Despite our upwards earnings revision by more than 30% last month. Evergreen?s(EFB) results beat our and consensus expectations when annualised. Riding on aglobal recovery in MDF average selling prices and increasing orders from customersin South-East Asia and Middle East, we see EFB doing well this year. We make noadjustments to our earnings estimates and thus maintain our target price intact atRM2.08. BUY recommendation maintained.

A kickstart. Just as we envisaged, EFB?s first quarter earnings were stronger y-o-y,chalking up growth of above 50% at all levels. Although q-o-q revenue was up by a slight6.5%, EFB would have done better if not for the strengthening ringgit at the start of theyear. A 20.4% slump in net profit was seen q-o-q, largely attributed to the group incurring atax write-back in the last quarter instead of a tax provision.

Prospects looking good. In our 12 April 2010 report entitled ?Stepping Up to HigherDemand?, we saw better prospects for EFB this year on the back of higher average sellingprices and volume orders. We expect EFB to meet the growing orders by ramping up itsutilization rate to 80%-85% this year (excluding Indonesian plant), subsequently rising to90% next year in tandem with surging demand for MDF in the ASEAN region.

Conservative stance. Although average selling prices for EFB?s MDF are rising by c.4%YTD, EFB said the strengthening ringgit had somewhat offset the gains from priceincreases. Nevertheless, premised on increasing orders, we expect EFB to achieve growththat is close to our estimates. We see EFB posting bottom line earnings growth of morethan 30% y-o-y.

Staying on track. We maintain our BUY recommendation for EFB with a target price ofRM2.08, by ascribing a high tier-end building material sector PE of 9 times to its FY10 EPSof 23.1 sen. We note that EFB has declared an interim tax-exempt dividend of 2 sen(RM10.26m) per share for its first quarter. This represents 36.8% of our full-year payoutassumption of 23.5% of net profits.

BUILDING MATERIALSEvergreen Fibreboard is involved in themanufacture of medium density fibreboards(MDF), particle boards, value-addedfibreboards and furniture.

Major Shareholders (%)
LTH 6.1
HIMB Trading 5.4
Hume Fibreboard 5.1

Target RM2.08

By OSK188
Analyst: Vincent Lim Vi Ming