Evergreen’s 9M18 core earnings of RM16.4m (-61.2%) came in within our expectation, accounting for 83% of our full-year forecast. Despite revenue growth, earnings were dragged by higher operating cost and intense price competition within the particleboard sub-segment. We maintain our earnings forecast, maintain HOLD with a slightly higher TP of RM0.44.

Within expectation. 9M18 core net profit of RM16.4m (-61.2%) came in within our expectation, accounting for 83% of our full-year forecast. We deem the results to be inline as we expect 4Q to come in weaker on the back of intense competition in the engineered wood market.

QoQ: Despite stronger USD (against MYR), revenue declined marginally by 0.5% due to lower sales volume in Thailand operations. Lower top line and higher operating cost environment (arising from higher log, glue and labour cost) have resulted in core net profit declining by 43% to RM3.2m .

YoY: Revenue increased by 10.9% to RM288.5m, as the commencement of particleboard production more than offset lower MDF selling prices and stronger MYR. However, core net profit declined by 82.7% to RM3.2m as higher revenue was more than negated by (i) higher raw material cost and (ii) higher selling and administrative expenses.

YTD: 9M18 revenue rose by 9.6% to RM824.6m, supported by (i) new particleboard plant in Segamat; and (ii) higher sales volume. However, core net profit declined by 61.2% to RM16.4m mainly attributed to (i) higher operation cost and (ii) stronger MYR against USD.

Outlook: We believe Evergreen will continue to be impacted by intense price competition within the particleboard sub-segment as a result of the ongoing oversupply of particleboard in the market, which will likely to persist, resulting in particleboard prices to remain depressed in the near to mid-term.

Forecast. Maintain as Result Was in Line.

Maintain HOLD, with an slightly higher TP: RM0.44 (previously RM 0.43) based on 0.33x P/B (-1SD below its 5-year average P/B), justified by its less superior balance sheet, ROE and dividend payout among peers.

Source: Hong Leong Investment Bank Research - 26 Nov 2018