INVESTMENT HIGHLIGHTS

• 1QFY18 earnings is deemed within expectation
• Earnings increased marginally by 3%yoy
• Earnings forecast maintained
• Maintain NEUTRAL and TP of RM0.70

1QFY18 earnings is deemed within expectation. Although D&O’s 1QFY18 net profit of RM5.1m makes up only 13% of our full year assumption, we deem the result as within expectation due to the seasonal effect. Note that 1Q earnings are usually weaker due to shorter operating period in China due to the Chinese New Year holidays. We expect earnings to pick up in the remaining quarters (especially in 4Q) as China consumers buy ahead of the Chinese New Year celebration. As expected, no dividend is announced.

Earnings increased marginally by 3%yoy. Although revenue declined slightly by 4.5% yoy (due to stronger Ringgit), cost of sales declined by more by 7.3% during the reporting period. We also think that better cost management and efficiency gains have caused overall earnings to improve yoy.

Earnings forecast maintained. We maintain our FY18 net profit forecast of RM40.9m. We also maintain our FY19 net profit forecast of RM56.2m.

Maintain NEUTRAL with TP of RM0.70. Our TP of RM0.70 is based on an unchanged PER of 25x pegged on FY18F EPS of 2.8 sen. The 25x PER is a slight discount to the average PER of global lighting players that average at 27x. We maintain our NEUTRAL call as the impact of stronger Ringgit yoy should keep the earnings growth limited.

Source: MIDF Research - 24 May 2018