Evergreen’s was served with a Winding-Up Petition by one of their service provider claiming that company refused to pay for a service provided by the petitioner. Management highlighted that they have enough liquid asset to pay off the asking amount, however they claim that the petitioner does not have enough supporting documents for the company to make payment to the mentioned service provided by Soon Lian Engineering Construction. We keep our forecast unchanged pending the court hearing, maintain SELL with an unchanged TP of RM0.27 based on P/B of 0.20x (-1SD below historical 5-year low).

NEWSBREAK

The Board of Directors of Evergreen announced that two of its major Subsidiaries, AllGreen Timber Products Sdn. Bhd. (“AGTP”) and Evergreen Fibreboard (JB) Sdn. Bhd. (“EJB”) had on 15 June 2019 been served with a Winding-Up Petition (WUP) dated 12 June 2019 by Soon Lian Engineering Construction (the Petitioner) via its Advocates & Solicitors. The claim amount of the WUP is a total of RM1.2m.

WUP is a legal action usually taken at as a last resort by the creditors against a company that owes them money. The process will start with the creditor issuing a petition to the company, and the company can pay or oppose the petition. In this case Evergreen had choose the latter and the petition is pending court hearing on the 13 and 14 of August 2019.

HLIB’s VIEW

What happened? The petitioner accused Evergreen of refusing to pay for a service provided by the petitioner back in 2016, Evergreen defended by stating that the petitioner does not have enough supporting document in order for them to make such a payment.

Evergreen claims that they have enough cash to pay the petitioner. Management did not mention the exact bill that the petitioner claim that Evergreen owe them previously. However they highlighted to us that the asking amount by the petitioner can be paid off with their current cash on hand coupled with other liquid assets on hand. As of 31st March the company has RM97.9m cash on hand (net gearing of 0.10x).

Tough period for the Evergreen. Last month Evergreen was also served with a Writ of Summons and Statement of Claim by its subsidiaries in Indonesia to claim for material losses of Rp133bn (~RM39m) and immaterial losses of Rp1trn (~RM 290m) for (i) appointment of an incompetent Director and (ii) construction of the New Port (Jetty) is allegedly to have violated the provisions contained in Article of Association of the company and the statutory provisions that apply in the Republic of Indonesia.

Forecast. Unchanged, pending court hearing. Should Evergreen lose the said case, this would widen our projection of FY19 loss from -RM5.3m to -RM6.5m.

Maintain SELL, with an unchanged TP: RM0.27 based on a P/B ratio of 0.20x from which is its -1SD of historical 5-year mean, as we do not foresee any catalyst on this counter in the near-term due to continuous downward pressure on selling prices of MDF and particleboard couple the absence of business diversification in Evergreen.

Source: Hong Leong Investment Bank Research - 24 Jun 2019