DELTA – 3Q26F: Strong recovery; solid outlook

We expect DELTA to report a strong 3Q26 core profit of Bt8.4bn (+32% YoY, +38% QoQ), driven by solid revenue expansion in AI data center-related products, gross margin expansion driven by a favorable product mix, and lower raw material costs. Profitability momentum should accelerate into 4Q26 and 2027 as tight supply constraints ease, ASP hikes take effect, and new production capacity comes online to support structural AI infrastructure growth. Operations were unaffected by recent local flooding. We maintain an OUTPERFORM rating with a mid-2027 target price of Bt352 based on 110x PE, or +2SD of its 5-year historical PE mean.

Expect a significant QoQ recovery and strong YoY growth in 3Q26 core earnings. We expect DELTA to post 3Q26 core earnings of Bt8.4bn, up 32% YoY and 38% QoQ, driven by 1) solid revenue growth of 32% YoY and 8% QoQ on robust demand visibility and a solid order backlog, especially for AI data center-related products across both power electronics and infrastructure business segments, while liquid cooling continues to scale up (though its contribution remains a minor growth driver this year), and 2) a recovery in gross margin to 29% in 3Q26 (3Q25: 28.3%, 2Q26: 26.8%) due to an improved product mix (an increased sales portion of high-margin AI-related products), easing raw material costs, and an absence of inventory provisions. We expect SG&A expenses to remain high at 16.5% of sales in 3Q26 (3Q25: 14.2%, 2Q26: 17.4%) due to higher royalty expenses from the increased revenue contribution of AI-related products developed by DELTA Taiwan.

Core earnings outlook remains promising. We expect DELTA’s core earnings outlook to remain solid in 4Q26 due to 1) continued margin recovery as supply constraints affecting key raw materials from sanctioned vendors have eased since July 2026, which should lower raw material costs from 2Q26 levels despite supply constraints not being fully resolved, 2) DELTA’s negotiations with customers regarding price increases to offset higher raw material costs, which are expected to take effect in 4Q26, and 3) orders for AI data center/infrastructure and liquid cooling products remaining strong for 4Q26 and 2027, with the new Bangpoo plants completed in 3Q26 to support high demand. As a result, we expect DELTA’s 4Q26 core profit to reach a record high level and grow 43% in 2027.

The AI infrastructure upgrade cycle remains structurally robust. We maintain that DELTA will benefit from the shift toward 400/800V DC architectures in AI infrastructure. Furthermore, tightening AI regulations and governance should catalyze computing demand across both pre-deployment testing (e.g., red teaming, alignment tuning) and live inference. This sustained compute load directly amplifies power and infrastructure requirements.

No material impact from the recent flooding in Samut Prakan. Despite flooding in Samut Prakan in September 2026, DELTA’s manufacturing plants in Bangpoo and Wellgrow Industrial Estates were not impacted. Operations were suspended for one day as a precaution before returning to full capacity.

Action/Recommendation. We maintain our OUTPERFORM recommendation with a mid-2027 TP of Bt352 based on 110x PE, or +2SD of its 5-year historical PE mean. We still expect earnings visibility to remain strong over the next few years supported by continued commitments to AI infrastructure spending.

Key risks are a slowdown in the AI data center capex cycle, the automotive industry, and exchange rate volatility. Key ESG risks are labor and supplier management.