D&O Green Technologies Bhd, which bet big on automotive LEDs (light emitting diodes) ahead of its competitors, has not only brightened the road for drivers but its stellar share price performance has also lit up the eyes of investors over the past three years.
Its share price rocketed from 69 sen on March 31, 2019, to an all-time high of RM5.97 in September last year before retreating to RM4.50 on March 31 this year.
For the three-year review period between March 31, 2019, and March 31, 2022, D&O’s share price leapt 6.5 times, with a compound annual growth rate of 88.3%.
The strong rally won it The Edge Billion Ringgit Club award for highest total returns over three years among the technology companies listed on Bursa Malaysia with market capitalisation above RM1 billion.
D&O was just at the right position to ride the rally, which was buoyed by the influx of investment money into equities as a result of the easy monetary policy adopted globally during the Covid-19 pandemic.
The company is considered a good proxy to the electric vehicle (EV) sector and ESG-theme plays — two sectors that investors have poured plenty of money into.
The growing demand for EVs, which typically have a higher LED density, augurs well for D&O’s products, which are all qualified in accordance with the automotive qualification, AEC-Q102.
Against this backdrop, D&O indeed delivered solid sets of earnings, as anticipated by the market.
While the company’s profit after tax (PAT) dropped to RM39 million in the financial year ended Dec 31, 2019 (FY2019) from RM42.2 million in FY2018, it returned to the earnings growth path in the following two years.
Its PAT increased 42% to RM55.37 million in FY2020 from RM39 million in FY2019. When its growth pace picked up substantially in FY2021, PAT exceeded the RM100 million-mark to reach a record high of RM110.53 million.
The group’s revenue has been growing steadily over the past few years, jumping 47% to RM846.55 million in FY2021 — the highest ever level — from RM575.78 million in FY2020 and RM504.31 million in FY2019.
In line with the strong earnings growth, D&O also declared higher dividends. The board declared a dividend of 1.5 sen per share in FY2021, up from 0.65 sen in FY2020 and one sen in FY2019.
D&O’s core subsidiary is Dominant Opto Technologies Sdn Bhd, a leading LED manufacturer that caters for global automotive makers. Only a handful of automotive LED manufacturers globally offer a full range of colour spectrum and brightness intensity, catering for both interior and exterior applications.
The core unit was established in 2000 when EVs were still more of a concept rather than a reality. Its manufacturing plant is in the Batu Berendam Free Trade Zone in Melaka.
To further strengthen the group’s position as a leading player in the global automotive LED industry and develop a one-stop smart-solution LED supply chain platform for automotive customers, the group in 2018 and 2019 established two complementary business units, with the first focusing on the design and manufacture of LED modules, and the second focusing on the design and development of integrated circuits (IC).
In a Sept 26 report, PublicInvest Research remains upbeat on D&O’s outlook in 2HFY2022 due to the group’s increasing capacity expansion and the higher adoption of LED usage as infotainment features gain popularity for new car models.
The research house, which has an “outperform” recommendation and RM5.16 target price on D&O, also notes that one of the leading global automotive LED makers has been scaling down its operations, potentially giving other industry players a bigger market share.
PublicInvest says management is also taking measures to reduce its borrowing exposure to the US dollar, while increasing cash holding in the greenback to mitigate the impact of foreign exchange fluctuations going forward.