EVERGRN : A breakout

Expecting a turnaround in 2H24. EVERGRN remains HLIB’s top pick for wood manufacturing, with a turnaround anticipated in FY24. After recording a loss of RM33m in FY23, we project a net profit of RM10.5m in FY24 and further gains to RM19.5m in FY25. This turnaround is expected to become more apparent in 2HFY24, driven by: (i) the new capacity in the Indonesia MDF line coming online in 3Q24 and (ii) a recovery in furniture demand from the US and EU. While the increased capacity in the Indonesia MDF line can be absorbed by the local Indonesian and Middle Eastern markets, another key catalyst for rising demand could be the anticipated recovery in the US housing market in anticipation of a rate cut. To recap, a meaningful rebound in the demand from US will be significant to local furniture players, as the US market accounted for c.49% of Malaysia’s wood furniture export. Should this materialize, we believe panel board makers like EVERGRN will be among the first to benefit as Malaysian furniture manufacturers replenish their panel board inventories.

Exploring new export markets. During the downturn in furniture demand from the US and EU, the group focused on developing new markets by increasing exports of RTA (Ready-to-Assemble) furniture to Japan. This strategic shift has yielded encouraging results, with exports to Japan now accounting for 20% of the group’s RTA sales, up from a low base when the group primarily targeted the US market. Given the stringent compliance standards in Japan, the group's successful penetration could pave the way for expanding its client base and product offerings, potentially including panel board exports to Japan in the future.

A breakout. EVERGRN staged a breakout above its long-term resistance level of RM0.35 on the last trading day alongside with expanded volume. With the bullish momentum showing no sign of abating, we believe the stock will extend its upward trajectory towards the RM0.38-0.40-0.42 region. Cut loss at RM0.32.

Collection range: RM0.34-0.35-0.36

Upside targets: RM0.38-0.40-0.42

Cut loss: RM0.32

Source: Hong Leong Investment Bank Research - 6 Jun 2024