Evergreen’s 1HFY18 core earnings of RM13.2m (YoY: -44.6%) were within our expectation. Despite 2Q18 improvement in revenue (QoQ: +9.7%; YoY: +11.9%), earnings were affected by (i) higher raw material cost (log and glue), (ii) higher labour cost, and (iii) stronger ringgit against USD. We maintain our earnings forecast. Maintain HOLD, with an unchanged TP: RM0.42 based on a 10x PE multiple pegged to FY19 EPS of 4.2 sen.

Within expectations. Reported 1H18 core net profit of RM13.2m (YoY: -44.6%), came in within our expectation accounting for 49% of our full-year forecast.

QoQ: Revenue rose by 9.7%, mainly due to higher sales volume from the full recommencement of the Thailand plant, resulting in revenue contribution from Thailand improving by 47.5%. However, GP margin decreased by 2ppt and core net profit plunged by 27%, mainly due to (i) higher log cost and (ii) higher selling and administrative expenses.

YoY: Revenue increased by 11.9% to RM289.9m 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 46.8%, as it was dragged by (i) the loss making Indonesia segment, (ii) higher glue cost and (iii) higher labour cost (newly implemented foreign labour levy).

YTD: 1H18 revenue rose by 9% to RM554.1m, supported by (i) full contribution from commercial run of the new particleboard plant in Segamat; and (ii) higher sales volume. However, core net profit declined by 44.6% to RM13.2m, mainly attributed to (i) higher log prices, (ii) stronger ringgit against USD, and (iii) higher labour cost.

Outlook: We opine that 2H18 will remain challenging. 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 do not expect the particleboard pricing to recover in the short run.

Forecast. Maintain as Results Was Inline.

Maintain HOLD, with an unchanged TP: RM0.42 based on a 10x PE multiple pegged to FY19 EPS of 4.2sen

Source: Hong Leong Investment Bank Research - 27 Aug 2018