Will Evergreen Rebound from its Current 52 Weeks Low?

Background

Evergreen is a leading worldwide producer of quality engineered wood-based products consisting of Medium Density Fibreboard (MDF) and Particleboard with an annual production exceeding 1.3 million cubic meters. Evergreen has adopted a vertical integration strategy and expanded beyond its core Medium Density Fibreboard and Particleboard into value-added downstream products such as Paper, Veneer, Printed, Melamine Board Laminations, RTA Furniture, Sawn Rubberwood Timber, Biomass Wood Pallets and move up stream producing Resin and having our own Rubber Trees Plantation. Evergreen’s operations are carried out in Malaysia and Thailand.

Based on Financial Year (FY) 2015 full year Evergreen achieved more than RM 1 billion turnover, which is considered to be a mid to large size enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Since FY2011, Evergreen’s revenue has been experiencing a decline till FY2014 and then an increase from then till FY2015. However, FY2015’s revenue is still lower than FY2011 by RM17.5 million.

Net profit wise, the trend is similar to its revenue whereby a declining trend till FY2014 then a profit jumps in FY2015. In FY2013, the company even made a loss of RM 42.5 million. However, the FY2015 profit is higher than FY2011 by almost 3 fold. Net profit margin wise, Evergreen scores a 9.12%, which is average for a manufacturing company, and also have below average return on equity (ROE) at 9.12%.

On company’s debt, Evergreen has a low total debt to equity ratio of 0.19, signifies that the company has little borrowings relative to its shareholder equity value. The company’s current ratio of 1.75 is healthy and the cash ratio of 0.41 is still acceptable.

In terms of dividend, Evergreen used to pay a decent dividend of around 2% in FY2011 and FY2012 but stopped paying dividend till FY2015. In FY2015 the company pays a 1 cent dividend which is considered to be insignificant as it results in a 0.006% dividend yield.

In conclusion, Evergreen is a mid to large size enterprise which experienced a turnaround in their business in FY2015. The decline in revenue and profit from FY2011 to FY2014 is due to an industrial-wide down cycle. Looking at the Trailing Twelve Months (TTM) financial figures (based on quarterly results till Mar 2016), Evergreen is projected to have better revenue in FY2016 as well as higher net earnings, which will support the rebound of its share price in the near future.

However, one important point to note is that there is a shift in the major revenue contributing market from South East Asia being the majority (44.7%) in FY2014 to Middle East being the majority in FY2015 (45.1%), following by South East Asia being the 2nd majority (38.1%). Therefore, the economic well-being of both Middle East as well as South East Asia will be the key to Evergreen’s prosperity, which outlook for these two economy still remains gloomy currently.

Next quarterly results announcement should be on the month of Aug 2016 for Q2 results.

Volume Spread Analysis (iVSA) & comments based on iVSAChart software – Evergreen

On the 6-month weekly iVSAChart, matters are not looking good for Evergreen as the market has broken down the RM1.00 major support level and continue to slide down towards RM0.90. Notice the series of three Sign Of Weakness (red arrows) in the past few weeks, which indicates selling pressure.

Currently, this stock is down trending and at best, it will likely consolidate in sideway movements over the short term. We need to see more Sign Of Strength (green arrows) emerges on iVSAChart to confirm the reversal of downtrend before accumulating.

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.