KUALA LUMPUR (July 8): Hong Leong IB Research has maintained its “Buy” rating on Evergreen Fibreboard Bhd with a higher target price of RM2.15 and said it believed the strong share price performance was due to stronger US dollar (against the ringgit) and declining crude oil price which are both positive to Evergreen’s earnings.

“In our view, Evergreen’s valuation remains commendable despite the recent strong share price performance, as: (1) MYR will remain under pressure; and (2) Prices of key inputs, namely rubber log wood and glue remain on downtrend, and these are supportive of Evergreen’s earnings,” it said in a note today.

HLIB IB Research said the ringgit and lower key input prices aside, we note that management’s continuous efforts to further improve Evergreen’s output and cost efficiencies, and diversifying its product range will help drive its earnings higher.

The research house said given the improving earnings visibility and decent balance sheet, we do not discount the possibility of Evergreen resuming paying dividends by 2016 (although management remains tight lipped on such possibility).

“FY15-17 net profit forecasts raised by 6.4-12.9%, largely to account for: (1) A higher US$:RM assumption of RM3.60/US$ (vs. RM3.50/US$ previously); and (2) Slightly lower raw material cost assumptions.

“Target price lifted by 35.2% to RM2.15, to reflect: (1) Higher net profit forecasts; (2) The roll forward of our valuation base year (from average 2015-2016 to 2016); and (3) Higher target P/E of 11x (from 10x previous), given Evergreen’s improving earnings visibility. Maintain Buy recommendation,” it said.