• One of the top five MDF producers in Asia. Evergreen Fibreboard (EVERGRN) is one of the top 5 producers of engineered wood-based products in Asia, which products consisting mainly Medium Density Fibreboard (MDF) and particleboard, with combined annual production capacity of more than 1.3m m³. In addition to its MDF and particle board production lines, EVERGRN owns 2 resin plants in Malaysia (which manufactures glue for its own consumption) and 4,410 acres of rubber plantation land (more than 500 acres have already been planted with rubber trees) in Kahang, Johor.
• HLIB Institutional Research has a BUY rating on EVERGRN with target price of RM1.47, or 27.8% upside. Overall, the robust 88% surge in share price YTD has not fully reflected operational improvement, as we anticipate EVERGN’s earnings prospects to remain bright in the near to medium term, underpinned by several factors including: 1. Management’s ongoing efforts to improve operational efficiencies and financial performance will only be gradually reflected in the next 1- 2 years; 2. Lower raw material costs, in particularly, log and adhesive prices (which collectively account for 55-65% of the production cost of MDF); and 3. Strong US$, which is beneficial to EVERGN’s bottomline as it derives over 70% of its revenue from export sales.

• Poised for further upside amid “flag” breakout. Chart-wise, since hitting 52- week high of RM1.28 (26 Mar), EVERGRN’s share price retreated and formed a continuation “Flag” pattern on daily chart. Moreover, “Tweezers Bottom” candlestick patterns on hourly chart and bottoming up indicators suggest potential reversal of downtrend. Hence, share price is expected to resume its previous uptrend after a brief sideways consolidation.
• A decisive breakout above RM1.20 (daily upper Bollinger band) will spur prices higher to retest RM1.28. Long term target is RM1.43 (Flagpole measurement objective). Major supports are situated at RM1.11 (short term uptrend line) and RM1.06 (daily lower Bollinger band). Cut loss below RM1.04.

Source: Hong Leong Investment Bank Research - 22 May 2015