Dominant Co Update

8/19/2019 Dominant Co Update

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Key Statistics

Bloomberg Ticker DOGT MK

Masa Ticker / Stock Code D&O/7204

Shares Issued (m) 987.6Market Capitalisation (RM’m) 321.0

52 Week Hi/Lo Price (RM) 0.43/0.23

Avg Trading Volume (3-mth) 1,1513,027

Est Free Float (m) 462.2

YTD Returns (%) -12.33

Beta (x) 0.27

Major Shareholders (%)

PRT Capital Pte LtdKeen Capital Investments

Omega Riang Sdn Bhd

Dato' Mohd Azlan b Hashim

16.3615.53

11.42

10.91

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est Wing, Level 13,

Berjaya Times Square,

No 1, Jalan Imbi,

55100 Kuala Lumpur

el: (03) 21171888

Fax: (03) 21427678For Internal Circulation Only

KDN PP8927/07/2013(032977)

Technology

22 March 2016

Visit Note

Current Price RM 0.32

Rating Not Rated

Analyst: Brian Yeoh

Email: [email protected]

1-Year Share Price Performance

0.2

0.25

0.3

0.35

0.4

0.45

D&O Green Technologies Bhd

D&O Green Technologies Bhd (D&O) designs, develops and manufactures specification

grade Light Emitting Diodes (LED) lighting fixtures for the use in i) automobiles, ii

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

Investment Strengths

Automotive LED market to reach USD2.5bil by 2018

Worldwide Presence

Established track record

Partial tax exemption until 2017

Investment Risks

Unfavourable currency movements

Unfavourable raw material prices

Tough global competition

Multiple ongoing material litigations

Let there be light!

Table 1: Historical Financial Summary

FYE Dec 2012 2013 2014 2015 2016 (f)

Revenue (m) 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

EPS (sen) -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

PER(x) N/A 315.0 205.6 30.6 23.5

DPS(sen) N/A N/A N/A N/A N/A

ROE (%) -2.14 2.32 2.55 6.56 8.63

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



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Exhibit 1: Corporate Structure

D&O Green Technologies

Bhd

Dominant Opto

Technologies Sdn Bhd

(68.71%)

TongFang Optoelectronic

(HK) Ltd

(25%)

Omega Semiconductor

Sdn Bhd

(100%)

Equity Group Investment

Ltd

(100%)

Dominant Opto

Technologies (Shanghai)

Co. Ltd

(100%)

Dominant Technologies

Sdn Bhd

(54%)

Dominant Opto

Technologies Korea Inc

(68%)

Dominant Semiconductors

Europe GMBH

(100%)

Dominant

Optotechnologies North

America Inc

(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 sub-

contracting 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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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.

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.



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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


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.



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Exhibit 4: Automotive revenue breakdown by country


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 non-

automotive segment also expanded from RM147.5mil to RM156.91mil (+6.4% yoy).

Exhibit 5: Revenue Contribution by Product Group (RM mil)


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.



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Exhibit 6: JHM Consolidation Margins (%)

Source: Inter-Pacific

Exhibit 7: D&O Margins (%)

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.



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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

Ratings System

Ratings: Description:

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

NEUTRAL Total return is expected to be between above –15% to 15% in the next 12 months

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

Abbreviation

Abbreviation Definition Abbreviation Definition

PER Price Earnings Ratio CAGR Compounded Annual Growth Rate

PEG PER to Growth CAPEX Capital Expenditure

EPS Earnings per Share DPS Dividend per Share

FYE Financial Year End ROA Return on Asset

FY Financial Year ROE Return on Equity

CY Calendar Year PBT Profit Before Tax

MoM Month-on-Month PAT Profit After Tax

QoQ Quarter-on-Quarter EV Enterprise Value

YoY Year-on-Year EBIT Earnings Before Interest And TaxYTD Year-to-Date EBITDA EBIT Depreciation &Amortisation

p.a. Per Annum WACC Weighted Average Cost of Capital

DCF Discounted Cash Flow NTA Net Tangible Asset

FCF Free Cash Flow BV Book Value

NAV Net Asset Value

Dominant Co Update

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