• Proposed to acquire another 12.5% to 28% in Dominant

• Earnings impact limited to 1.4%

• Neutral in the near term

• Maintain NEUTRAL and TP of RM0.66

Proposed to acquire another 12.5% to 28% in Dominant. D&O Green Technologies Bhd (D&O) has made a proposal to increase its stake in Dominant Opto Technologies (Dominant). From the current 61.8%, it will be increased by 12.5% to 28%. That will see D&O’s stake in Dominant being increased to 74.3% to 89.8%. The acquisition that is valued at RM275.2m will be fulfilled fully via an issuance of new irredeemable convertible preference shares (ICPS) in D&O for an issue price of 61 sen per ICPS. Dominant is D&O’s main income contributor (more than 90% PBT contribution).

EPS increase is limited to 1.4%. Under the minimum scenario, we expect earnings rise of 20.1% to be largely neutralised by share base increase of 18.5%. Assuming that the deal materialize, D&O FY18F PATAMI is expected to increase to RM32.3m. For the maximum scenario, we expect earnings rise of 45.4% to be largely neutralised by share base increase of 43.2%. Assuming that the deal materialize, D&O FY18F PATAMI is expected to increase to RM39.1m.

Neutral in the near term. Due to the minimal impact on D&O’s future earnings through the acquisition of Dominant, we are neutral on the impact of the exercise in the near term.

Maintain NEUTRAL and TP of RM0.66. We make no changes to our earnings estimates for now pending completion of the acquisition, which is expected in 1QFY18. Our TP of RM0.66 is based on an unchanged PER of 25x pegged on FY18F EPS of 2.6 sen.

Source: MIDF Research - 28 Aug 2017