INVESTMENT HIGHLIGHTS

• Paying RM10.16m to settle civil suit
• Net gain of RM3.15m in 2QFY18 due to lower amount paid against amount in trade payable
• FY18 earnings forecast increased
• Maintain NEUTRAL with higher TP of RM0.74

Paying RM10.16m to settle civil suit. D&O Green Technologies Berhad (D&O) has provided an update on the outcome of the the civil suit against it. Note that Dominant Opto Technologies Sdn Bhd (Dominant – which is 89.8%-owned subsidiary of D&O) has agreed to pay RM10.16m to Geepar Enterprise Sdn Bhd (Geepar) to settle the matter. The original judgement was for RM18.96m amount but Geepar has offered to settle the matter with Dominant by agreeing to accept RM10.16m. In return, Dominant agreed not to appeal against the said judgement.

Net gain of RM3.15m in 2QFY18 due to lower amount paid against amount in trade payable. D&O is expected to recognise

net gain of RM3.15m in 2QFY18. The net gain is due to lower payment of RM10.16m as compared to the amount owed to Geepar of RM13.31m in trade payable as of end-FY17. We expect minimal problem to D&O balance sheet and cash flow as it has cash exceeding RM50m and net cash of RM13.31m as of end-March 2018.

FY18 earnings forecast increased. We increase our FY18 net profit forecast by 5.9% (or RM3.15m) to RM43.3m. However, we maintain our FY19 net profit forecast of RM56.2m as the impact is one off.

Maintain NEUTRAL with higher TP of RM0.74. The higher TP of RM0.74 (from RM0.70) is due to increase in FY18 earnings forecast. Valuation method is unchanged by using PER of 25x pegged on FY18F EPS. 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 - 6 Jun 2018