evergrn 1hfy10 results preview 20100806 osk
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8/8/2019 Evergrn 1HFY10 Results Preview 20100806 OSK
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PP10551/10/2010(025682)06 August 2010
OSK Research | See important disclosures at the end of this report 1
MALAYSIA EQUITYInvestment Research
Daily News
1HFY10 Results PreviewVincent Lim Vi Ming+60 (3) 9207 [email protected] Evergreen Fibreboard
2Q Fundamentals Looking Good
BUY
Target RM2.63Previous RM2.08Price RM1.52
BUILDING MATERIALS
Evergreen Fibreboard is involved in themanufacture of medium density fibreboards(MDF), particle boards, value-addedfibreboard and furniture.
Stock Statistics
Bloomberg Ticker EVF MKShare Capital (m) 513.0Market Cap (RMm) 779.852 week H│L Price (RM) 1.80 0.813mth Avg Vol (‘000) 660.7YTD Returns 8.6Beta (x) 1.84
Major Shareholders (%)
EPF 5.2LTH 5.1HIMB Trading Ltd 5.0
Share Performance (%)
Month Absolute Relative1m 11.0 -0.53m 6.0 -1.16m 15.7 1.1
12m 80.5 44.1
6-month Share Price Performance
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
F eb -1 0 M ar -1 0 A p r- 10 A p r- 10 M ay - 10 J u n- 10 J u l- 10
Evergreen Fibreboard (EFB) is slated to release its 1HFY10 results sometime in the
hird week of August. Overall, we expect its earnings to meet our estimates but
lightly beat the consensus average, which is still conservative in view of the
ompany’s earnings prospects. We maintain our BUY recommendation on the stock
ith a higher target price of RM2.63 against RM2.08 previously, premised on rolling
ver to its FY11 EPS and pegging the stock at a higher tier building material PE of
10x from 9x previously.
Higher selling prices. MDF prices have risen y-o-y and q-o-q, with the average selling
prices of EFB’s 2.5mm and 18mm sized MDFs having risen by 13.5% and 15.9%
respectively y-o-y. Q-o-q selling prices of the respective MDF sizes also increased by 4.4%and 3.6%. The overall increase in average selling prices was largely due to recovering
global demand as the construction and furniture sectors’ prospects brightened. We are
aware that in the latest quarter, EFB was operating at utilization of above 75%. This is
expected to increase to above 85% towards year-end.
Raw material prices unchanged or lower. Despite higher demand, which has pushed up
selling prices, EFB’s operating costs have not changed much. Prices of two of its main raw
materials, namely rubber wood and glue, have not increased YTD. Benchmarking prices as
at the month of May against the start of the year, rubber wood cost in particular - which
accounts for 30% of the company’s operating costs - have instead declined by 10.7%. As
for glue, comprising 25% of operating costs, it has remained unchanged YTD, only chalking
up a slight 0.7% increase. Though not currently visible, we reckon that greater economies
of scale could be achieved should EFB further ramp up production capacity. EFB currently
operates at a maximum production capacity of 1.3m m3 of MDF per annum.
Orders still heading towards Malaysia. In our 10 June 2010 report entitled, “Keeping
Tabs on the Numbers” we said that the political turmoil in Thailand may bode well for EFB.
Although it is unfortunate that recent events have caused uncertainty in downtown
Bangkok, we believe that as long as the political turmoil is confined to Thailand, MDF
buyers will continue to look out for EFB in Malaysia when considering sourcing their
products from the ASEAN region.
FYE Dec (RMm) FY07 FY08 FY09 FY10f FY11fRevenue 731.6 730.5 771.5 874.5 967.7Net Profit 118.5 76.7 87.4 118.3 134.8% chg y-o-y 98.4 -35.3 13.9 35.4 13.9Consensus - - - 104.8 119.4EPS (sen) 24.7 15.0 17.0 23.1 26.3DPS (sen) 7.0 0.0 5.3 7.2 8.2Dividend yield (%) 4.6 0.0 3.5 4.7 5.4ROE (%) 24.7 13.4 13.3 15.7 15.9ROA (%) 13.0 6.2 7.0 8.6 9.0PER (x) 6.2 10.2 8.9 6.6 5.8BV/share (RM) 1.04 1.19 1.38 1.55 1.75P/BV (x) 1.5 1.3 1.1 1.0 0.9EV/ EBITDA (x) 5.2 10.7 7.6 6.3 6.2
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OSK Research
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VALUATIONS & RECOMMENDATIONS
Strengthening ringgit. Our economics team recently forecast that the year-end USD-MYR exchange
rate could be a stronger 3.18 against 3.3 previously. A strong ringgit will be negative for EFB as most of
the company’s exports are quoted in USD, and as such, will bring about currency losses. Nevertheless,
we understand that timber related companies have pricing flexibility to avoid events such as significant
currency losses.
Valuations. We make no change to our earnings estimates but are ascribing a higher target price for EFB of RM2.63 from RM2.08 previously. This is upon rolling over to its FY11 EPS of 26.3 sen and
applying a higher tier end building material PE of 10x from 9x previously. We maintain EFB as our Top
buy in the Building Materials sector.
Figure 1: 2.5mm MDF price from 2002-2010(USD) Far East
Figure 2: 18mm MDF price from 2002-2010(USD) Far East
200
220
240
260
280
300
320
340
360
J an F eb M ar A pr M ay J un J ul A ug Se pt Oc t N ov De c
2005 2006 2007 2008 2009 2010
Source : www.evergreengroup.com.my
150
170
190
210
230
250
270
290
J an F eb M ar A pr M ay J un J ul A ug S ep t O ct N ov De c
2005 2006 2007 2008 2009 2010
Source : www.evergreengroup.com.my
Figure 3: Rubber Wood Index 2005-2010 Figure 4: Glue price Index 2005-2010
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
J an F eb M ar A pr M ay J un J ul A ug S ep t Oct N ov De c
2005 2006 2007 2008 2009 2010
Source : www.evergreengroup.com.my
80.0
100.0
120.0
140.0
160.0
180.0
J an F eb M ar A pr M ay J un J ul A ug S ep t O ct N ov De c
2005 2006 2007 2008 2009 2010
Source : www.evergreengroup.com.my
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EARNINGS FORECAST
FYE Dec (RMm) FY07 FY08 FY09f FY10f FY11f
Turnover 731.6 730.5 771.5 874.5 967.7EBITDA 146.1 100.7 148.1 194.4 215.3PBT 140.4 63.9 80.4 120.2 136.9Net Profit 118.5 76.7 87.4 118.3 134.8EPS (sen) 24.7 15.0 17.0 23.1 26.3
DPS (sen) 7.0 0.0 5.3 7.2 8.2
MarginEBITDA (%) 20.0 13.8 19.2 22.2 22.2PBT (%) 19.2 8.7 10.4 13.7 14.2Net Profit (%) 16.2 10.5 11.3 13.5 13.9
ROE (%) 24.7 13.4 13.3 15.7 15.9ROA (%) 13.0 6.2 7.0 8.6 9.0
Balance SheetFixed Assets 517.7 902.9 885.0 873.3 830.1Current Assets 347.8 289.4 308.8 454.7 605.9Total Assets 912.6 1246.2 1249.4 1383.4 1491.1Current Liabilities 138.4 407.3 227.9 267.7 267.7Net Current Assets 209.3 -117.9 80.9 187.0 338.2LT Liabilities 235.1 222.6 313.6 313.3 313.3
Shareholders Funds 532.5 610.7 706.2 796.6 899.7Net Gearing (%) 19.7 64.5 42.8 29.0 9.2
Cash FlowPBT 140.4 63.9 80.4 120.2 136.9Other Operating Cash -265.8 -138.0 379.1 18.3 18.8Chg in Working Capital -17.1 155.8 -397.3 -42.6 -9.6Operating Cashflow 1.7 121.5 121.2 157.4 209.5CAPEX -179.5 -457.6 -19.5 -50.0 -20.0FCF -177.9 -336.1 101.8 107.4 189.5
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OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressedwill be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investmentdecision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interestand/or underwriting commitments in the securities mentioned.
This report has been prepared by OSK Research Sdn. Bhd. for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by BursaMalaysia Berhad and has been compensated to undertake the scheme. OSK Research Sdn. Bhd. has produced this report independent of anyinfluence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysia’s websiteat: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/
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