Results

• Beats our expectation. 1HFY15 net profit of RM43.9m beat our and market expectations, accounted for 54.3% and 55.8% of market and our full-year forecasts, respectively.

Deviation

• Better-than-expected margin arising from stronger-thanexpected US$ movement. US$:RM averaged at RM3.64 in 1HFY15, higher than RM3.60/US$ we assumed; and

• Lower-than-expected effective tax rate of 15.7% vis-à-vis 18% we assumed.

Highlights

• YTD… 1HFY15 turned around with a net profit of RM43.9m (from a net loss of RM24.3m a year ago), thanks to lower production cost (in particularly, glue and log), higher selling prices (arising from a stronger US$) and sales volume, as well as improved operational efficiency arising from restructuring of certain operational facilities in Malaysia.

• QoQ… 2QFY15 net profit grew by 19.1% to RM23.9m, mainly on the back of higher sales volume, declining cost of raw materials (i.e. rubber log wood and glue), higher operational efficiency and synergistic cost savings from the group’s recent restructuring of operational facilities in Malaysia

Risks

• Escalating raw material and labour costs;
• Slower-than-expected demand for MDF;
• Fluctuating foreign currency movement (in particularly the US$); and
• Slower-than-expected turnaround at the saw mill and particleboard operations.

Forecasts

• Maintained for now, pending further update with management.

Rating

BUY

Positives

• (1) A beneficiary of strong US$ and low oil price; (2) Healthy balance sheet; and (3) Rubber plantation land bank value has yet to be reflected in current share price valuation.

Valuation

• Maintain TP of RM2.15 based on 11x 2016 EPS of 19.6 sen, as well as our BUY recommendation. We continue to like Evergreen for its strong earnings visibility, underpinned by weak RM (against US$), lower raw material prices, as well as management’s commitment to further improve its overall production efficiency and diversifying its product range.

Source: Hong Leong Investment Bank Research - 20 Aug 2015