D & O Green Technologies suspended, plans acquisition

KUALA LUMPUR: Trading in the securities of D&O Green Technologies Bhd (D&O) has been voluntarily suspended on Thursday.

The company, which manufactures and markets light emitting diode (LED) products under the brand Dominant, said it plans to make an announcement on a material acquisition.
Its last traded price was 60.5 sen.

MIDF Research had initiated coverage of D&O with a Neutral outlook and target price of 66 sen.

“This is based on price-to-earnings ratio (PER) of 25 times pegged on FY18F EPS of 2.6 sen.

“The 25 times PER is a slight discount to the average PER of global lighting players such as Phillips and Osram, which stands at 27 times,” it said.

MIDF Research said D&O’s current plant utilisation rate has increased to 70% to 80% from 60% to 70% in the previous quarter, indicating that the company is getting busier in fulfilling customers’ orders.

“It has also acquired a new plant earlier this year that will allow the company to double the current production capacity upon completion in 2023,” it said.

The research house also said D&O’s  margins should improve as automotive segment contributes more.
 
In the past three years, the company decided to pare down its general lighting sales to focus more on automotive lighting. General lighting segment accounted for 50% of sales in 2014 and has since been reduced to less than 10% now. 

Inversely, automotive lighting is main income contributor. Since then, its gross profit margin has also improved from 15% in FY14 to 25% as at 1Q17.  

“From FY15 to FY18F, D&O’s net profit CAGR is expected at 40%. We expect profit after tax to grow by 74% in FY17F and another 37% in FY18F as the company continues to fulfil orders from its customers. 

“This is also helped by the higher margins from automotive LED lighting. Growth in demand will come from the wider application of LED and the overall growth in the automotive industry.

“However, much of the near-term positives have been priced in. While we like D&O’s growth catalysts, we believe that its current valuation is considerably high as its share price has more than doubled year-to-date. 

“We reckon that the company will only experience another high growth from FY19 onwards,” it said.