressure. And also the conflict in Middle East certainly has increased raw material price pressure, especially petroleum-based raw material and derivatives. So these factors add up to our cost pressures, and we are working closely with our customers to try to negotiate price increase as well. Now typically, we have annual price negotiation with our suppliers and customers. So this will happen in Q4. But we don't see the pressure continually too much in Q3. But for Q4, definitely, it's the start of the negotiation cycle, which we will see some, probably some effect more clearly by that time. And the other factor is the inventory provision. Some of our inventory experienced some slowdown to our end customer due to various reasons. And because revenue price increases quite substantially, any slowdown in customer taking inventory will result in some inventory provisions. But we see that effect should improve in Q3 of this year or latest beginning of Q4. That's the major reasons.

[Foreign Language] Could you please be more specific what are the raw materials that are constrained this upcoming quarters?

Yes. The semiconductor is one of the major items as we face still the strong demand from various customers in short lead time to increase orders. So semiconductor is the #1 raw material that we are facing constraint. As a matter of fact, we already see vendors coming to us and demand price increase on some of the MOSFET. We're also affected by a sudden sanction actions from U.S. or from European regions to Chinese suppliers. Last year, we have faced the next barrier issues, which is between U.S., Netherlands and China. And this year, in April, we suddenly faced the sanction of European countries against Chinese semiconductor company, Yanxi, and the order took effect almost immediately, which caught us by surprise, and then we were constrained to find a second source quickly in order to make the shipment. And this did affect some of the AI and Data Center customer deliveries because we could not use a particular type -- particular diodes and semiconductor from Yanxi to fulfill deliveries. Although the situation has eased toward Q3 now, but this still has a lingering effect. And the other item quite obvious right now is PCB, all the PCB raw material are rising. So PCB vendors are also coming to their customers to demand price increase or face shortages.

[Foreign Language] Please explain on pricing strategy. How do you plan to raise price to offset the increased raw material costs? When should we expect the gross profit margin to normalize?

Yes. Like I previously said, normally, we have annual price negotiation with vendors as well as customers because we have already faced some material price increase. So we are discussing with our customers to increase our price to them. This will be probably a lengthy process as nobody is that easy or willing to accept price increase. So we expect that discussion and activity going all the way to Q4 into our annual price negotiation period with the customer. But we do believe that we have very justifiable causes to ask for a price increase. It's just with various customers will take different length of time to achieve that goal.

[Foreign Language] Increase in trade receivable as well as inventory. Any reasons behind this? And what would Q3 look like?

Yes. I think the trade receivables will increase with the increased business level. So that is a normal situation, I would say. We don't see too much of nonperforming receivables. So that's not a risk in itself. But I do mean we have to do a better job to get our receivable back. As for inventory, also, we are preparing for the increase in revenue constantly into Q3 and Q4. So the level of inventory is also seeing a rise, and that's normal to prepare for the increased revenue as we usually have some buffer time that we get these material in-house before we start manufacturing.

[Foreign Language] Has the company been affected by the latest U.S. trade tariffs? And how is the company managing this impact?

Yes, the current latest trade tariff is at 12.5% and it's equivalent to most of the country in the regions anyway. So we don't see that as a disadvantage in terms of Thailand's overall competitiveness. And as we have done in the past, most of the tariff costs are shouldered by our customers anyway. So this is not -- this does not represent much material impact to Delta.

[Foreign Language] Next one is the effective tax rate. What will be the numbers going forward for the company? It looks like it is trending upwards. So what level are we should be looking for?

[Foreign Language]