Results

• In Line. FY17 core net profit of RM49.0m (-31.3%) came in within our expectation, accounting for 103% of our forecast.

Deviations

• None.

Highlights

• QoQ: 4Q17 core net profit declined by 12.1% to RM13.5m, mainly due to lower MDF and particleboard sales volume, and lower average selling price (ASP) for particleboard (which declined to RM450/m3 from RM530/m3 in 3Q17).
• YoY: 4Q17 core net profit declined by 8.2% to RM13.5m. This was due to higher glue cost coupled with higher repairing and upgrading cost incurred on the stoppage line in Thailand plant.
• YTD: FY17 revenue rose by 2.6% to RM1bn, supported by (i) commercial run of the new particleboard plant in Segamat; and (ii) higher average selling price as Evergreen was focusing on premium products (which carry higher selling prices). However, core net profit declined by 31.3% to RM49.0m, mainly attributed to (i) higher log prices which rose by circa50% to RM165/tonne in FY17 (from RM110/tonne in FY16); and (ii) higher glue cost (which increased by about 20% to RM1.64/kg in FY17 (from RM1.36/kg a year ago).
• Outlook: Moving forward Evergreen will be impacted by intense price competition at the particleboard sub-segment, as a result of the oversupply of particleboard in the market. We note that E2 particleboard prices have declined to RM400- 450/m3 from RM600/m3 in Jan-17. We are not expecting the particleboard pricing to recover in the short run. On top of that MDF’s ASP decrease by about 2% yoy.

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 HOLD recommendation with an unchanged TP of RM0.62 (based on 10x FY18 core EPS of 6.2 sen).

Source: Hong Leong Investment Bank Research - 28 Feb 2018