Evergreen’s 1QFY18 core earnings of RM7.6m (QoQ:-31.2%; YoY: -42.8%) were below our expectations. Despite slight improvement in revenue (QoQ: +3.3%; YoY: +5.9%), earnings were affected by higher foreign exchange loss and log cost. We cut our FY18-20 earnings assumptions by 7% mainly to account for higher finance cost. Maintain HOLD, with a lower TP: RM0.51 (previously: RM0.54) based on a 10x PE multiple pegged to FY19 EPS of 5.1sen.

Below expectation. Reported 1Q18 core net profit of RM7.6m (QoQ:-31.2%; YoY: - 42.8%), came in below our expectation accounting for 19% of our full-year forecast.

Deviations. Higher-than-expected finance cost. QoQ: Despite the slightly higher revenue of 3% which was mainly due to higher sales volume from the recommencement of the Thailand plant in March 2018. Core net profit plunged by 31%, mainly due to higher finance cost and higher foreign exchange losses.

YoY: Revenue increased by 6% to RM264.2m was mainly due to the commencement of the particleboard plant in Segamat, the new addition has more than offset the lower ASP in MDF and the weaker US$. Core net profit declined by 43%, mainly due higher log cost as a result of shortage during rainy season.

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 are not expecting the particleboard pricing to recover in the short run.

Forecast. We cut our FY18-20 earnings forecast by 7% mainly to account for higher finance cost.

Maintain HOLD, with a lower TP: RM0.51 (previously: RM0.54) based on a 10x PE multiple pegged to FY19 EPS of 5.1sen

Source: Hong Leong Investment Bank Research - 30 May 2018