ASPs continue its upward trajectory. On the back of robust demand, we gather that EVERGRN’s ASP is still on a positive trend, albeit growing at a slower pace amid higher transport costs as a result of elevated oil prices. Adhesive cost (which makes up 20-25% of the group cost of production), on the other hand, remains flattish QoQ due to stable urea prices. Despite anticipating potential uptick bias in the adhesive cost going forward due to the Russia-Ukraine war, we reckon the rise could be mitigated through cost passing or adjustment to its glue formulation to improve glue efficiency in the production of panel boards.

Weakening Ringgit. As c.60% of EVERGRN’s sales are denominated in USD, while most of its cost are in local currencies, we reckon that the recent weakening Ringgit will bode well for EVERGRN. To recap, USD/MYR has appreciated 5% YTD from 4.16 to 4.38 yesterday as the Fed's hawkish stance and surging US 10Y bond yield triggered a rout in emerging market currencies. We expect export-oriented stock such as EVERGRN will come to the limelight in anticipation of stronger USD amid Fed’s aggressive tightening campaign (vs more measured rate hikes by BNM).

Anticipate a robust FY21-23 EPS CAGR of 74%. Despite facing near term headwinds mainly caused by prolonged bad weather as well as global macro events, we are not overly concerned as these challenges are not structural or permanent in nature. We believe Evergreen is well positioned to overcome these challenges due to its well integrated operations, diversified production bases, as well as riding on a positive momentum driven by recovering demand in the panel board and furniture market. Based on our projection, the group is supported by a robust FY21-23 EPS CAGR of 74% and an undemanding valuation of 7x FY23 P/E (-41% vs 5Y avg 12x).

Hammer pattern. Mirroring the global markets’ selloff in the last two weeks, EVERGN’s share prices had lost 11.8% from a 52-week high of RM0.80 to RM0.705 yesterday. Taking cue from the hammer candlestick pattern with share prices closed above the critical support line, we reckon EVERGRN will experience a rebound going forward, targeting RM0.75-0.80-0.87 zones. Supports are pegged at RM0.64-0.68. Cut lost at RM0.62.

Source: Hong Leong Investment Bank Research - 11 May 2022