MIDF Research is upgrading its “BUY” recommendation for D&O Green Technologies Bhd to a revised target price of RM5.85 from RM 4.66 previously.
It says that as the impact of the pandemic dissipates, it will continue to see strong earnings growth primarily from China.
This will be driven by higher adoption of LED, especially the smart RGB LED which is expected to contribute meaningfully to the company’s earnings from FY21 onwards.
It says that it is rolling forward its valuation base year to FY22 and derives a revised target price of RM5.85 (previously RM4.66). This is premised on pegging FY22 EPS of 14.1sen against forwarding PER of 41.5x.
“Our target PER is slightly above the group’s two years forward average of 31.7x.
“The premium valuation is justified as we expect a better earnings outlook given its strategic positioning within the automotive industry,” it says.
The research house says China has extended subsidies and tax breaks for new-energy vehicle purchases by two years until the end of 2022 in the wake of the Covid19 pandemic and on the government’s recent initiative to lower carbon emissions.
Reviewing D&O’s results, MIDF said that 2QFY21 normalised earnings came in at RM26.1milion, an improvement of +1,221.4%yoy. This was premised on higher revenue of RM208.6 million (+134.0%yoy).
The earnings growth was contributed by low base effect and stronger demand for LED products from the automotive segment, especially from China which saw demand rebounded strongly. Similarly, the European market showed a recovery in sales.