Evergreen Fibreboard Bhd
(July 21, RM2.01)
Initiating coverage with an add call and a target price of RM2.90: Evergreen Fibreboard is one of Asia’s largest medium-density fibreboard producers and, we believe, the largest in Asean, with a capacity of 1.3 million cubic meters per annum spread across three countries — Malaysia, Thailand and Indonesia.

It has over 600 customers across more than 40 countries worldwide. About 70% of its revenues are US dollar-denominated. 

Our sensitivity analysis indicates that a 1% strengthening of the US dollar increases Evergreen Fibreboard’s earnings per share by 10% for financial year 2015 (FY15).

Evergreen Fibreboard is an exciting turnaround story with many tailwinds in its favour.

We expect the earnings before interest, taxes, depreciation and amortisation margin to accelerate from 4% for FY13 to 22% for FY17. 

This is driven by the strong US dollar, sharply lower raw material costs, falling freight cost and the benefits of the internal restructuring Evergreen Fibreboard has embarked on — a series of internal restructuring projects to cut costs, improve its manufacturing processes and introduce new products to improve margins. 

These benefits are expected to flow through in earnings for FY16 and FY17. 

It is shutting down unprofitable plants, buying newer equipment to reduce processing time and expanding its particle board and furniture capacities. 

In addition, we expect the group to dispose of its non-core assets, which could raise up to RM110 million in cash or 21 sen per share, and could be used to pare down debts and/or raise dividends.

Evergreen Fibreboard is still under-researched. 

Its larger-cap peer, Vanachai Group Pcl in Thailand, is trading at FY16 price-earnings ratio of 15 times.

Compared with Heveaboard Bhd, our earlier small-cap initiation that was premised on a weak ringgit-strong US dollar theme, Evergreen Fibreboard is a larger-cap and more liquid proxy than Heveaboard, but with the added kicker of a sharp turnaround story. — CIMB Research, July 20

This article first appeared in The Edge Financial Daily, on July 22, 2015.