Riding on higher ASP. Tracking surging lumber and plywood prices, EVERGRN’s medium density fiberboard (MDF) prices advanced amid the robust demand from local Malaysia and Indonesia furniture players, as well as export demand from Middle East. With the strong demand extending to CY22, the buoyant ASP is expected to boost the group's FY22 bottom line (FY22f core PATAMI: RM47mil, +130% YoY from a low base of RM20.4m in FY21). Although the cost of raw materials such as rubber wood and adhesive remains elevated at this moment, we are not overly concerned as we believe EVERGRN would be able to pass on most of the cost increase to its customers owing to the current strength in the panel boards market. Moreover, we expect the elevated rubber wood and adhesive prices to start easing post 1QCY22.

A resilient timber products manufacturer. In 3QFY21, where most of the fiberboard players were making losses due to the 2-month production halt in Malaysia, EVERGRN’s diversified production base across Southeast Asia has proven to be resilient as the group managed to remain profitable by diverting some of its MDF orders from Malaysia to Thailand. Moreover, the group’s integrated operations from upstream to downstream products allows it to be better positioned to ride on the current upcycle in the panel boards market as well as the growth in the furniture industry.

Expect a strong turnaround in 4Q21. We expect EVERGRN to post a commendable QoQ growth in 4QFY21 results (due to the low base in 3Q21 amid production halt in Malaysia). In fact, with higher ASP and robust MDF demand, we are upbeat that EVERGRN’s 4QFY21 earnings will match or surpass its 1QFY21 core PATAMI of RM7.5m. Valuation is undemanding at 9.6x FY22 P/E, about 41% discount to HEVEA and 19% lower than its 5Y average.

Uptrend remains intact. Technically, EVERGRN rebounded mildly after touching its uptrend channel support of RM0.52-0.53. In the wake of the higher lows pattern, a decisive breakout above RM0.56 will spur prices higher towards RM0.61-0.63 territory. Cut loss at RM 0.49

Source: Hong Leong Investment Bank Research - 24 Jan 2022