Evergreen Fibreboard Bhd
(Aug 20, RM1.91)
Maintain buy with an unchanged target price (TP) of RM2.15: The first half ended June 30 of financial year 2015 (1HFY15) net profit of RM43.9 million beat our and market expectations, accounting for 54.3% and 55.8% of market and our full-year forecasts, respectively.
This is due to a better-than-expected margin arising from a stronger-than-expected US dollar movement. US$:RM averaged at 3.64 in 1HFY15, higher than the 3.60/US$ we assumed; and a lower-than-expected effective tax rate of 15.7% vis-à-vis the 18% that we assumed.
1HFY15 turned around with a net profit of RM43.9 million (from a net loss of RM24.3 million a year ago), thanks to lower production cost (particularly, glue and log), and higher selling prices (arising from a stronger US dollar) and sales volume, as well as improved operational efficiency arising from the restructuring of certain operational facilities in Malaysia.
Quarter-on-quarter (q-o-q), second quarter of FY15 (2QFY15) net profit grew 19.1% to RM23.9 million, mainly on the back of higher sales volume, declining cost of raw materials (i.e. rubber log wood and glue), higher operational efficiency and synergistic cost savings from the group’s recent restructuring of operational facilities in Malaysia. We maintain our forecasts for now, pending further updates with management.
Positives include being a beneficiary of the strong US dollar and low oil price, a healthy balance sheet and rubber plantation land bank value that has yet to be reflected in the current share price valuation.
We maintain a TP of RM2.15 based on 11 times 2016 earnings per share of 19.6 sen, as well as our “buy” recommendation.
We continue to like Evergreen for its strong earnings visibility, underpinned by the weak ringgit (against the US dollar), lower raw material prices, and management’s commitment to further improve its overall production efficiency and diversify its product range. — Hong Leong IB Research, Aug 20
This article first appeared in digitaledge Daily, on August 21, 2015.