Evergreen announced that Soon Lian Engineering Construction (SLEC) has withdrawn its litigation case against Evergreen with no order to cost, as the winding-up petition has already been dismissed by Johor Bahru High Court. While we are positive but not surprised on the latest development, given the lack of documentation for the claim submitted by SLEC. Maintain earnings forecasts, TP of RM0.27 (based on 0.2x P/B) and SELL rating on Evergreen.

NEWSBREAK

Evergreen announced that Soon Lian Engineering Construction (SLEC) has withdrawn its litigation case against Evergreen with no order to cost, as the winding up petition (WUP) has already been dismissed by Johor Bahru High Court.

Recap. Evergreen was served with a WUP on 15 June 2019. The claimed amount of the WUP was RM1.2m. SLEC had accused Evergreen for refusing to pay for services provided by SLEC back in 2016. Evergreen countered the claim by stating that SLEC did not have sufficient supporting documents to demand payment from Evergreen.

HLIB’s VIEW

Our view – positive but not unexpected: We are positive but not surprised on the latest development, given the lack of documentation for the claim submitted by SLEC.

Other pending litigation. Note that in May-19, Evergreen was served with a Writ of Summons and Statement of Claim by its subsidiaries in Indonesia, claiming material losses of Rp133bn (~RM39m) and immaterial losses of Rp1trn (~RM290m) 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. Maintained, as we did not factor in potential losses from the litigation.

Maintain SELL; TP: RM0.27. We maintain our TP of RM0.27 based on unchanged 0.2x P/B (at 1 standard deviation below historical 5-year mean of 0.7x). Despite the recent share price retracement, we are keeping our SELL rating on the stock for now (pending results announcement by end-Aug), given the tough operating environment arising from depressed MDF prices and stubbornly high rubber wood cost.

Source: Hong Leong Investment Bank Research - 19 Aug 2019