This article first appeared in The Edge Financial Daily on June 7, 2018

D&O Green Technologies Bhd
(June 6, 70 sen)
Maintain neutral with a higher target price (TP) of 74 sen: D&O Green Technologies Bhd has provided an update on the outcome of the the civil suit against it.

Note that Dominant Opto Technologies Sdn Bhd (which is a 89.8%-owned subsidiary of D&O) has agreed to pay RM10.16 million to Geepar Enterprise Sdn Bhd to settle the matter. The original judgement was for RM18.96 million but Geepar has offered to settle the matter with Dominant by agreeing to accept RM10.16 million. In return, Dominant agreed not to appeal against the said judgement.

D&O is expected to recognise net gain of RM3.15 million in the second quarter ended June 30, 2018. The net gain is due to lower payment of RM10.16 million as compared with the amount owed to Geepar of RM13.31 million in trade payable as of the end of the financial year ended Dec 31, 2017 (FY17).

We expect minimal problems to D&O’s balance sheet and cash flow as it has cash exceeding RM50 million and net cash of RM13.31 million as of end-March 2018.

We increase our FY18 net profit forecast by 5.9% (or RM3.15 million) to RM43.3 million. However, we maintain our FY19 net profit forecast of RM56.2 million as the impact is one-off.

The higher TP of 74 sen (from 70 sen) is due to an increase in the FY18 earnings forecast. The valuation method is unchanged by using price-earnings ratio (PER) of 25 times pegged at FY18 earnings per share. The 25 times PER is a slight discount to the average PER of global lighting players that average at 27 times.

We maintain our neutral call as the impact of the stronger ringgit year-on-year should keep earnings growth limited. — MIDF Research, June 6