KUALA LUMPUR: The world's fourth largest automotive LED maker D&O Green Technologies Bhd is expected to benefit from China's new automotive policy to encourage a shift to greener new energy vehicles (NEV).
Under a policy announced by China last Friday, consumers who scrap petrol passenger cars with China 3 or lower emission standard or new energy vehicles registered before April 30, 2018 and purchase new passenger cars that meet the energy-saving requirements by end-2024 are eligible for a one-off subsidy of up to RMB10,000 (RM6,600).
Public Investment Bank (PublicInvest) research in a note today said the new incentives could potentially boost auto spending by about RMB160 billion (RM105 billion), or a two milion increase in car sales in China, and is positive for D&O Green, which derives more than 68 per cent sales from China.
According to China Passenger Car Association, the vehicles categorised under the China 3 or lower emission standards, makes up six per cent of all vehicles or 15.83 million units.
They are currently more than 13 years old and have poor carbon emissions. Meanwhile, the number of vehicles with China 4 emission standards totalled 68.97 millio, accounting for 26.3 per cent of overall vehicle volume of 262 million units, with the average age of these vehicles at about 10 years old.
Market forecasts that the car replacement policy would benefit the scrapping and renewal of 1-2m vehicles or additional three per cent - seven per cent of annual vehicle sales.
China's central government may have to fork out nearly RMB20 billion to cover 60 per cent of the subsidy amount while state provinces will cover the remainder. It is expected that the incentive would generate incremental sales of 400,000-800,000 units of NEVs and 600,000 to 1,200,000 units of fuel-efficient cars.
PublicInvest retained its "Outperform" call on D&O Green stock with an unchanged target price of RM4.20 a share.
The stock was trading at 3.26 a share as at 10.26am.
has maintained an outperform call on as the new policy announced by China to boost the transition towards greener vehicles is expected to drive car sales in the next few months.
Last Friday, China announced that it has introduced a new policy aimed at encouraging trade-ins of more polluting vehicles for new energy vehicles (NEVs) or fuel-efficient cars as part of the green transformation of the auto industry.
The research house said the positive impact of this policy extends beyond environmental benefits, with significant implications for the automotive industry and key players like D&O.
As the world's fourth-largest automotive LED manufacturer, D&O stands to benefit substantially, especially considering its heavy reliance on the Chinese market for over 68 per cent of its sales, it added.
Public IB said based on the average selling price of a new car of RMB150,000, we project that the new incentive could potentially boost auto spending by about RMB160bn (RM105 billion) based on an incremental car sales volume of 2 million.
"We expect to see better passenger cars sales from China in the subsequent months. This new policy is positive for D&O, which derives more than 68 per cent sales from China," it said in a note today.
The key growth drivers are smart RGB LED and new projection lighting, head lamp LED application, and SpicePlus 2520 LED for the Rear Combination Lamp, it added.
The research house also expects the company to churn a better first quarter of fiscal year 2024 which will be released on May 27.
Meanwhile, Public IB said ,arket forecasts that the car replacement policy would benefit the scrapping and renewal of 1-2 million vehicles or additional 3.0-7.0 per cent of annual vehicle sales.
China's central government may have to fork out nearly RMB20 billion to cover 60 per cent of the subsidy amount while state provinces will cover the remainder.
It is expected that the incentive would generate incremental sales of 400,000-800,000 units of NEVs and 600,000 to 1,200,000 units of fuel-efficient cars."As such we retain an outperform call with an unchanged target price of RM4.20," it added.