by ANIS HAZIM / pic by TMR FILE

D&O Green Technologies Bhd’s core earnings of RM73.5 million in its nine-month of 2021 (9M21) were below analyst and consensus full-year expectations, making up only 56.8% and 59.6% respectively. 

Public Investment Bank Research analyst Chong Hoe Leong said that the group’s weaker-than-expected results were affected by its production shut down for 21 days from July to August to curb the Covid-19 spread. 

“Nevertheless, we make no changes to our earnings forecasts as we believe there will be a strong catch-up in the final quarter,” Chong said in a note yesterday. 

The analyst reiterated his ‘Outperform’ call with an unchanged target price of RM6.31 based on 48 times of the financial year of 2022 earnings per share. 

Despite a production shutdown for nearly a month, D&O revenue for the current quarter rose 9.9% year-on-year (YoY) to RM175 million. 

“The group still managed to churn out stronger sales growth for the third quarter 2021 (3Q21) as automotive LED sales were up 10.2% YoY to RM170.7 million, while non-automotive LED sales fell from RM3.9 million to RM3.8 million,” he said in a report recently. 

According to him, all major markets contributed to the group’s stronger automotive LED sales. 

“The Asian market, which accounted for 68.4% of group sales in 3Q21, grew 14% YoY to RM119.4 million. The European market, its second-largest sales contributor, rose 7.8% YoY to RM37.1 million,” he noted.

Its sales contribution from the US market was also up by 3.1% YoY to RM13.1 million. The group has also declared a dividend per share (DPS) of 0.75 sen for the quarter, bringing cumulative DPS to 1.5 sen.

Meanwhile, its core earnings jumped 62.1% to RM20.1 million after stripping out foreign exchange loss of RM2 million and fair value gain on derivatives totalling RM0.3 million. 

The analyst also noted that D&O’s gross margin has risen to 29% from 27.9% as productivity increased with more automation in place. 

“The group’s higher capital expenditure of RM41.6 million was spent on increasing production capacity, improving machine efficiencies and quality control and plant automation. 

“It is worth noting that inventory level has jumped 48.6% YoY to RM266.9 million as it stocks up more input materials to support a stronger orderbook in the near-term,” he added. 

At the same time, management expects a strong sequential rebound in sales orders for the 4Q21 as the expanded capacity has been fully booked and all of its employees have completed two doses of vaccination. 

“Based on our rough estimation, the production shutdown related to the coronavirus spread in July to August 2021 had caused a backlog worth about RM60 million sales and RM7 million profit, which we believe will be recognised in the subsequent quarters,” he further said.