D&O to gain from automotive experiencing surging demand

KUALA LUMPUR: D&O Green Technologies Bhd (D&O) stands to gain from the automotive sector experiencing a surge in demand and the momentum is expected to remain elevated throughout 2021.

The pent-up demand for automobiles being witnessed now is consistent with the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) bullish stance as it has been highlighting the return of automotive demand since the third quarter of current year 2020 (3QCY20).

“Momentum is expected to remain elevated throughout 2021, with electric vehicles (EV) taking the centre stage as one of the key themes for the technology sector this year,” Kenanga Research said.

“China’s car sales have logged seven months of consecutive growth from May till November 2020, thanks to the easing of purchase quota, and subsidies provided by the

Chinese government.

“Interestingly, we noticed a growing preference towards EV as China’s EV sales growth scored a tripledigit growth for the month of October, up 113 per cent year on year (y-o-y), and November (up 137 per cent y-o-y).”

According to Kenanga Research, D&O’s proven capability and quality products have enabled the group to continue securing more business wins despite the pandemic.

The research arm noted that customer’s order forecasts have exceeded two-fold to three-fold beyond current capacity due to surge in demand.

“The group is in the midst of increasing its equipment capacity to meet customer’s demand that is mainly driven by the increased implementation of infotainment systems even in entry level car models as well as a growing demand for its exterior LED, notably the rear combination lamps (RCL).

“In line with the automotive industry practice which has long road maps for new and faceli models, D&O has order forecasts from key customers that extend until 2025.

“To ride the wave of higher LED content growth per vehicle, the group has recently completed its second plant (circa 270,000 square feet) to take on more orders.”

As per Kenanga Research’s check, D&O is running at full capacity, defying the typical seasonality.

Barring any unforeseen circumstances, the research arm believed the group is capable of delivering y-o-y increase for the next five quarters ahead.

“This will be driven by the increasing LED content per vehicle as well as the adoption of the group’s proprietary smart LED in EVs and autonomous vehicles which are still at their infancies, indicating much room for growth.”