Evergreen recorded FY21 core net profit of RM27.8m (FY20: -RM26.1m), which was well above our expectation accounting for 136.1% of our full-year forecast. The positive variance was due to better than expected profit margin achieved. We increase our FY22/23 forecasts by 41.1%/45.9% to account for higher panel boards ASP and better utilization rate. Maintain BUY with a higher TP of RM0.94 (from RM0.67) based on 12x P/E of FY22 EPS 7.8 sen. We continue to like Evergreen as the group is currently enjoying an upcycle in the panel boards market. Furthermore, the group may experience a further margin expansion as (i) raw material cost eases; and (ii) increase in utilization rate resulting in better economies of scale.

Above expectation. Evergreen’s 4Q21 core net profit of RM15.0m (+4.7x QoQ; 4Q20: -RM6m) brought FY21’s sum to RM27.8m (FY20: -RM26.1m) which was well above our expectation accounting for 136.1% of full-year forecast. The positive variance was due to better than expected profit margin achieved. FY21 core net profit number was arrived at after adjusting for provision for (i) receivables write-off (RM278k); (ii) gain on disposal of PPE (RM810k); and (iii) forex gain (RM7.4m).

Dividend. None (4Q20: none). FY21: none (FY20: none).

QoQ. Revenue increased by +42.9% contributed by Malaysia (+1.8x), Indonesia (+3.1%) while partially offset by Thailand (-6.5%). Malaysia revenue increase was due to a lower base from previous quarter as a result of 2 months production halt, while the revenue decline in Thailand was due to a higher base from previous quarter as some of the Malaysia orders were diverted to Thailand. Consequently, core net profit increased +4.7x to RM15m from RM2.6m.

YoY. Revenue increased by +23.2% contributed by all regions: Malaysia (+8.5%), Thailand (+48.6%) and Indonesia (+24.6%) due to higher ASP and sales volume. Core net profit rebounded strongly to RM15m (from -RM6m SPLY) due to GP margin expansion to 22.7% (from 17.4% SPLY) as the increase in ASP more than offset the raw material cost increase.

YTD. Revenue increased by +8.7% contributed by Thailand (+36.7%) and Indonesia (+12.9%) mainly due to higher ASP, while partially offset by Malaysia (-9.8%) due to lower sales volume from a longer shutdown period of c.4 months (vs. c.2 months SPLY). Core net profit rebounded strongly to RM27.8m (from -RM26.1m SPLY) due to GP margin expansion to 20.6% (from 14.7% SPLY) as the increase in ASP more than offset the raw material cost increase.

Outlook. Despite the capacity under-utilisation in Malaysia (due to tight wood supply from flood) and cost increase (wood cost increase due to wet season and flood while glue cost increase due to skyrocketing urea price), the group was still able to deliver stellar earnings this quarter as the rising ASPs in panel boards more than outweighed the rising cost as evidenced by the margin expansion highlighted above. In addition, the group’s recalibration of its production process over the past several years has started to pay off resulting in greater efficiency and lower cost of production which lead to better margin contribution that will be sustainable going forward. We expect the earnings to further improve going in to FY22 supported by (i) the continued robust export demand from Middle East due to pick up in consumer spending activities as well as the strong demand from the local furniture makers in Malaysia and Indonesia; (ii) easing of wood cost (as weather condition improves) and easing of glue cost (as elevated urea cost eases); (iii) increase in utilisation rate in Malaysia (as tight wood supply condition improves); and (iv) upcoming foreign labour intake which will scale up the capacity in the RTA segment that is currently facing acute labour shortage.

Forecast. We increase our FY22/23 forecasts by 41.1%/45.9% to account for higher panel boards ASP and better utilization rate.

Maintain BUY; TP: RM0.94. Following our earnings revision, our TP increases to RM0.94 (from RM0.67) based on 12x P/E of FY22 EPS 7.8 sen. We continue to like Evergreen as the group is currently enjoying an upcycle in the panel boards market. The group may register further margin expansion as (i) raw material cost eases; and (ii) increase in utilisation rate resulting in better economies of scale. In addition, with improving financials and no big capex spending anticipated, the group is also likely to resume paying dividends. We are projecting DPS of 2 sen for FY22, translating to a decent dividend yield of 4%.

Source: Hong Leong Investment Bank Research - 28 Feb 2022