Evergreen's 1QFY12 annualized earnings were in line with our expectations, accounting for 102.2% of our full-year estimate. Given its recent meager dividend payout, we are lowering our payout assumptions for FY12 and FY13, which translate into a lower dividend yield of 2.2% and 3.1% for FY12 and FY13 respectively. Nonetheless, we are still positive on the company's earnings outlook this year. While we make no changes to our earnings estimate, we are upgrading the stock from NEUTRAL to BUY as it offers a 16.7% upside to our FV, pegged at 7.0x FY12 EPS.
In line. Evergreen's 1QFY12 annualized earnings were in line with our expectations, accounting for 102.2% of our full-year estimate. Revenue jumped 16.5% y-o-y while net profit soared 241.9% y-o-y as margins improved, underpinned by steady average selling prices (ASPs) for most of its products (USD300/m3 for its 2.5mm MDFs and USD275/mm3 for its 18mm MDFs), as well as effective cost reduction measures.
Lowering our dividend payout assumption. We were surprised with the company's recent dividend of 1.5 sen compared with our estimated 3.7 sen, and understand that management intends to conserve more cash. We also gather that management will continue to look for potential acquisitions for its upstream venture and may explore a share buy-back exercise. With that in mind, we are lowering our dividend payout assumption to 15.3% and 16.2% for FY12 and FY13 respectively.
Possible earnings surprise in FY13. We note that the company is in the midst of setting up a sales team to sell off its excess glue, which may be the catalyst for a potential earnings upgrade for FY13. We gather that both its glue factories in Malaysia produce a total of 200,000 tonnes of glue per year, while its plant in Indonesia produces 60,000 tonnes annually. As the group consumes some 150,000 tonnes of glue a year, it has an excess 110,000 tonnes of glue that it can sell. Management guided that it could potentially sell the excess glue at some RM1,050 per tonne, which will fetch a 10% net profit. This will translate into a handsome profit of some RM11.6m, assuming that it manages to sell 110,000 tonnes of glue. While we have not factored this into our earnings estimate as yet, we will closely monitor the progress of this venture and will tweak our earnings estimates accordingly once the plan materializes.
Upgrade to BUY from NEUTRAL. We think that the company's earnings outlook for the year will be positive, backed by: (i) steady product ASPs, (ii) sturdy pricing for rubberwood logs, and (iii) monetizing its recent acquisition of 4,410 acres of land. While we stick to our earnings estimate, we are upgrading the stock from NEUTRAL to BUY as it offers a 16.7% upside to our FV.