Evergreen Fibreboard Bhd (Nov 21, 89.5 sen)
Maintain underperform at 87.5 sen with fair value of 89 sen: Evergreen’s 9MFY11 net profit of RM42.4 million came in within expectations, accounting for 75% of our and 70% of consensus expectations. Despite the better results for 3QFY11, we believe this will not continue into 4QFY11 ending December as the increase in raw material costs (particularly rubberwood log costs) due to the rainy season in Thailand will likely have an impact on Evergreen’s margins. Moreover, after the global stock market rout in August, the company has also stopped raising its product prices as its customers have generally turned cautious in their purchasing activities.
Year-on-year (y-o-y), 9MFY11 net profit declined by 52.5%, mainly due to: (i) drastic hike in glue and rubberwood log costs which were triggered by the prolonged rainy season as well as high latex prices; and (ii) impact from the weakening US dollar against the ringgit (7.4% y-o-y).
Quarter-on-quarter (q-o-q), 3QFY11 net profit was significantly higher at 92.1% mainly due to higher sales volume and higher average selling prices for the majority of Evergreen’s products, which helped to alleviate the cost pressures on margins (due to drastic hike in glue and log cost) apart from improved operational efficiency and cost savings.
The risks include: (i) sharp drop in medium density fibreboard (MDF) price; (ii) sharp increase in log costs; (iii) further escalation of crude oil related glue and logistics costs; and (iv) strengthening of the ringgit which could reduce the company’s export competitiveness.
We maintain our forecasts. We believe further headwinds ahead for the MDF industry, such as high raw material costs and capacity addition by players in the region, will continue to weigh on Evergreen’s share price performance. We value Evergreen at 89 sen based on unchanged target price-earnings ratio of seven times FY12 earnings, which is in line with its five-year average historical price-earnings ratio. Maintain “underperform”. — RHB Research, Nov 21
This article appeared in The Edge Financial Daily, November 22, 2011.
Maintain underperform at 87.5 sen with fair value of 89 sen: Evergreen’s 9MFY11 net profit of RM42.4 million came in within expectations, accounting for 75% of our and 70% of consensus expectations. Despite the better results for 3QFY11, we believe this will not continue into 4QFY11 ending December as the increase in raw material costs (particularly rubberwood log costs) due to the rainy season in Thailand will likely have an impact on Evergreen’s margins. Moreover, after the global stock market rout in August, the company has also stopped raising its product prices as its customers have generally turned cautious in their purchasing activities.
Year-on-year (y-o-y), 9MFY11 net profit declined by 52.5%, mainly due to: (i) drastic hike in glue and rubberwood log costs which were triggered by the prolonged rainy season as well as high latex prices; and (ii) impact from the weakening US dollar against the ringgit (7.4% y-o-y).
Quarter-on-quarter (q-o-q), 3QFY11 net profit was significantly higher at 92.1% mainly due to higher sales volume and higher average selling prices for the majority of Evergreen’s products, which helped to alleviate the cost pressures on margins (due to drastic hike in glue and log cost) apart from improved operational efficiency and cost savings.
The risks include: (i) sharp drop in medium density fibreboard (MDF) price; (ii) sharp increase in log costs; (iii) further escalation of crude oil related glue and logistics costs; and (iv) strengthening of the ringgit which could reduce the company’s export competitiveness.
We maintain our forecasts. We believe further headwinds ahead for the MDF industry, such as high raw material costs and capacity addition by players in the region, will continue to weigh on Evergreen’s share price performance. We value Evergreen at 89 sen based on unchanged target price-earnings ratio of seven times FY12 earnings, which is in line with its five-year average historical price-earnings ratio. Maintain “underperform”. — RHB Research, Nov 21
This article appeared in The Edge Financial Daily, November 22, 2011.
