Results Update

Evergrn has just announced its results for QE31/3/2010. Its net profit jumped by 6-fold y-o-y but declined by 20.4% q-o-q to RM33.1 million. The drop in net profit was due to higher tax provision in the current quarter as one of the companies in the Group no longer enjoys continuous tax incentive unlike the previous quarter which had a tax write back instead of tax provision. Pre-tax profit, which may be a better indication of its operational performance, increased by more than 12-fold y-o-y or 8.1% q-o-q to RM37.0 million. Turnover increased by 54% y-o-y or 6.5% q-o-q to RM239 million.


Table 1: Evergrn's last 8 quarterly results


Chart 1: Evergrn's 21 quarterly results

Valuation

Evergrn (closed at RM1.49 yesterday) is now trading at a PER of 6.6 times (based on last 4 quarters' EPS of 22.6 sen). At this multiple, Evergrn appears very attractive. However, Evergrn had traded at such lower PER multiple before but the share price continued to decline as the earning rolled over. This was observed in August 2007 & February 2008 where the PER was only at 5.6-5.7 times. The decline in its earning in 2008 was partly due to competitive pressure from overcapacity as well as the global economic slowdown due to the US financial crisis. Go here & here.

Technical Outlook

We can see Evergrn has just broken below its uptrend line, based on the daily chart plotted on log scale (Chart 2). From the weekly chart (Chart 3), we can see that Evergrn is now resting on its 30-week SMA line (at RM1.48-50). In 2007, the break below the 30-week SMA line was followed by a sharp selloff (in August 2007) & a reversal (in November 2007).


Chart 2: Evergrn's daily chart (log scale) as at May 17, 2010 (Source: Tradesignum)


Chart 3: Evergrn's weekly chart (linear scale) as at May 17, 2010 (Source: Tradesignum)

Conclusion

Despite the good financial performance & attractive valuation, Evergrn may deserve a HOLD rating due to its mildly negative technical reading. However, if the share price were to drop below RM1.50 convincingly, we can expect further downside for Evergrn.