PETALING JAYA: The slowdown in global automotive production in the near-term could potentially limit D&O Green Technologies Bhd
’s earnings growth.
As such, analysts have cut their earnings estimates and target price for the company following its slower-than-expected recovery.
MIDF Research downgraded its recommendation for D&O to “neutral” from “buy”, with a revised target price of RM2.07 versus RM3.85.
It has also lowered its target price-earnings ratio (PER) to 33.4 times from 40.8 times previously.
D&O posted weak normalised earnings, which were mainly impacted by an unfavourable sales mix, for its third quarter ended Sept 30.
On a cumulative basis, earnings for the nine-month period ended Sept 30, grew by less than 30% year-on-year.
“We view that the pace of earnings recovery was rather tepid, given the low base in financial year 2023 (FY23). While we expect the light-emitting diode (LED) count per vehicle will steadily increase, the near-term slowdown in global automotive production could potentially cap the group’s earnings growth, the research house said.
MIDF Research adjusted its FY24 to FY26 earnings forecasts for the company by 27.8% to 43.9% as it lowered revenue and profit margin assumptions to reflect the change in product mix.
Similarly, Kenanga Research lowered its FY24 and FY25 net profit estimates by 14% and 6% to RM63mil and RM114mil, respectively, reflecting reduced plant utilisation assumptions and adjusted margin expectations.
“Correspondingly, we have reduced our target price to RM2.50 from RM2.64 previously, based on an unchanged targeted FY25 PER of 27 times, in line with its peers’ forward average,” the research house said.
Nevertheless, Kenanga Research maintained its “outperform” call on D&O for its unique exposure in the automotive LED business, penetration into the electric vehicle market and venture into next-generation smart LEDs, which yield higher margins.
It shared that D&O remained optimistic about achieving revenue growth for FY24 despite near-term challenges from weaker consumer sentiment, geopolitical risks and an expected single-digit decline in global car production.
“The long-term outlook for automotive LEDs is robust, driven by their durability, energy efficiency and automakers’ focus on safety and design innovation.
“To capitalise on this, D&O expanded into downstream operations via Dominant Electronics Sdn Bhd (DE), which has secured customer orders for automotive modules, particularly in Europe and the United States,” Kenanga Research added.
It said DE’s positioning and diverse product offerings, such as modules for electric vehicle control units, sunroof controllers, door control modules and remote keyless entry systems, are expected to drive growth amid industry shifts and geopolitical tensions.
