KUALA LUMPUR (Nov 23): A significant increase in foreign exchange (forex) loss pulled down D&O Green Technologies Bhd’s net profit by 15.3% to RM15.75 million in the third quarter ended Sept 30, 2022 (3QFY22), from RM18.6 million a year earlier.
D&O incurred a higher forex loss to RM17.2 million from RM2 million a year ago, mainly due to unrealised translation loss arising from the group’s US dollar denominated loans, it said in a bourse filing.
It declared a second interim dividend of 0.52 sen per share, payable on Dec 28.
However, D&O achieved a 44.5% revenue growth for the quarter under review to RM252.16 million, from RM174.565 million. The higher revenue was propelled by a 44% growth in its automotive segment revenue to RM245.91 million, from RM170.72 million.
Note that the group’s revenue in the previous corresponding quarter was adversely affected by a total 24-day shutdown in the July-August 2021 period, to contain the spread of the Covid-19 virus.
D&O said that the improvement in its automotive earnings was driven by increased orders for new projects amidst a challenging market condition, coupled with a low-base effect.
D&O noted that its gross profit margin came in lower at 27.4% from 29% previously, amid an increase in minimum wages in May 2022 and the weakening of the China renminbi (RMB) and the euro against the US dollar.
“Profits from operating activities before other income or expenses and finance cost [on the other hand] improved 51.9% to RM40 million,” the group told the bourse.
The lower net profit in 3QFY22 also dragged its net nine-month profit down to RM61.59 million, from RM71.89 million. However, cumulative revenue expanded nearly 25% to RM735.83 million, from RM588.87 million.
Managing the impact of foreign currency volatility
D&O’s management has taken necessary steps to gradually increase its US dollar asset holdings, and has explored banking facilities in different currencies to manage the impact of foreign currency volatility on the group.
Additionally, the group also entered into forward foreign currency contracts to manage its foreign currency exposures. “With these proactive actions, management expects the impact of foreign currency fluctuations to be substantially reduced in 4Q2022 and forward,” it said.
On another note, China’s prolonged zero Covid-19 policy and high built-up inventory levels are expected to moderate short term growth for the group, said D&O.
“Nonetheless, management remains optimistic that the earnings in 4Q2022 will remain healthy. In the longer term, we believe the prospects of automotive LED remain bright and intact, driven primarily by the growth in electric vehicles, and the broadening of automotive LED applications,” D&O explained.
D&O, which is currently trading at a historical price-to-earnings ratio of 58 times, finished at RM3.75 on Wednesday (Nov 23) — down seven sen or 1.83%. This translated into a market capitalisation of RM4.64 billion.
The stock has depreciated almost 37% from RM5.92 on Jan 3.
Source: TheEdge - 24 Nov 2022