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PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 18 Jan 2021, 11:45 AM

 

D&O Green Technologies - Start Of Growth Momentum

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The current quarter saw a strong catch-up post-Movement Control Order (MCO) as the company reported a core net profit of RM12.4m (+24% YoY, +>100% QoQ) though cumulative 9MFY20 net profit declined 4.6% YoY to RM20.6m however. The results, while only making up 67% of our and consensus full-year expectations are deemed in line. The strong sequential earnings recovery was also boosted by buoyant sales in China and Europe on the back of electric vehicle (EV) car sales and full resumption of auto production. A first interim dividend of 0.65sen was declared for the quarter. Given the improving industry outlook in global markets, we raise our FY20-22 earnings forecasts by 13%, 24% and 33%, respectively. Consequently, we lift our TP from RM1.14 to RM1.88 based on a higher multiple of 40x (previously 30x) FY21 EPS, underpinned by its 2-year earnings CAGR. We maintain our Outperform call

  • 3QFY20 revenue (YoY: +26.3%, QoQ: +78.2%). Compared to 3QFY19, Group sales jumped 26% YoY to RM158m as automotive LED sales grew 28% YoY to RM155m though non-automotive LED sales dipped from RM4.7m to RM3.9m. The robust automotive LED sales were mainly driven by stronger demand for exterior lighting and higher adoption of LEDs on the interior display or known as infotainment. Business wins that had been secured in the past have started to materialize. The Asian market, which accounted for 66% of group sales in 3QFY20, grew 26% YoY to RM105m. The European market, its second largest sales contributor, rose 31% YoY to RM34m while sales contribution from the US was marginally higher at RM12.7m. For the first 9 months, sales from China and Europe grew 9% and 2.3%, respectively.
  • Core earnings grew 24% YoY to RM12.4m. Stripping out the foreign exchange gain of RM2.5m and minority interests, the Group’s core earnings increased from RM10m to RM12.4m. Gross margin improved from 27.3% to 27.9% on the back of higher capacity utilization.
  • Strong car sales recovery seen in China. The Group’s largest sales contributor, by geography, has seen vehicle sales volume surpass prepandemic levels for the last 7 consecutive months. (page 5)
  • Robust outlook. Management expects to end the year with stronger earnings growth and potentially surpass 2019 performance. It has also built up inventory (YoY: +18%) in anticipation of a stronger orderbook in the final quarter. Given the robust demand and the current high capacity utilisation, management has brought forward its capacity expansion plan since June and is expected to add on more capacity in the remaining months. YTD, it has spent RM39m on new production lines, machinery upgrades, plant automation and QC improvement. Full-year capex is expected to hit around RM50m-60m for the upcoming capacity expansion. Meanwhile, the smart RGB LED is expected to hit the mass market next year. This could be a potential game changer for the company in FY22-23. We are expecting a record finish, earnings-wise for FY20.

Source: PublicInvest Research - 25 Nov 2020

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