The first quarter of 2025 has just concluded, and companies are rolling out their performance reports. Today, we’re diving into D & O Green Technologies Berhad’s (D&O) latest unaudited interim financial statements for Q1 2025. While the headline figures might raise an eyebrow, a closer look reveals a strategic response to market headwinds and a clear path forward.
D&O, a prominent player in the semiconductor industry, particularly in automotive LED lighting, faced a challenging quarter. The report indicates a significant dip in profitability compared to the same period last year. However, it also highlights the Group’s proactive measures in cost optimisation and strategic investments, aiming for long-term resilience and growth. Let’s break down the numbers and the story behind them.
Core Data Highlights: Navigating a Challenging Quarter
D&O’s first quarter of 2025 saw a dip in revenue and profitability, largely in line with industry trends and seasonal factors. The decline was mainly attributable to moderation in customer orders, a direct result of lower vehicle production volumes among key automotive clients.
Year-on-Year Performance (Q1 2025 vs. Q1 2024)
Q1 2025
Revenue: RM240.82 million
Gross Profit: RM38.08 million
Gross Margin: 15.8%
Profit Before Tax (PBT): RM0.19 million
Net Profit: RM0.19 million
Basic Earnings Per Share: 0.03 sen
Q1 2024
Revenue: RM273.74 million
Gross Profit: RM57.57 million
Gross Margin: 21.0%
Profit Before Tax (PBT): RM13.44 million
Net Profit: RM12.42 million
Basic Earnings Per Share: 0.82 sen
As the figures show, revenue decreased by 12.0%, and gross profit saw a significant 33.9% reduction. This led to a substantial 98.6% drop in profit before tax. The lower utilisation of production capacity was a key factor in the reduced gross profit margin.
Quarter-on-Quarter Performance (Q1 2025 vs. Q4 2024)
Q1 2025
Revenue: RM240.82 million
Gross Profit: RM38.08 million
Gross Margin: 15.8%
Profit Before Tax (PBT): RM0.19 million
Net Profit: RM0.19 million
Q4 2024
Revenue: RM261.89 million
Gross Profit: RM52.29 million
Gross Margin: 20.0%
Profit Before Tax (PBT): RM3.46 million
Net Profit: RM2.33 million
The first quarter is typically the weakest period for the Group due to shorter operating windows from public holidays and a seasonal slowdown in automotive demand. Revenue declined by 8.0% from the previous quarter, and gross profit fell by 27.2%. However, this was somewhat mitigated by a significant reduction in net other expenses, mainly driven by a favourable shift from net foreign exchange loss to gain and lower inventory impairment.
Business Unit Performance
The automotive segment, a core driver for D&O, saw its revenue decrease by 12.7% year-on-year to RM233.72 million. In contrast, the non-automotive segment showed resilience, growing by 15.4% year-on-year to RM7.10 million.
Geographically, Asia remained the largest contributor to revenue at RM165.78 million, followed by Europe at RM62.22 million and North America at RM12.81 million. While Asia’s contribution remained stable, revenue from Europe and North America saw declines compared to the previous year, reflecting broader market conditions.
Financial Status and Cash Flow Discipline
D&O maintains a healthy balance sheet with a net gearing ratio of 32% as at 31 March 2025. This indicates a manageable level of debt relative to equity. The Group generated a positive operating cash flow of RM34.4 million before changes in working capital, although it reported a net cash outflow of RM23.7 million from operating activities after working capital adjustments for the period.
A notable highlight is the stringent control over capital expenditures (CapEx). The Group invested RM13.5 million in CapEx during Q1 2025, primarily for critical enhancements in quality, automation, and capacity expansion. This represents a substantial 61% reduction in capital spending compared to the same quarter last year, demonstrating management’s strong commitment to strengthening the Group’s cash flow position and preserving liquidity.
Changes in key balance sheet items reflect the operational adjustments: inventories increased slightly due to lower sales, while trade receivables decreased due to improved collections. Trade payables also saw a reduction, indicating effective control over overall spending and raw material purchases.
Risks and Prospects: Strategic Resilience Amidst Headwinds
The subdued performance in Q1 2025, particularly in the automotive segment, was influenced by a seasonal contraction and a broader industry-wide effort to reduce inventory holdings amid ongoing economic uncertainty. Reports indicate that aged inventory remains a significant challenge for retailers, with slower EV adoption and heightened pricing volatility further pressuring dealers.
However, D&O views this temporary softness as short-lived and is actively implementing strategic initiatives to navigate these challenges:
Proactive Cost Optimisation and Financial Management
The Group has implemented a comprehensive cost optimisation plan, including reducing direct labour costs by approximately 5% despite minimum wage increases, closely monitoring and optimising overhead expenses (transportation, electricity), and refining supply chain management. These measures are designed to enhance operational efficiency and improve cost efficiency without compromising product quality.
Furthermore, stringent control over capital expenditures aims to preserve liquidity and enhance financial stability by prioritising essential investments and delaying non-critical spending. This strategic approach also helps reduce financing costs by minimising reliance on external borrowings.
Strategic Expansion into Automotive Modules
A significant development during the quarter was the incorporation of DH Automotive Electronics Sdn. Bhd. (DHAE), a 51%-owned subsidiary, in partnership with Jing Wei Hirain Automotive Electronics Malaysia Sdn. Bhd. (“Hirain”). This collaboration is set to strengthen D&O’s technical expertise in automotive module development and manufacturing.
Hirain will provide technical support and access to sales channels, while Dominant Electronics Sdn. Bhd. (D&O’s 93.20%-owned subsidiary) will oversee overall operations, including production, local research and development, and sales activities. This strategic move positions D&O to capture growth opportunities in the evolving automotive electronics landscape.
Outlook: Anticipating a Progressive Recovery
Despite the current headwinds, D&O anticipates a positive sales trajectory from 3Q2025, supported by a strengthening order pipeline and the gradual normalisation of inventory levels across the automotive sector. This upward momentum is expected to continue into 4Q2025, driven by new design wins and favourable seasonal demand.
Management expects the Group’s overall financial performance to improve progressively over the coming quarters, with revenue recovery underway coupled with margin enhancement from ongoing cost optimisation initiatives. While global car production volatility remains an external factor, D&O’s extensive global footprint and diversified customer portfolio provide the agility and resilience needed to navigate dynamic market conditions effectively.
Summary and Outlook
D&O Green Technologies Berhad’s Q1 2025 results reflect a challenging market environment, particularly within the automotive sector. The significant decline in revenue and profitability compared to the previous year and quarter highlights the impact of moderated customer orders and lower production volumes. However, the report also paints a picture of a company actively responding to these challenges with a clear strategic roadmap.
The Group’s proactive stance on cost optimisation, stringent capital expenditure management, and strategic partnerships like the new automotive module subsidiary are critical steps towards strengthening its financial position and enhancing future margins. While the path to full market normalisation is subject to external factors, D&O’s diversified portfolio and global reach provide a strong foundation for resilience.
Key points to note for the future:
- The Group expects sales trajectory to improve from 3Q2025, supported by order pipeline strengthening and inventory normalisation in the automotive sector.
- New design wins and favourable seasonal demand are anticipated to drive momentum into 4Q2025.
- Ongoing cost optimisation initiatives are expected to enhance margins, contributing to overall financial performance improvement.
- The strategic partnership for DH Automotive Electronics Sdn. Bhd. aims to bolster technical expertise and market reach in automotive modules.
It’s clear that D&O is not just weathering the storm but proactively adjusting its sails, focusing on efficiency, strategic growth, and disciplined financial management. The immediate future will depend on how effectively these strategies translate into tangible results amidst the ongoing volatility in global car production.
Do you believe D&O’s strategic cost optimisation and expansion into automotive modules will be enough to drive significant recovery and sustained growth in the long run? Share your thoughts in the comments below!
