2Q22 core net profit of RM16m (QoQ: -4.8%; YoY: 4.9x) brought 1H22’s sum to RM32.8m (YoY: +2.2x), making up 48.8% of our full-year forecast (in line). Maintain BUY with a slightly higher TP of RM0.96 pegged to 12x P/E based on FY22 EPS of 8.0 sen. With the group’s demand outlook remaining robust coupled with the current strength in USD which is at its 5-year high, we believe that Evergreen remains a compelling investment case. In addition, its strong operating cash flow coupled with no major capex in sight should culminate for a decent dividend payout for FY22.

In line. Evergreen’s 2Q22 core net profit of RM16m (QoQ: -4.8%; YoY: +4.9x) brought 1H22’s sum to RM32.8m (YoY: +2.2x), which is within our expectation, making up 48.8% of our full-year forecast. 1H22 core net profit number was arrived at after adjusting for (i) foreign exchange gain of (RM3.7m); (ii) impairment of assets (RM2m) and; (iii) gain on disposal of PPE (RM1.3m).

Dividend. None (2Q21: None). 1H22: 1.5 sen (1H21: None).

QoQ. Revenue increased by 3.4% mainly due to the sustained growth in ASPs. However, core net profit declined by 4.8% due to higher selling and administrative expenses.

YoY. Revenue increased by 54.8% as all 3 segments recorded revenue growth (Malaysia: +53.9%, Thailand: +55% and Indonesia: +56.8%). The higher revenue from Malaysia was contributed by higher ASP from panel boards and downstream products (as well as having longer operational days as there was a 1-month lockdown SPLY) whereas the higher revenue from Thailand and Indonesia was contributed by higher ASP and sales volume. However, core net profit increased by a larger magnitude of 4.9x from RM2.7m to RM16m. This is due to higher GP margin 27.2% (vs 16.8% SPLY) as a result of higher ASP which more than offset higher raw material costs.

YTD. Revenue increased by 45.4% while core net profit increased by 2.2x for the same reasons as mentioned in the YoY paragraph above.

Outlook. Evergreen delivers a commendable quarter results despite having a 2-week downtime due to plant maintenance during the Hari Raya holidays. We note that the group is doing considerably better compared to its peers due to (i) its diversified production bases in Thailand and Indonesia; and (ii) the strength in its operating market in Middle East and Indonesia. Both of these factors helped to mitigate the weakness in Malaysia’s market in 1H22, which was impacted by log supply shortage due to lack of labour in log harvesting and prolonged wet weather. While the Malaysia furniture market may face a slowdown (impacting panel boards demand) especially from the US arising from soaring inflation, we note that Evergreen should be able to divert its orders to other export markets in the event of a slowdown. In addition, we continue to be optimistic that the group’s Thailand and Indonesia operations will continue to fare well as (i) demand from the Middle East (catered to by its Thailand operations) remains robust, due to the strength in private consumption mainly contributed by its strong economic growth from elevated crude oil revenues; and (ii) demand in the Indonesian market remains strong due to the nation’s growing middle class supporting private consumption.

Forecast. Unchanged.

Maintain our BUY rating with a slightly higher TP of RM0.96 (from RM0.95) pegged to 12x P/E based on a slightly higher FY22 EPS of 8.0 sen (from a lower share base arising from the group’s share buyback exercise). With the group’s demand outlook remaining robust coupled with the current strength in USD which is at its 5-year high (2Q22: RM4.35/USD vs. 3QTD: RM4.45/USD), we believe that Evergreen remains a compelling investment case. In addition, its strong operating cash flow coupled with no major capex in sight should culminate for a decent dividend payout for FY22.

Source: Hong Leong Investment Bank Research - 23 Aug 2022