D&O Green Technologies Posts Wider Loss as Auto Sector Headwinds Persist — BigGo Finance

D&O Green Technologies Bhd, a Malaysian manufacturer of automotive light-emitting diodes, reported a net loss of RM25.64 million for the second quarter ended June 30, 2026, a sharp reversal from the RM689,000 net profit recorded in the same period a year earlier, as softer vehicle demand and inventory writedowns continued to weigh on the group’s performance.

The Penang-based company’s first-half results landed within the expectations of some analysts but fell short of consensus estimates, underscoring the challenges facing automotive component suppliers amid uneven global light vehicle production and persistent cost pressures.

Kenanga Research said revenue rose 2.6% quarter-on-quarter in the April-June period, while gross profit margin improved to 14.6% from 4.9% in the preceding quarter, supported by higher utilisation rates, improved manufacturing efficiency and lower costs. “Looking ahead, a gradual recovery in global light vehicle production, alongside continued execution of the Reset & Remodel programme, could support further improvement in operating performance,” the brokerage noted.

It maintained its earnings forecasts pending an upcoming company briefing and kept a target price of 44 sen, based on 22 times FY27 price-to-earnings ratio. The stock last traded at 38 sen.

For the first half of 2026, core net loss came in at RM19 million, within Kenanga Research’s projection but below street estimates. The core loss figure excluded RM49 million in inventory impairment and assumed a 5% tax rate, broadly in line with historical trends.

On a year-on-year basis, first-half revenue declined 6% to RM457 million, primarily due to softer automotive demand in China and selected European markets, cautious inventory management across the supply chain, and unfavourable foreign exchange translation from a stronger ringgit.

Gross profit margin contracted to 9.8% from 15.7% a year earlier, weighed by lower production loading in the first quarter and non-cash inventory valuation adjustments. Despite reduced operating expenses from cost-control measures, higher inventory impairment of RM61 million and foreign exchange losses of RM11 million pushed the group into a loss before tax of RM93 million, compared with a marginal profit before tax of RM1 million in the prior-year period.

The company continued to execute its Reset & Remodel programme, delivering cumulative operational savings of approximately RM23 million in the first half, alongside manufacturing improvements and broader cost reduction initiatives.

An analyst told StarBiz that the automotive sector will remain competitive amid geopolitical and economic uncertainties. “D&O’s outlook depends heavily on this,” the analyst said, adding that the group’s recovery is gaining traction, with margin rising to 14.6% in the second quarter from 4.9% in the first quarter.

Phillip Capital took a more cautious stance, leaving its 2026 earnings forecast unchanged but cutting 2027 and 2028 core earnings per share projections by 35% to 41%, reflecting a more conservative demand outlook and lower margin assumptions. “We expect 2H26 to remain loss-making, with a gradual recovery anticipated in 2027 as legacy inventory clears and operating leverage improves,” the research house said. “We expect investors to stay on the sidelines until clearer evidence of an earnings turnaround.”

Phillip Capital reiterated a hold rating with a lower 12-month target price of 34 sen, based on an unchanged 0.7 times 2027 price-to-book ratio. Key risks to its rating included ringgit movements, loss of customers, production hiccups, and prolonged weakness in the global car sales market.

D&O Green Technologies has been navigating a difficult operating environment as automakers worldwide grapple with uneven demand recovery, particularly in China where intense price competition and inventory destocking have pressured component suppliers. The company’s Reset & Remodel programme, launched to streamline operations and improve efficiency, has yielded tangible savings but has not yet been sufficient to offset the broader demand and margin headwinds.

The automotive LED segment remains structurally attractive over the long term, driven by increasing adoption of LED lighting in vehicles and the transition toward electric vehicles. However, near-term visibility remains limited as global light vehicle production recovers at an uneven pace across regions.

Separately, Kenanga Research issued an outperform call on Nationgate Holdings Bhd, another Malaysian technology manufacturer, with a higher target price of RM2.14, citing the group’s expanding footprint in optical networking and photonics. Nationgate’s earnings momentum is expected to strengthen from the fourth quarter of FY26 as two newly secured US optical networking programmes commence initial production, followed by a meaningful volume ramp-up through FY27.

The contrasting outlooks for the two tech-linked manufacturers highlight the divergent trajectories within Malaysia’s electronics supply chain, where exposure to fast-growing segments such as optical networking and photonics is commanding premium valuations, while automotive-dependent suppliers face a more protracted recovery path.

Investors will be watching D&O’s upcoming analyst briefing for further clarity on the pace of margin recovery and any updates on customer programmes, as well as signs that the Reset & Remodel initiative can deliver sustained improvements through the second half of 2026 and into 2027.