by LYDIA NATHAN / graphic by MZUKRI MOHAMAD
D&O Green Technologies Bhd is poised to capture a bigger market share amid structural changes in the global automotive industry towards electrification.
Public Investment Bank Bhd (PublicInvest) analyst Chong Hoe Leong said the automotive LED (light-emitting diode) manufacturer has continued to receive strong orders for its range of automotive LED products from most regional markets.
The analyst said the company’s existing production plant, also known as Plant 1, is expected to be fully utilised by year-end, doubling the capacity volume after three rounds of capacity expansion with the final round coming in the second half of the year.
“Its second plant, Plant A, is undergoing renovation works to cater for Dominant’s module manufacturing facility. The machine installation will take place next year and the capacity is expected to take three years to be fully filled up.
“As it is mainly catered for smart RGB LED production, it will take up more space for machinery as each product has four chips and more wiring connected,” Chong said in a research report yesterday.
The analyst wrote the group also has a third plant in the pipeline that will be located between the first two plants.
He said the eight-storey building will be constructed beginning the end of the first quarter of 2022 (1Q22) and ready by the end of 2024.
PublicInvest reiterated its ‘Outperform’ call on D&O Green Technologies with an unchanged target price of RM5.91.
Chong said most of D&O Green Technologies’s regional offices have seen double-digit increases in the design-in participation for the first four months of this year as more new car models are being rolled out, especially the electric-vehicle (EV) segment.
He stated that the encouraging design-in numbers also reflect the positive sentiment for the sales outlook in the next three years.
“As automakers continue to adopt LED lighting solutions into new car models, the penetration rate of automotive LEDs will continue to see an uptrend,” he said.
The analyst noted that TrendForce has projected that the LED sector would grow 13.7% year-on-year (YoY) to RM11.9 billion this year, headed by the increase in demand for automotive headlights, ambient lighting and display panels.
According to the International Energy Agency, global sales of EVs are expected to register a compound annual growth rate of 26.8% from 2021 to 2030 after registering a 41% growth in 2020, despite a pandemic-hit market that saw a worldwide downturn in car sales by 6%.
In 1Q21, global EV sales surged 140% YoY, bolstered by sales in China of around 500,000 vehicles and 450,000 units in Europe.
“The resilience of EV sales in the face of the Covid-19 pandemic rests on four pillars, namely supportive regulatory frameworks, additional incentives to safeguard EV sales from the economic downturn, an extensive rollout of new EV models and the cost of battery continuing to fall, supported by Europe’s vow to phase out petrol and diesel cars by 2030,” the report stated.
Despite a global shortage of chips causing carmakers to halt production, Chong said D&O Green Technologies was not negatively impacted due to its extensive customer base, the increasing number of LEDs being used and more aggressive rollouts of new car models as carmakers rush towards the EV markets.
“We believe there will be multiple years of encouraging growth for D&O Green Technologies given its sizeable global market share and its leading position in smart LEDs,” he wrote.
D&O Green Technologies shares slumped 1.08% to RM4.58 yesterday, valuing the company RM5.4 billion.