To benefit from trade war. Elevated US-China tensions continue to benefit EVERGN as more US furniture buyers move away from China, and purchase instead from furniture makers in ASEAN, including Malaysia. This has resulted in many Chinese furniture makers moving out of China to set up their factories in ASEAN, which is a positive for EVERGN as these are potential new customers for the group to supply panel boards to, given their proximity to Malaysia. We also note that the demand from the Middle East economy, one of EVERGN’s main sales destinations (26% of the group FY21 revenue), remained strong due to the elevated oil revenue that resulted in higher disposal income. With demand outlook remaining intact, we anticipate EVERGRN’s 2H22 performance to match 1H22 despite the ongoing log supply shortage and rising operating costs – labour and electricity.

Beneficiary of strong USD. Dragged by the Fed’s hawkish stance and heightening domestic political risks, Ringgit has tumbled to the lowest level since the Asian Financial Crisis, with USD/MYR breaching the 4.5 mark to 4.54 last Friday. Current 3QTD USD/MYR averaged 4.46 (vs. 1H22: 4.27). With US’s August CPI coming in above market expectations (actual: 8.3% vs forecast: 8.1%), market is now projecting a 75bps-100bps in the upcoming 21 Sep FOMC meeting, lending further strength to the USD (weakening MYR). In this respect, panel board manufacturers like EVERGRN, with >70% of its sales is in USD is a good proxy to ride on the strong greenback.

Building a base. Technically, EVERGRN is currently is building a strong base at RM0.0.46-0.50 levels, with indicators are on the mend. A successful breakout above the RM0.55 resistance will spur greater upside towards RM0.58-0.61-0.68. Cut lost at RM0.0.44.

Source: Hong Leong Investment Bank Research - 19 Sept 2022