• HLIB has a BUY rating with an institutional TP of RM1.48, or 49.5% upside. Evergreen’s share price hit a 52-week low of RM0.735 (1 Sep) following the weak 3Q16 results, mainly attributed to higher effective tax rates and operational costs coupled with goodwill write-off and asset write-down. However, we expect an improvement in upcoming 4Q16 results, riding on the recent strength of US$ (average RM/$ 4Q16: 4.35; 3Q16: 4.05; YTD: 4.45) as hawkish Fed talks lately refuels USD rally reinforced by stabilising ASPs of MDF and particleboard.
   
• We also expect better FY17-18 prospects, with core earnings projected to grow by 22% CAGR from FY16-18. The better outlook is driven by full-year contribution from the ready-to-assemble (RTA) line with a 2 nd line that will commence in 2Q17. Commencement of the integrated particleboard (PB)/ medium density fibreboard (MDF) line in Segamat will also help to solidify earnings. At RM0.99, the stock is attractively traded at 7.3x FY17 P/E (about 14% below 10-year P/E of 8.5x and 12% discount to its 10-yr P/B of 0.83x), supported by FY16-18 core earnings CAGR of 22%, decent dividend yield of 3.6-4.1% and strong FCF of 12.6 sen and 20.4 sen for FY17-18, respectively.
   
• Bullish downtrend resistance breakout. After retracing 57% from all time high of RM1.71 (11 Jan 16) to a low of RM0.735 (1 Sep 16), Evergreen’s share prices gradually rebounded to close at RM0.99 yesterday. Following the bullish daily and weekly downtrend line breakout, share prices are expected to advance further in the short term to medium term, as technical are on the mend. A decisive breakout above RM1.01 (200-d SMA) will spur prices higher towards RM1.07 and RM1.14 levels before reaching our l ong term target at RM1.22 (50% FR).
   
• On the flip side, failure to hold at supports near RM0.965 (30-d SMA) and RM0.93 (24 Jan low) may indicate weakness in the share price towards RM0.88 (6 Dec 16 low). Cut-loss at RM0.91

Source: Hong Leong Investment Bank Research - 16 Feb 2017