West Wing, Level 13,

Berjaya Times Square,

No 1, Jalan Imbi,
55100 Kuala Lumpur
Tel: (03) 21171888
Fax: (03) 21427678

For Internal Circulation Only

KDN PP8927/07/2013(032977)

D&O Green Technologies Bhd

Technology

22 March 2016

Let there be light!

Visit Note
D&O Green Technologies Bhd (D&O) designs, develops and manufactures specificationgrade Light Emitting Diodes (LED) lighting fixtures for the use in i) automobiles, ii)

Current Price
Rating

RM 0.32
Not Rated

general lighting and iii) televisions. The company was listed in KLSE since 2004.
Investment Strengths

Key Statistics

Automotive LED market to reach USD2.5bil by 2018

Worldwide Presence

Bloomberg Ticker

DOGT MK

Established track record

Masa Ticker / Stock Code

D&O/7204

Partial tax exemption until 2017

Shares Issued (m)

987.6

Market Capitalisation (RMm)

321.0

Investment Risks

0.43/0.23

Unfavourable currency movements

1,1513,027

Unfavourable raw material prices

Est Free Float (m)

462.2

Tough global competition

YTD Returns (%)

-12.33

Multiple ongoing material litigations

52 Week Hi/Lo Price (RM)

Avg Trading Volume (3-mth)

Beta (x)

0.27

Table 1: Historical Financial Summary

Major Shareholders (%)

FYE Dec

2012

2013

2014

2015

2016 (f)

192.23

328.28

421.32

433.11

480.75

Pretax Profit(m)

-3.55

5.01

6.11

19.12

25.35

Net Profit(m)

-3.78

3.83

4.51

17.56

23.35

-0.6

0.04

0.1

1.04

1.35

Pre-tax Margin (%)

-1.85

1.53

1.45

4.41

5.27

Net Profit Margin (%)

-1.97

1.17

1.07

4.05

4.86

PRT Capital Pte Ltd

16.36

Revenue (m)

Keen Capital Investments

15.53

Omega Riang Sdn Bhd

11.42

Dato' Mohd Azlan b Hashim

10.91

EPS (sen)

1-Year Share Price Performance

PER(x)

N/A

315.0

205.6

30.6

23.5

0.45

DPS(sen)

N/A

N/A

N/A

N/A

N/A

0.4

ROE (%)

-2.14

2.32

2.55

6.56

8.63

0.35

ROA (%)

-1.21

1.14

1.23

4.30

5.19

Net Gearing Ratio (%)

35.01

40.13

34.74

23.03

23.29

BV/Share (sen)

0.18

0.17

0.18

0.27

0.28

Price/Book Ratio(x)

1.77

1.90

1.77

1.17

1.16

0.3
0.25
0.2

Analyst: Brian Yeoh

Email:

brianyeoh@interpac.com.my

Page 1 of 7

Exhibit 1: Corporate Structure

D&O Green Technologies
Bhd

Omega Semiconductor
Sdn Bhd
(100%)

Equity Group Investment

Ltd
(100%)

Dominant Opto
Technologies Sdn Bhd
(68.71%)

Dominant
Optotechnologies North
America Inc
(100%)

Dominant Opto
Technologies (Shanghai)
Co. Ltd
(100%)

Dominant Technologies
Sdn Bhd
(54%)

TongFang Optoelectronic
(HK) Ltd
(25%)

Dominant Opto
Technologies Korea Inc
(68%)

Dominant Semiconductors
Europe GMBH
(100%)

Dominant Semiconductor
(Singapore) Pte. Ltd
(100%)

Dominant Semiconductors
(Lao) Sole Co. Ltd
(100%)

Source: Company, Inter-Pacific

Company Overview
The company started with the formation of Omega in 1993 that performs subcontracting of assembly work of Metal-Can products for STMicroelectronics, Europe's
largest semiconductor chip maker. In 1997, it expanded its services to OEM
manufacturing on a 'captive line' contract basis, successfully exporting its products to
MNCs of foreign markets, as far as the USA, Germany and other parts of Asia. Besides
establishing itself as a quality contract manufacturer for semiconductor devices, D&O
further diversified into assembly of new OEM packages used in the wireless
semiconductor business segment.

As displayed in Exhibit 5, overall sales for D&O come from the automotive segment
which contributes about 65% and the remaining portion is from the general lighting and
backlight unit for televisions. Management notes there is still ample room for growth as
D&O and Osram are the only LED manufacturers that cater for a full product range in
the automotive segment. Moreover, D&O has about ~10% market share in the
automotive interior lighting segment. With competitive pricing, high quality and
continuous in-house product innovation, the company is optimistic of showing results
from its immediate growth plans into the automotive exterior lightning business. As for
the consumer-centric segments, management's direction is looking at options to exit
this business. While financials have improved, it is a highly competitive business with
thinning margins moving forward.
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Currently, the company is operating from its core manufacturing base with an
aggregate built-up area of approximately 20,000 meter square located in the Batu
Berendam Free Trade Zone, Phase III, Melaka. At a 80% utilisation rate, the plant has
an annual production capacity of 2.4mil pieces.
Exhibit 2: Product offerings and applications

Source: Company

Investment Strength
Automotive LED Market to reach USD2.5bil by 2018

In a broader perspective, the

global automotive lighting market is expected to reach USD33.7bil by 2020, registering

a CAGR of 6.7% during 2015-2020 based on a recent report written by Allied Market
Research, a global market research company. LED lighting is expected to constitute
1/3 of the total automotive lighting market (~USD11.2bil), experiencing tremendous
growth fuelled by features such as i) low power consumption, ii) longer life and iii)
compact size of LED lights compared to the conventional lightings. Nevertheless, it
expects halogen lighting technology to remain as the lighting leader due to low-cost
advantages and widespread. This belief is in line with another market report
performed by LEDinside which projects automotive LED market value to reach
USD2.5bil by 2018, an estimated CAGR of 9% between 2014-2018.

Briefly, both industry reports attribute the steady growth in the lighting industry to 1)
demand in aesthetic vehicle, 2) high-efficiency in LED technology advancement
(specifically the H/L beam market) and 3) growing demand in vehicle LED panel
application.
Page 3 of 7

Worldwide Presence

D&O is represented at more than 7 locations globally

(warehouse and sales offices). This ensures the company is always within easy reach
of its customers. Besides having the benefits of Free Trade Zone, D&O's strategically
located headquarters enjoys the easy access of exporting its products with the
Malacca airport being nearby.

Exhibit 3: D&O's global network

Source: Company, Inter-Pacific

Established track record

D&O has more than a decade of experience in the

automotive industry and has successfully established a track record associated with
quality, reliability, technical expertise and service excellence. The high standards of
quality creates customer loyalty and boosts customer satisfaction, which is a
necessary for continuing business patronage.

With more than 2,000 employees

worldwide, D&O's comprehensive in-house skills and expertise not only ensures
quality standards and promptness in delivery of products and services while
minimising reliance on outsources on third party expertise.

Investment Risks
Unfavourable currency movement D&O's revenue and material coss are mainly
quoted in USD. Assuming a 5% weakening of USD occurs, the ~RM1.7mil would affect
bottom line earnings as reported in its Annual Report 2014. The company has small
currency exposures to the Euro and some Taiwan Dollars as well.

Page 4 of 7

Exhibit 4: Automotive revenue breakdown by country

Source: Company, Inter-Pacific

Between 2009-2015, a large proportion of D&O's revenue was contributed by the

automotive segment which accounted for between 55-80% of revenues. Because of
thinning margins resulting from highly price sensitive consumer segment, D&O
changed course, gravitating towards the automotive segment. On a yearly basis, the
automotive segment grew from RM273.9mil to RM276.2mil (+0.9% yoy) and the nonautomotive segment also expanded from RM147.5mil to RM156.91mil (+6.4% yoy).
Exhibit 5: Revenue Contribution by Product Group (RM mil)

Source: Company, Inter-Pacific

In terms of balance sheet, the management is comfortable with the current gearing
levels of 23%, a drop in gearing from previous 30-40% levels. This level is safely within
the range with its closest peer, JHM Consolidated Bhd (FY15 gearing 27%). Although
cash flows exhibit a positive figure, cash flows from operating activities had shown a
negative figure of RM4.4mil due to an increase in inventories and receivables but
fortuitously, cushioned by proceeds from issuance of shares in a subsidiary. This is in
line with the management's plans to conserve cash, and make further improvements
on inventory management and close of monitoring both material and production costs.

Page 5 of 7

Exhibit 6: JHM Consolidation Margins (%)

Exhibit 7: D&O Margins (%)

Source: Inter-Pacific

Commentary
Going forward, the company acknowledges that the overall business environment
will remain challenging in 2016 due to the global slowdown, currency fluctuations
and demand-supply imbalances. Meanwhile, the Automotive segment will continue
to be a notable key growth driver for D&O, underpinned by rising LED adoption in
vehicle lighting/display applications. In addition, it intends to further reduce its
exposure to the consumer-centric segments which is highly price sensitive and as the
company expects slower demand growth and further price erosion. Assuming a 12%
revenue growth is achievable, we project the company's top and bottom line to
reach about RM485mil and RM23mil respectively. Compared to its local peers,
D&O's valuation of about 23.4x estimated earnings for the year ahead may be a tad
rich to justify given a subdued near term outlook for growth in the global vehicle
production levels which indirectly affects demand growth.

In conclusion, while we like the company's high growth environment in the longer
term, we believe current valuations already reflect a certain degree of profitability
even as recent quarters' earnings trends appear favourable. The share price may be
expected to enter a holding pattern, pending earnings playing catch-up to
valuations. If the industry growth can indeed be maintained at its current pace for a
further year, then the potential upside visibility will eventually be restored. We are
keeping the stock under our watch list for the time being.

Page 6 of 7

Ratings System
Ratings:

Description:

BUY
NEUTRAL
SELL

Total return is expected to exceed 15% in the next 12 months

Total return is expected to be between above 15% to 15% in the next 12 months
Total return is expected to be below -15% in the next 12 months

Abbreviation
Abbreviation

Definition

Abbreviation

PER
PEG
EPS
FYE
FY
CY
MoM
QoQ
YoY
YTD
p.a.
DCF
FCF
NAV

Price Earnings Ratio

PER to Growth
Earnings per Share
Financial Year End
Financial Year
Calendar Year
Month-on-Month
Quarter-on-Quarter
Year-on-Year
Year-to-Date
Per Annum
Discounted Cash Flow
Free Cash Flow
Net Asset Value

CAGR
CAPEX
DPS
ROA
ROE
PBT
PAT
EV
EBIT
EBITDA
WACC
NTA
BV

Definition
Compounded Annual Growth Rate
Capital Expenditure
Dividend per Share
Return on Asset
Return on Equity
Profit Before Tax
Profit After Tax
Enterprise Value
Earnings Before Interest And Tax
EBIT Depreciation &Amortisation
Weighted Average Cost of Capital
Net Tangible Asset
Book Value

IMPORTANT: This report has been prepared from sources that are believed to be reliable but we do not hold ourselves responsible for its completeness and accuracy.
All opinions and estimates in this report are subject to change without notice. We do not accept any liability that may arise from the use of information in this report.
Inter-Pacific Research Sdn Bhd and or its associates may from time to time have interest and/or underwriting commitments in the company being reported. This
report is for internal circulation only and the contents or any part thereof cannot be reproduced in any manner whatsoever except with the prior written consent of
Inter-Pacific Research Sdn Bhd.

Published and Printed by:

Inter-Pacific Research Sdn Bhd (449005-X)

West Wing, Level 13,
Berjaya Times Square,
No.1, Jalan Imbi,
55100 Kuala Lumpur
General Line : 03-2117 1888 Fax : 03-2142 7678

Page 7 of 7