Results

• 1Q16 core net profit of RM26.5m (yoy: +48.3%; qoq: - 3.7%) accounted for 23% of our and consensus full -year forecasts. We consider the results within expectations, as 1Q is seasonally weaker (on shorter working month).

Deviation

• Broadly in line.

Highlights

• Qoq, 1Q16 core net profit declined by 3.7% to RM26.5m (tracking the 7.3% qoq fall in revenue). The weaker earnings was due to a weaker US$ (which has in turn resulted in lower selling prices), but partly offset by lower cost of log and higher operational efficiency.

• Yoy, 1Q16 core net profit expanded by 48.3% to RM26.5m mainly on the back of the strengthening of US$ (which has in turn resulted in higher selling prices), improved operational efficiencies, as well as lower key input prices (in particularly, log and glue).

Risks

• Escalating raw material and labour costs;
• Weaker-than-expected demand for MDF; and
• Fluctuating foreign currency movement.

Forecasts

• Maintained. Our forecast has factored in MYR forecast of RM4.00/US$ and RM3.80/US$ for FY16 and FY17 respectively.

Rating

BUY

Negatives

• (1) High earnings sensitivity to exchange rate movement.

Positives

• (1) Healthy balance sheet; and (2) Rubber plantation land bank value has yet to be reflected in current share price valuation.

Valuation

• Maintain BUY recommendation, with unchanged TP of RM1.60 based on unchanged 11x FY17 EPS of 14.6 sen. We continue to like Evergreen for its strong earnings visibility (underpinned by low key input prices and management’s ongoing efforts to further improve operational efficiencies and product diversification).

Source: Hong Leong Investment Bank Research - 23 May 2016