D&O Green Technologies Bhd started attracting interest during the first Movement Control Order in March 2020, when fears of the Covid-19 pandemic spread globally.
The spike in interest was due mainly to investors who were scouting around for stocks along the supply chain of electric vehicles (EVs), and this Melaka-based company that makes LED products for the automotive industry fitted the bill.
The counter, which had been trading below RM1 for a long time, soared from a low of 45 sen on March 25, 2020, to a record high of RM6.15 on Sept 23, 2021. It closed at RM5.85 on Dec 8, which puts the market value of the automotive smart LED player at RM7.05 billion.
The steep rise in its share price is justified, judging from its earnings performance.
Its profit after tax (PAT) stood at RM22.4 million in the financial year ended Dec 31, 2017 (FY2017), and more than doubled to RM49.7 million in FY2020.
With an impressive three-year PAT compound annual growth rate (CAGR) of 30.4%, D&O is this year’s Billion Ringgit Club joint winner for the technology sector in the category of Highest Growth in PAT over Three Years.
Its revenue rose steadily during The Edge BRC’s review period between 2018 and 2020. From RM463.34 million in FY2017, it climbed to RM490.7 million in FY2018 and RM504.3 million in FY2019. It hit a record high of RM575.7 million in FY2020.
Its managing director Tay Kheng Chiong once told The Edge in a November 2020 interview that the industry has a lot of growth potential, given how automakers are changing from internal combustion engines to hybrid EVs and, eventually, autonomous vehicles.
With more advanced and complex technology involved in the automotive industry, more LEDs and sensors will be required in a vehicle. This implies more orders for D&O, auguring bright prospects for the company.
In its 2020 annual report, D&O highlighted that the global car industry took a beating from supply chain disruptions and closure of assembly plants while global demand for automotives waned.
Nevertheless, it believed the worst was over, as global vaccination programmes were underway (the annual report was published in the second quarter of 2021), and there had been signs of steady improvements in the global economy, putting the demand for automotives on a recovery path.
D&O cited a report by IHS Markit that EV sales volume reached 2½ million units in 2020, about 3% of total car sales volume.
“With continuous favourable government policies and support, the share of EV sales is expected to expand rapidly to 10% and 16% by 2025 and 2030 respectively,” said the company.
It also cited another forecast by MarketsandMarketsTM, which expects the global automotive lighting market to grow from US$27 billion in 2020 to US$34.9 billion by 2025, representing a 5.3% CAGR during the forecast period.
D&O believes it is well positioned to benefit from the trend. To remain ahead of the curve, the company will continue to focus its resources in developing innovative products to meet changing customer demands and requirements, it says.
A Sept 10 report by PublicInvest Research said the D&O management had indicated that the automotive LED industry was at the start of an explosive growth momentum over the next five years.
“We believe the higher adoption of automotive LED, coupled with the structural shift from combustion engine to electric battery, will bring multiple growth for the automotive LED makers in the next five years,” the research house said.
It pegged a 12-month target price of RM6.31 for D&O, with an “outperform” call on the stock amid anticipation of multi-year earnings growth prospects.