D&O's 4Q profit declines due to inventory impairment, forex and derivative losses

KUALA LUMPUR (Feb 22): D&O Green Technologies Bhd registered a 64.9% decline in its fourth quarter net profit as the semiconductor group was hit by inventory impairment losses, forex losses, derivative losses and the increase in minimum wage.

The net profit for the fourth quarter ended Dec 31, 2022 (4QFY2022) fell to RM13.56 million from RM38.64 million a year earlier, with earnings per share down to 94 sen from RM2.96.

Quarterly revenue dropped by a smaller margin of 4.1% to RM247.2 million from RM257.68 million in 4QFY2021, as sales were affected as a result of China’s prolonged zero Covid-19 policy, the group said in a bourse filing.

“The management reduced production to normalise the group’s inventory holding, and to allow for the high inventory level at the supply chain to unwind resulting capacity underutilisation," said D&O.

Coupled with an increase in minimum wage in May 2022, this led to a 25.6% decline in gross profit to RM56.8 million and a 6.6% decrease in gross margin to 23%.

Despite this, the group said the margin contraction is expected to gradually recover from 2QFY2023 as it plans to progressively increase its production in anticipation of a recovery in China's car sales following the lifting of the zero Covid-19 policy.

For the full year, D&O’s net profit sank 32.01% to RM75.15 million from RM110.53 million in FY2021, despite revenue rising 16.1% to RM983.03 million from RM846.55 million.

The group’s total dividend declared for FY2022 was RM1.30 per share, compared with RM1.50 in the previous year.

“Revenue for the full year increased despite a 1.9% year-on-year decline in global car sales volume. The group’s performance is a testament to D&O’s robust business-win pipeline and rising (light-emitting diodes) LED intensity in newer car designs,” the group said.

It added that it has implemented measures to reduce the impact of the minimum wage increase by minimising overtime expenses, boosting productivity and optimising headcount, from automating and streamlining the production process.

D&O highlighted that it was weighed by RM38.9 million forex loss in FY2022, compared with RM400,000 in FY2021, arising mainly from an unrealised translation loss of US dollar-denominated loans following the sharp devaluation of the ringgit against the greenback.

“To this end, the management has taken the necessary steps to rebalance the group’s currency exposure to better hedge against the impact of future foreign exchange volatility to its operations and balance sheet,” the group added.

Moving forward, D&O said it is well-positioned to capitalise on the forecast of high growth in China’s car sales in 2QFY2023 as well as on the prediction that the automotive market will return to normal growth from 3QFY2023 onwards.

“Barring any unforeseen circumstances, the management is optimistic of achieving double digit revenue growth in 2023,” it said.

D&O’s share price fell five sen to RM4.54 on Wednesday (Feb 22), valuing the group at RM5.62 billion.