INVESTMENT HIGHLIGHTS

• FY17 earnings above expectation
• Earnings for FY17 almost doubled to RM22.4m
• Completed acquisition of Dominant shares
• Maintain NEUTRAL with higher TP of RM0.70

FY17 earnings above expectation. D&O’s FY17 PATAMI of RM22.4m is above our full year estimates of RM19.7m as well as consensus’ RM20.3m. It has also announced an interim dividend of 0.5 sen, bringing full year DPS to 1.0 sen, higher than the 0.6 sen we had anticipated earlier on.

Earnings for FY17 almost doubled to RM22.4m. The huge jump in FY17 net profit is attributed to the 7.7% climb in revenue and improved margins. Notably, its PBT margin has improved by 3.0 ppt yoy due to better operational efficiency and product mix.

4QFY17 net profit up 76% yoy and 3% qoq to RM6.94m. This is its strongest quarter since 2009, supported by 3% qoq growth. Revenue from automotive increased by 20.8%qoq to RM126.9m, representing 96% of its overall revenue as D&O phases out its general lighting segment that commands lower margins.

Completed acquisition of Dominant shares. Following the conclusion of the acquisition of the additional 28% stake in main subsidiary, Dominant Opto Technologies Sdn Bhd (Dominant), from the latter’s shareholders, we have imputed in its earnings contribution from FY18F onwards.

Better margin expected going forward. We have also factored in better profit margin for FY18F in anticipation of sustainable profit margin that is attributed to better product mix and improving operational efficiency. Our GP margin estimates have been adjusted to 26% from 24.7% previously. All in, we expect EPS to increase by 7.7% to 2.8 sen from our previous assumptions. We have also imputed higher dividend payout ratio for FY18F which led to an increase in DPS to 1.3 sen from 0.8 sen previously.

Source: MIDF Research - 22 Feb 2018