EVERGRN’s MDF segment is expected to gain traction as the group continues to enjoy brisk demand with ASP increasing by 20% YoY in 2Q21, thanks to the supply surplus situation that had gradually improved as well as the increasing demand from the Middle East. As EVERGRN restarted its Malaysia operation (early September) together with encouraging demand for its products from the export markets, we opine the worst may be over for EVERGRN after factoring a sluggish 3Q21 results (as 2-2.5 months of the Malaysia operation was closed).

At RM0.415, EVERGN is trading at an undemanding 0.34x P/B (51% discount to its peers and 17% discount to its 5Y P/B of 0.41x) in anticipation of a strong comeback starting from 4Q21, underpinned by a robust FY21-23 EPS CAGR of 75%. We note that the macro environment has turned favourable for EVERGRN, especially the promising furniture outlook to the US market, rising MDF export demand and ASP as well as the current USD strength. Furthermore, its successful cost rationalization and additional capacity in Thailand provides further upside for its Thailand segment.

Technically, EVERGRN is poised for a long-term downtrend line breakout as technical indicators are on the mend. A successful breakout above 0.43 (downtrend resistance) would signal a new upleg toward RM0.46-0.50 levels. Current prices at RM0.39-0.42 levels provide a good opportunity for investors to accumulate, given HLIB Research TP RM0.67.

Source: Hong Leong Investment Bank Research - 18 Oct 2021