Evergreen 4Q20 core net loss of -RM6m (3Q20: RM2.5m; 4Q19: -RM14.4m), brought FY20’s sum to -RM26.1m (FY19: -RM47.0m). The results were below our expectations (-RM17m) due to higher raw material cost and weaker USD. Despite weaker results, we expect FY21 performance to improve on the back of (i) resumption of MDF line that was previously down, (ii) strength in panel boards’ ASP which will help to cushion the impact of the higher raw material cost, and (iii) the supply glut in MDF in SEA region that has started easing providing support for the MDF segment. Maintain BUY with TP of RM0.65 (pegged to an unchanged PB multiple of 0.5x) based on FY21 BVPS.

Below expectations. Evergreen’s 4Q20 core net loss of -RM6m (3Q20: RM2.5m; 4Q19: -RM14.4m), brought FY20’s sum to -RM26.1m (FY19: -RM47.0m). The results were below our forecast (-RM17m) due to higher raw material cost and weaker USD.

EIs. FY20 core net loss was arrived after adjusting for provision and write off of receivables (-RM6.5m), inventories (-RM34.9m), impairment of assets (-RM26.5m), write off of PPE (net of fire insurance) (-RM3.8m), foreign exchange loss (-RM1.9m) and loss on disposal of PPE (-RM0.3m). The provision and write-off of receivables, inventories and impairment of assets are for the solid wood furniture segment in Thailand. This is in view of the declining sales over the years from this segment that was previously catered to China market. We note that currently the group is shifting its target market from China to Thailand. The write off of PPE is for the fire incident in Malaysia MDF plant, the sum is partially offset by the fire insurance compensation.

Dividend. None declared (4Q19: none). (FY20: None, FY19: None).

QoQ. Revenue increased by 3.1% mainly lifted by higher panel boards ASP, while core net loss came in at -RM6.0m (3Q20: RM2.5m) due to higher raw material price (rubber wood and glue).

YoY. Revenue decreased by -3.1% mainly due to an earlier fire incident which has resulted in lower MDF production volume (and production volume was only restored since Dec 2020). Core net loss narrowed to -RM6m from -RM14.4m due to higher margins from downstream products (RTA and value-added boards), which more than mitigated lower MDF sales volume.

YTD. Revenue decreased by -11.2% mainly due to lower sales volume caused by production disruption from MCO as well as the MDF line that underwent refurbishment due to fire incident (from Apr to Dec 2020). Core net loss narrowed to -RM26.1m from -RM47m due to better margins across all product segments.

Outlook. Despite recording a loss in 4Q20, we remain cautiously optimistic on the group’s outlook. The MDF line that was down previously has resumed operation, while the strength in panel boards’ ASP will sustain into FY21 (supported by the local furniture industry boom). These will help to cushion some of the impact from the elevated raw material cost, i.e. rubber wood and glue cost. In addition, the supply glut in MDF that plagued the SEA region has started easing, providing support to the demand and ASP of MDF for the group (~50% of the group’s revenue).

Forecast. Unchanged.

Maintain BUY. We maintain our TP of RM0.65 pegged to an unchanged PB multiple of 0.5x based on FY21 BVPS. Despite weaker results this quarter, we remain positive that the group’s earnings will improve supported by the improving outlook in the MDF segment as well as strong demand across all product segments of the group.

Source: Hong Leong Investment Bank Research - 30 Mar 2021