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



OSK Research


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


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


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




OSK Research


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



OSK Research


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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(“DMG”).

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Evergrn 1HFY10 Results Preview 20100806 OSK