D&O’s 1HFY21 core earnings of RM53.3m were broadly in line with our and consensus expectations, making up 41.2% and 43% of full-year numbers, respectively. The steady results were mainly supported by i) higher automotive LED sales volume, ii) improved cost management and iii) lower finance cost. No dividend was declared for the quarter. Despite suffering from temporary shutdown due to Covid-19 cases, we expect to see strong earnings growth for 2H on the back of stronger demand for automotive LEDs. Maintain Outperform call with an unchanged TP of RM5.91.
- 2QFY21 revenue doubled to RM209m. Coming from a low-base effect dragged by the mandatory plant shutdown during MCO 1.0 in 2QFY20, Group sales doubled to RM209m as automotive LED sales jumped 138% YoY to RM204m while non-automotive LED sales rose from RM3.3m to RM4.8m. All major markets contributed to the stronger automotive LED sales. The Asian market, which accounted for 69% of group sales in 2QFY21, doubled to RM145.3m. The European market, its second largest sales contributor, surged 3-fold to RM40.4m. Meanwhile, sales contribution from the US market jumped 5-fold to RM16.8m.
- Core earnings surged to RM26m. Stripping out foreign exchange and fair value gain on derivatives totaling RM0.7m, the Group’s core earnings ballooned to RM26m. 2QFY21 gross margin rose from 24.8% to 30.2% as productivity increased with more automation in place. A higher capex of RM40.9m (1QFY21: RM24.8m) was spent on increasing production capacity, improve machine efficiencies and quality control and plant automation. Oh a separate note, all of its employees have been fully vaccinated to minimize the risk of further Covid-19 spread,
- Electrical Vehicles (EV) to drive global car sales. According to the EV Volumes publication, a total of 2.65m (Figure 4) EV sales were recorded globally during the first half of 2021, a staggering growth of 168% YoY. Because of the low-base effect, growth rates were extraordinary during the first half, reaching 157% in Europe, 197% in China, 166% in US and 95% in the remaining markets. Except for Japan, all major markets posted new records in EV sales and share during the 1H. The market share of electric vehicles (BEV+PHEV) in global light vehicle sales rose from 3% in 1H2020 to 6.3% this year. European region leads with 14% EV share, up from 7% a year ago. Tesla leads global EV sales with 386k units delivered during 1H, followed by the Volkswagen Group with 332k units and General Motors, 227k units. For 2021, it expects sales of 6.4m EVs, a growth of 98% YoY, with battery electric vehicles (BEVs) reaching 4m units and plug-in hybrid electric vehicles (PHEVs), 2.4m units.
Source: PublicInvest Research - 26 Aug 2021