Evergreen Fibreboard Bhd (Nov 8, 91.5 sen)
Maintain neutral at 96.5 sen with revised fair value of 85 sen (from RM1.25): EFB experienced its worst quarter since 2010 in 1QFY11. The company continued to be hemmed in by flat selling prices and costlier raw materials. However, it managed to raise the selling prices of medium density fibreboard (MDF), which contributes more than 85% of revenue. The prices of 2.5mm thick MDF stood at US$270 (RM845) per cu m in January 2011 while 18mm MDF was at US$245. In July, EFB raised the price of 2.5mm thick MDF by 11.1% to US$300 per cu m while 18mm thick MDF was priced 12.2% higher at US$275. We believe the price increases, which were agreed to by EFB’s customers, will contribute to a better 2HFY11 than 1H. However, the company decided to not continue raising its product prices in August to ensure that it remains competitive.
We are forecasting a better 2HFY11 in terms of net profit given the drop in raw material prices as well as higher selling prices. But we are lowering our full-year FY11 net profit forecast to take into account its poor 1HFY11 results, weaker customer demand and higher year-on-year prices of raw materials. We are cutting our net profit estimate by 16.1% to RM58.2 million from RM69.4 million previously although we anticipate a better 3QFY11 quarter-on-quarter. For FY12, our revenue forecast is nudged down by 1.6% to RM944.9 million from RM960.4 million, while the projected net profit is reduced by 19.1% from RM77 million to RM62.3 million.
EFB will need a catalyst to propel its earnings in FY11 and FY12. We feel that the company’s earnings will still be weighed down by high raw material costs and stiff competition. Hence, we are valuing the stock at a lower seven times FY12 earnings per share (from nine times), from which we derive a fair value of 85 sen, which is in line with its five-year average historical price-earnings ratio. — OSK Research, Nov 8
This article appeared in The Edge Financial Daily, November 9, 2011.
Maintain neutral at 96.5 sen with revised fair value of 85 sen (from RM1.25): EFB experienced its worst quarter since 2010 in 1QFY11. The company continued to be hemmed in by flat selling prices and costlier raw materials. However, it managed to raise the selling prices of medium density fibreboard (MDF), which contributes more than 85% of revenue. The prices of 2.5mm thick MDF stood at US$270 (RM845) per cu m in January 2011 while 18mm MDF was at US$245. In July, EFB raised the price of 2.5mm thick MDF by 11.1% to US$300 per cu m while 18mm thick MDF was priced 12.2% higher at US$275. We believe the price increases, which were agreed to by EFB’s customers, will contribute to a better 2HFY11 than 1H. However, the company decided to not continue raising its product prices in August to ensure that it remains competitive.
We are forecasting a better 2HFY11 in terms of net profit given the drop in raw material prices as well as higher selling prices. But we are lowering our full-year FY11 net profit forecast to take into account its poor 1HFY11 results, weaker customer demand and higher year-on-year prices of raw materials. We are cutting our net profit estimate by 16.1% to RM58.2 million from RM69.4 million previously although we anticipate a better 3QFY11 quarter-on-quarter. For FY12, our revenue forecast is nudged down by 1.6% to RM944.9 million from RM960.4 million, while the projected net profit is reduced by 19.1% from RM77 million to RM62.3 million.
EFB will need a catalyst to propel its earnings in FY11 and FY12. We feel that the company’s earnings will still be weighed down by high raw material costs and stiff competition. Hence, we are valuing the stock at a lower seven times FY12 earnings per share (from nine times), from which we derive a fair value of 85 sen, which is in line with its five-year average historical price-earnings ratio. — OSK Research, Nov 8
This article appeared in The Edge Financial Daily, November 9, 2011.
