Interest in D&O Green Technologies returns, lifting share price

D&O Green Technologies Bhd may see a return of buying interest, having gained from a 45-month low of RM1.98 recently. The counter managed to touch RM2.08 on Sept 9, which was where it was end of 2020.

Fundamentally, D&O has been pretty impressive. It recorded a jump in net profit to RM7.8 million in 2QFY24 from RM700,000 a year earlier, taking 1HFY24’s bottomline to RM19 million from RM1.6 million.

Based on consensus forecasts, the group is expected to post stronger net profit of RM82.1 million in FY2024 and RM142.8 million in FY2025. Driven by higher revenue, its pre-tax result improved from a profit of RM0.75 million a year ago to RM8.63 million in 2QFY24. Valuation-wise, this translates to prospective price earnings ratio of 32x this year and 18.4x next year, respectively.

Despite the decline in global automobile sales of 2% compared to 2Q2023, D&O’s revenue grew 20.8% year-on-year to RM265.63 million, underpinned by a 20.6% growth in the automotive segment. The improvement was mainly due to new design wins, particularly in Smart LED ambient lighting, rear combination lamp, and headlamp applications.

The company said higher capacity utilisation, coupled with better cost management and productivity improvements led to gross margin improvement by 3.4% to 19.6% and gross profit improvement by 46% to RM52.05 million.

However, D&O incurred higher net other expenses of RM7.32 million versus 2Q2023’s RM3.31 million. This was primarily driven by higher amortisation and customer compensation for defects on certain new products shipped at the end of 2022 which has since been rectified.

It is also backed by a positive cash flow of RM46 million from its operating activities for the period ended 30 June 2024 compared with a deficit of RM23 million a year earlier. The cash flow has shown consistent improvement over the past few quarters.

D&O’s balance sheet remains healthy with the net gearing ratio of 28% at 30 June 2024.