Highlights

• DELTA reported a net profit of Bt7.76b (+4% yoy, +28% qoq), 14% below our and market expectations, as continued inventory provisions limited margin recovery.
   
• Management guided for very strong sales growth in 4Q26, supported by orders that were not fully delivered during 2Q-3Q26 and no sign of demand slowdown for the next one year.
   
• Inventory provision risks are expected to persist throughout 1Q27, but we remain bullish on sales growth over the next 12 months.
   
• Maintain BUY with a target price of Bt280.00, as we view the valuation overhang from inventory provision uncertainties as an accumulation opportunity, with the current valuation already reflecting weaker margins and a slower margin recovery pace.
   

Analysis

• 3Q26 results: Despite strong sales momentum, earnings missed expectations as another inventory provision limited gross margin recovery. On 27 Oct 26, Delta (Thailand) (DELTA) reported a net profit of Bt7.76b (+4% yoy, +28% qoq), 14% below our estimate and consensus forecasts. Despite strong sales of Bt75.8b (+42% yoy, +16% qoq), broadly in line with expectations, the earnings miss was mainly due to weaker-than-expected gross margin recovery from continued inventory provision. Gross margin came in at 27.3% (vs 26.8% in 2Q26), below expectations of 29.1-29.5%, mainly due to: a) elevated inventory provisions amid persistent raw material shortages and inventory build-up to support existing customer orders, and b) short-term customer demand fluctuations causing inventories to remain at DELTA’s hubs for more than 90 days. As a result, inventory provisions had a negative impact of 2.62ppts on gross margin in 3Q26 (vs 0.55ppts/2.05ppts in 1Q26/2Q26).
   
• Tone was slightly positive: Strong 4Q26 sales momentum expected, but we remain neutral on the pace of gross margin recovery. We are slightly positive on DELTA as management maintained its aggressive 40:60 sales split guidance between 1H26 and 2H26, implying roughly 50% qoq sales growth in 4Q26 (or potential net profit of Bt10b-11b). The expected sales peak is supported by strong demand for power supplies and data centre infrastructure solutions, along with orders from 2Q-3Q26 that have yet to be fully delivered. However, we forecast 4Q26 sales at Bt95.2b (+65% yoy, +26% qoq), reflecting short-term demand fluctuations among major cloud customers amid persistent raw material shortages. Our forecast implies a 42:58 sales split, leaving room for potential upside if management's guidance materialises, while maintaining a cautious gross margin outlook.