So how shall we benefit from this trend other than just buying and changing L.E.D bulbs? Investing in those L.E.D related company is an answer.
L.E.D a trend that no one can resist, hence, it is call a MEGA Trend.
Why? L.E.D. saves electric and having longer life spend which helps to save on ur electric bills as well as your money in pocket. On the other hand, it is more environmental friendly compare to the old technologies.
As a result, we have saw lots of the companies that are related to L.E.D rocket up tremendously.
For an example: IQGroup, Ulicorp, Success, Elsoft, Penta (related) and MMSV (related). As u can see, those mentioned above had moved a lot save for D&O (7204) and Tecfast (0084). Don't know when will Tecfast awake though they have done some corporate exercise recently.
For an example: IQGroup, Ulicorp, Success, Elsoft, Penta (related) and MMSV (related). As u can see, those mentioned above had moved a lot save for D&O (7204) and Tecfast (0084). Don't know when will Tecfast awake though they have done some corporate exercise recently.
So why are we looking at D&O?
1st The price had started to moved recently, but why? Why is it moving? Any good supporting behind?
As we can see, the profit of the company is growing and getting higher. However, is this a one off item that causes the profit to shoot up?
Looking at the note above, now we know 2 key factor that brings growth to the company's profit:
1. The company had shifted their focus from low margin non-automotive towards higher value and margin product. This had increase the efficiency of company by increasing their margin.
2. The company had benefited from the strengthening USD and this have increased their profit margin and boosted their bottom line.
How does this company benefit from USD?
We check back at note A10
Dissecting the Quarter Report
Let's take a look at their Quarter result ended on June 2015 which was announced on 19th August.
Looking at the Income statement, we can't find any other income being stated in it which means the profit of the company are all from operation and not related to 1 off disposal.
So where do this profit come from?
We have to check the notes at section B of the QR to know more about the company, only if they are willing to tell us.
1. The company had shifted their focus from low margin non-automotive towards higher value and margin product. This had increase the efficiency of company by increasing their margin.
2. The company had benefited from the strengthening USD and this have increased their profit margin and boosted their bottom line.
How does this company benefit from USD?
We check back at note A10
As u can see, the company is exporting their products to Europe and USA and that makes up 25% of their Revenue. As a result, the stronger the USD is, the better to the result of the company.
3. After knowing the reason of why the profit shot up then its time to check about the sustainability of the result. How shall we check that? Look at the prospect section by the management in Quarter Report.
The management think that the market is challenging due to economic slowdown, however company is trying to mitigate it by doing cost saving n restructuring to increase the efficiency.
On the other hand, the company will also shift their focus from those low margin product to those high tech product as well as high margin product to increase the profitability and to focus more on automotive industry.
Source: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=187631&name=EA_FR_ATTACHMENTS
As we can see above, there are the parts in car that will need L.E.D which had create lots of demand towards this industry.
This note is very important and it tell us where are the company heading to. Let's take a look at the prospect commentary for the 1st quarter.
In the note for the 1st Q QR, the management had already told us that (highlighted in blue box) the company is having lots of sales order from clients and they are optimistic about the coming quarter reports. As a result, we saw that the company had made more profit than before, hence dissecting Quarter report also very important.
Let me quote 1 of the famous guru 冷眼：书中自有黄金屋！ this mean there are treasure hidden in the book, and yes, the treasure are hidden in the Quarter report and Annual report for investors like us!
Its not the end even after looking at the Quarter Report, we have to see the recent announcement from Bursa Malaysia website too!
What catching our eye is the Share Sale Agreement on 28th September where
TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONS PROPOSED SUBSCRIPTION OF 11,000,000 NEW ORDINARY SHARES OF RM1.00 EACH IN DOMINANT OPTO TECHNOLOGIES SDN BHD ("DOT"), A 68.71%-OWNED SUBSIDIARY OF D & O GREEN TECHNOLOGIES BERHAD ("D&O") BY EPISTAR CORPORATION ("EPISTAR") ("PROPOSED SUBSCRIPTION")
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4878189
This is a deal where D&O will sell 11m new ordinary shares of DOT to EPISTAR Corporation.
To know more about the deal, lets look at the Circular and notes to shareholders that announced on 16 October 2015.
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4894389
We will do some summary here to save your time.
1st
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4894389
We will do some summary here to save your time.
1st
This means Epistar will be paying D&O RM64.845m for 10% DOT's new issued shares.
2nd Who is this Epistar Corp? and what's the benefit of selling this shares to them?
To know more about Epistar, please watch the video below:
You may also visit their website to know more about this company.
http://www.epistar.com.tw/index_en.php
Looking at note 4 and 5, we understand that Epistar is 1 of the supplier for DOT and they are well known where it will be a strategical move to let Epistar join the party so that DOT may leverage on Epistar strength to grow further.
On the other hand, this can help to increase working capital for DOT too.
As a result, we understand that this will be a good move to sell 10% share to Epistar which helps to increase the potential of DOT. This is a strategical move to the company!
3rd After selling, what's the benefit of D&O?
According to note 8.3, the share sales will bring RM31.36m to D&O which will surely boost up the profit of the company by this year.
On the other hand, this will also increase the retained earning and Net asset per shares of the company as well as lowering down the Gearing of the company. These are all a boon to D&O.
4th After selling the 10% stake, will that dilute the profit of the company? So does that mean the profit of D&O will come down?
Our answer is yes and no.
Yes, is because assuming the company has no grow in its profit then it is certain that their profit will be diluted.
However, we can see that the PATAMI of the company is growing. As a result, it doesn't mean that D&O will have lesser profit after selling stake as long as the profit of DOT is growing. By having Epistar to participate in this company strategically, we believe the D&O's profit might grow even more due to the new partner!
5th When will we able to see the profit?
There is an announcement for company on 9th November 2015 which is still hot n spicy.
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4915041
As we can see, D&O had satisfied all the requirement of the SSA and have got RM64.845m in their account now. Kaching Kching!
However, looking at the date of completion which is 9th November, hence we believe the profit of RM31m will not reflect in the 3rd Q QR that will be announcing in November due to the cut off date, however, it will reflect in the 4th Q QR which will be announcing in February.
RISK of D&O
We cant just keep looking at the good things, we will have to look at the risk of the company too. What we found that will risk our position is that the Material Litigation of the company.
The company have got a material litigation issue announce on 5th June, which is :
MELAKA HIGH COURT CIVIL SUIT NO. 22-132-2010 GEEPAR ENTERPRISE SDN BHD (PLAINTIFF) vs DOMINANT OPTO TECHNOLOGIES SDN BHD (DEFENDANT)
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4765893
On 21st September, there is another announcement where the DOT have lose the court case and have to pay compensation to the plaintiff.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/4871969
There are 2 important things in this announcement.
1st DOT had lose this court case and they will have to pay compensation of RM13.45m + RM8.28m, however, D&O had already accrued that RM13.45m in its previous financial report hence we will only see an impact of RM8.28m as a 1 off cost in this coming quarter result.
Warning! This might possibly turn D&O 3rd Q result from positive to negative.
2nd That's not the end of the court case, D&O in turn had Sue the current "plaintiff" back, which we will have to pray hard that DOT will win this coming court case. This might be something good for us.
Source: http://www.bursamalaysia.com/market/listed-companies/company-announcements/4854781
Technical analysis:
Chart wise, we can see that the price is still holding well even its the T4 after the highest volume, which mean those buyers who came in are a strong player that can hold tickets. As a result, the buyers able to hold and not prepare to sell, that's mean new buyers have to buy with a higher price.
We can also see there is a floor at around 0.365, as a result, it will be our floor supporting point and it is also a place for us to decide whether to RUN ROAD alnot. We will RUN ROAD if the price fall belows 0.365 as it had violated the floor supporting.
Summary:
1st : D&O is a rising STAR where we can see it is benefiting from L.E.D MEGA TREND and also benefiting from the automotive industry.
2nd: D&O is benefiting from weak Ringgit
3rd: D&O had sold part of its subsidiary shares to EPISTAR which helps the company to generate one off gain RM31m which we believe will reflect in the 4th Q result.
4th: The risk of D&O is, they will have a 1 of cost for compensating the counter party after losing the court case, the amount is around RM8.38m inclusive of the fee. This might causes weakness to the share price.
5th: DOT is in another court case where this time they are the plaintiff and "sue" those who "sue" them, and we will have to wait and monitor closely the outcome. Let's hope that they can get back the RM8.38m from them.
6th: Technical Analysis looks intact, however we will run road if goes below 0.365
Conclusion:
Though the court case might affect D&O 3rd Q's result and might even make them lose money, however, in long run, this company is still having more potential than the risk of 3rd Q. It is a counter that we can really look into.
May all the HUAT be with us!
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Osram invests €1 billion to build LED chip plant in Kulim
http://www.thesundaily.my/news/1608700
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