Results

• In Line. 9M17 core net profit of RM35.6m (-37.3%) came in within our expectation, accounting for 75% of our full-year forecast.

Deviations

• None.

Highlights

• QoQ: 3Q17 core net profit rose by 59.6% to RM15.3m, due to (i) higher revenue generated from the commercial run of the new particleboard plant in Segamat; and (ii) absence of plant shut down (recall, Evergreen took the opportunity to undergo plant shutdown during Hari Raya festive in 2Q17).
• YoY: Although revenue was higher by 7.3%, 3Q17 core net profit declined by 3.9% to RM15.3m in 3Q17. This was due to higher glue cost coupled with higher repairing and upgrading cost incurred on the stoppage line in Thailand plant.
• YTD: 9M17 revenue rose by 4.5% to RM768.6m , boosted by (i) commercial run of the new particleboard plant in Segamat; (ii) higher average selling price as Evergreen was focusing on premium products (which carry higher selling prices); and (iii) impact weaker MYR (against the US$, RM4.25/US$ in 9M17 vs. RM4.05/US$ in 9M16). However, core net profit declined by 37.3% to RM35.6m, mainly attributed to (i) higher log prices which rose by about 50% to RM165/tonne in 9M17 (from RM110/tonne); and (ii) higher glue cost (which has increased by about 10% to RM1.50/kg in 9M17 (from RM1.36/kg a year ago).
• Outlook: We opine that Evergreen’s earnings will improve, underpinned by commencement of the new particleboard line. Evergreen started off with E2 grade particleboards and is now moving up the product chain to produce higher quality particleboard (i.e. E1).

Risks

• Escalating raw material and labour costs.
• Weaker-than-expected demand and selling prices for MDF.
• Delay in commencement of new production lines (in particularly, RTA and particleboard).

Forecasts

• Unchanged.

Rating

BUY (↔)

• We remain positive on Evergreen mainly on the back of its turnaround plan and the commissioning of the second RTA line.

Valuation

• Maintain BUY recommendation with an unchanged TP of RM0.95 (based on 11x FY18 core EPS of 8.7 sen).

Source: Hong Leong Investment Bank Research - 15 Nov 2017