MIDF Research feels "reaffirmed" about D&O's outlook

NST Mon, Jan 23, 2023 11:22am - 1 year View Original


KUALA LUMPUR: MIDF Research is feeling "reaffirmed" on the outlook of D&O Green Technologies Bhd following a recent visit, but it has not made any changes to its earnings forecast.

MIDF Research said the growing application of LED in automotive lightlings was among the reasons that would support D&O.

"The future trend of automotive displays will be full-m huwidth displays on the dashboard.

"According to the management, the new full-width displays trend will require almost 15 times (about 1,000 LEDs) compared to the current small single displays in a car that usually comprises 60-80 LEDs," it said. 

While edge-lit displays remain to be the most common displays seen in cars, technology innovation has allowed direct-lit displays to penetrate the market. 

This would then require more LED installations, MIDF Research said.

"Looking at these emerging adoptions, we are reaffirmed that D&O bode well to capture the growing LED applications."

it said the D&O management had stated that even though the smart LED sales was minimal to the company's topline, the production of smart LED was expected to grow rapidly and contribute around 10 per cent to its revenue this year. 

"This is well supported by the increasing average selling price as well as higher production of smart LED in Plant 1 since the second quarter of 2022.

"We believe these two factors will help to improve margins than the current levels," added MIDF Research. 

Being an original brand manufacturer (OBM) has allowed D&O to retain its position as a top five world LED manufacturer despite only operating one plant.

According to the management, Plant 2 is underway to be fully utilised in 2025. 

Apart from that, being an OBM also allows the company to have a wide customer base to a level where no single customer accounts for more than 10 per cent of its revenue. 

"According to the management, 70-80 per cent of the company's revenue is derived from their top 30 customers. 

"We are positive on this as it mitigates the risk of customer concentration," said MIDF Research.

Post visit, MIDF Research made no changes to its earnings forecast.

It reaffirmed a "Buy" call on D&O with a higher target price of RM5.10.

"The premium valuation is justified on the back of robust outlook on the company primarily on the increasing adoption of LED in future automotive designs especially for the electric vehicles (EV). 

"Apart from that, shorter design in or design win process for EV cars help the growth of the company as well. 

"We also like its current positioning as OBM as it helps to retain their quality control on the products as well as increase their customer base."

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