D&O Green Technologies BhdKenneth Leong

Brightening up the scene

• One of the leading light-emitting diodes (LEDs) makers for automotive manufacturers in the world offering high-performance and innovative solutions. Opening of new corporate headquarters and manufacturing facility in 1Q2020 earmarked a new phase of expansion.

• At current price of RM0.77, D&O is trading at forward PE of 19.6x for FY21, which is below the 2Y average PE of 25.5x. Technically, price has experienced a short term symmetrical triangle formation breakout above RM0.745 to target the resistances at RM0.825-RM0.865 with long term target at RM0.925.

Trading Catalyst

• Based in Melaka, D&O Green Technologies Bhd (D&O) is regarded as one of the leading light-emitting diodes (LEDs) makers in the world offering high-performance and innovative solutions to world-renowned automotive manufacturers. We like D&O for the rising usage of LED products that is expected to see global automotive lighting market valued at US$32.8bn in 2018 increasing to US$57.0bn in 2025. Current operations are supported by six regional offices located in Europe, the United States, China, Japan, South Korea and India will be able to provide professional sales and technical support across the globe.

• The opening of new corporate headquarters and manufacturing facility (adjacent to existing facilities) in Batu Berendam Free Trade Zone in Melaka in 1Q2020 earmarked a new phase of expansion to capture the additional future market demand. Although 2QFY20 may see some weakness on the implementation of MCO, production has returned to near pre-Covid19 levels in June 2020 with the group ready to capture the higher car sales from China that grew 4.4% YoY in April 2020.

• At current price of RM0.77, D&O is trading at forward PE 19.6x for FY21, which is below the two-year average of 25.5x; implying potential upside in our view. Meanwhile, D&O has been maintaining a lean balance sheet with a net gearing of 0.1x in 1QFY20.

Technical Outlook

• Technically, share price is on the uptrend phase over the past week after bottoming out in mid-March 2020. Following the recent pullback, price has formed a hammer candle above the daily EMA120 level before rebounding. Price has experienced a short-term symmetrical triangle formation breakout above RM0.745 to target the resistances at RM0.825-RM0.865 with long term target at RM0.925. Support is pegged at RM0.695 and cut loss is located at RM0.69.

Source: Mplus Research - 2 Jul 2020