1Q20 core net loss of -RM11.7m (vs. core net loss of –RM14.4m in 4Q19 and core loss of -RM12.3m in 1Q19) missed our expectation, as we expected significantly lower core net loss in 1Q20. We widen our FY20/21/22 core loss forecasts from -RM27.8m/-RM18.9m to -RM49.7m/-RM28.9m to account for continued lower volumes going forward. After adjusting for lower earnings, our TP falls to RM0.20 from RM0.21 pegged to an unchanged 0.16x PB of FY20 BVPS (-1.2SD of historical 2-year PB). Despite the challenging macro factors and expected losses going forward, we upgrade our call from a Sell to a HOLD, as valuations seem to have bottomed.

Below expectation. 1Q20 core net loss of -RM11.7m (vs. core net loss of -RM14.4m in 4Q19 and core loss of -RM12.3m in 1Q19) missed our expectation, as we expected significantly slimmer core net losses in 1Q20. Core net profit was arrived at after adjusting for foreign exchange loss of RM0.4m. The results shortfall was due mainly lower-than-expected sales volumes.

Dividend. None Declared (1Q19: None).

QoQ. Lower sales (-5.6%) were due to lower sales volumes from ongoing regional competition and impact of MCO on operations from mid-March. However, losses narrowed from -RM14.4m losses in 4Q19 to -RM11.7m due to higher ASPs and lower raw material costs.

YoY. Increased sales volumes and ASPs in Thailand led to Thailand revenue increasing by 9.3%. In addition to higher sales, lower cost of glue in Thailand translated to LBT narrowing to -RM2.7 from -RM4.4m SPLY. LBT in Malaysia widened to -RM6.8m from -RM5.0m SPLY due to lower sales volume from rampant regional competition and impact from MCO on operations from mid-March. All in all, core net losses narrowed slightly to -RM11.7m from -RM12.3m.

Outlook. We expect the panel board market to remain competitive with continued intense competition from neighbouring countries. Furthermore, MCO restrictions on operations in 2Q20 (we understand that wood based companies returned to 50% capacity in mid-April and full capacity in mid-May) and expected slowdown in order volumes from global economic slowdown do not bode well for Evergreen. As such, we expect continued tepid volumes to continue into FY20. While we expect Evergreen to continue to pursue cost saving measures, these are insufficient to counter unfavourable macro factors, which will result in another year of losses in FY20.

Forecast. We widen our FY20/21/22 core loss forecasts from -RM27.8m/-RM18.9m to -RM49.7m/-RM28.9m to account for continued lower volumes going forward.

Upgrade to HOLD. After adjusting for lower earnings, our TP falls to RM0.20 from RM0.21 pegged to an unchanged 0.16x PB of FY20 BVPS (-1.2SD of historical 2-year PB). Despite the challenging macro factors and expected losses going forward; we upgrade our call from a Sell to a HOLD. At current price levels the company is trading at just 0.13x FY20 BVPS; we reckon the share price has bottomed out.

Source: Hong Leong Investment Bank Research - 30 Jun 2020