3Q20 core net profit of RM2.5m (vs. core net loss of -RM10.5m in 2Q20 and core net loss of -RM9.0m in 3Q19) brought 9M20 core net loss to -RM20.1m (9M19: - RM32.6m). This was above our expectations, as we expected Evergreen to post losses in 3Q20. The better-than-expected earnings were due to higher panel board ASPs and increased sales of downstream products (RTA furniture and laminated boards). We lower our FY20 core net loss estimate from -RM49.7m to - RM17.7m. Additionally, we forecast Evergreen to post core net profit of RM7.7m and RM14.6m in FY21-22 (vs. core net loss forecasts of -RM28.9m/-21.2m previously). Our TP rises from RM0.25 to RM0.65 (pegged to 0.5x PB multiple from 0.2x previously). Upgrade to BUY.

Above expectations. 3Q20 core net profit of RM2.5m (vs. core net losses of -RM10.5m in 2Q20 and -RM9.0m in 3Q19) brought 9M20 core net loss to -RM20.1m (9M19: - RM32.6m). This was above our expectation, as we expected Evergreen to post losses in 3Q20. Note that Evergreen had posted losses since mid-FY18. The better-thanexpected performance was due to higher panel board ASPs and increased sales of downstream products (RTA furniture and laminated boards). Core net profit was arrived at after adjusting for foreign exchange loss of RM1.3m.

Dividend. None declared (3Q19: none). 9M20: None, 9M19: None.

QoQ. Core net profit of RM2.5m marked a return for profitability for Evergreen. This was on the back of revenue growth (+30.9%) from higher sales volumes of panel boards as well as downstream products (RTA furniture and laminated boards) arising from the relaxation of MCO restrictions and better cost management.

YoY. Despite increased sales of downstream products, revenue decline of -9.3% was mainly due to lower sales volume in Malaysia of MDF (due to stoppage of Batu Pahat MDF production line due to fire). RM2.5m core net profit (vs. -RM9.0m losses) achieved during the quarter due to higher margins from downstream products and particleboards coupled with lower raw material cost.

YTD. Despite higher average selling prices of panel boards in both Malaysia and Thailand operations, overall lower sales volumes was due to MCO restrictions on production operations, which resulted in revenue declining by -13.8%. Overall, narrower losses after tax of -RM20.1m (from -RM32.6m) was due to higher profit from downstream products, higher panel board ASPs and lower raw material cost.

Outlook. Despite continued competition from panel board makers in neighbouring countries, rampant furniture sales globally is expected to result in uptick in panel board sales volumes and ASPs. Furthermore, with Evergreen pivoting to more lucrative downstream products, we expect Evergreen to continue to remain profitable.

Forecast. We lower our FY20 core net loss forecast from -RM49.7m to -RM17.7m. Additionally, we forecast Evergreen to post core net profit of RM7.7m and RM14.6m in FY21/22 from losses after tax of -RM28.9m/-21.2m previously due to Evergreen’s pivot to downstream products and successful cost cutting measures.

Upgrade to BUY. With Evergreen returning to profitability, we increase our PB multiple from 0.2x to 0.5x (pegged to 5-year average). Our TP rises from RM0.25 to RM0.65. Furniture sales spiking globally bodes well for Evergreen given their pivot to RTA furniture production and expected higher ASP for panel board products. At current price level, and considering its return to profitability, we reckon Evergreen’s valuations are depressed, at just 0.3x PB.

Source: Hong Leong Investment Bank Research - 26 Nov 2020