4Q19 core net loss of RM14.4m (vs. core net losses of RM9.0m in 3Q19 and RM10.1m in 4Q18) brought FY19 core net loss to RM47.0m (vs. core net profit of RM6.2m in FY18). The results missed expectations, as we were projecting core net loss to narrow in QoQ. The results shortfall was due mainly to lower-than expected ASP, sales volume, and higher-than-expected raw material prices (in particular, rubber log wood). We widen our FY20/21 core loss forecasts from RM23.3m/RM13.1m to RM27.8m/RM18.9m to account for continued low volumes and ASPs going into FY20, as well as stubbornly expensive rubber wood price. After adjusting for higher core net loss forecasts and rolling over our valuation year to FY20, our TP falls to RM0.21 from RM0.22 pegged to an unchanged 0.16x P/B (-1.2SD of historical 2-year PB). Our SELL call is maintained.

Below expectations. 4Q19 core net loss of RM14.4m (3Q19: -RM9.0m, 4Q18: - RM10.1m) brought FY19 core net loss to RM47.0m (FY18: core net profit of RM6.2m). The results missed expectations, as we were projecting core net loss to narrow QoQ in 4Q19. The results shortfall was due mainly to lower-than-expected ASP, sales volume, and higher-than-expected raw material prices (in particular, rubber log wood).

Dividend. None declared (4Q18: none). (FY19: None, FY18: 0.48 sen). Evergreen typically declares dividend in April of the following year.

QoQ. Core net loss widened to RM14.4m (from RM9.0m in 3Q19) predominantly due to losses in Thailand segment (which more than doubled to RM14.9m) due to higher operational and raw material costs.

YoY. Malaysia and Thailand operations incurred losses before tax of RM3.0m and - RM14.9m (vs. loss before tax of RM11.5m in Malaysia operations and PBT of RM1.1m in Thailand operations SPLY) due mainly to severe competition (which has in turn resulted in lower selling prices and volumes). Poor performance in both Malaysia and Thailand resulted in core net loss widening to RM14.4m (from RM10.1m in 4Q18).

YTD. FY19 performance weakened to a core net loss of RM47.0m (from a core net profit of RM6.2m in FY18), mainly due to severe competition (which has in turn resulted in lower sales volume and selling prices) and higher operating costs.

Outlook. We expect the panel board market to remain competitive with continued intense competition from neighbouring countries. As such, we expect continued tepid volumes and ASP in FY20. While we expect Evergreen to continue to pursuit cost saving measures, FY20 will likely remain in the red.

Forecast. We widen our FY20/21 core loss forecasts from -RM23.3m/ -RM13.1m to - RM27.8m/-RM18.9m to account for continued low volumes and ASPs going into FY20, as well as stubbornly expensive rubber wood price.

Maintain SELL. After adjusting for higher core net loss forecasts and rolling over our valuation year to FY20, our TP falls to RM0.21 from RM0.22 pegged to an unchanged 0.16x PB (-1.2SD of historical 2-year P/B). Our SELL call is maintained.

Source: Hong Leong Investment Bank Research - 27 Feb 2020