Kenanga Research: Evergreen looking at better years ahead

KUALA LUMPUR: Evergreen Fibreboard Bhd (Evergreen) is looking for even better years ahead, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) observed.

It noted that the management believed that the group is able to improved earnings further.

According to Kenanga Research, streamlining initiatives has successfully turned Evergreen around in financial year 2015 (FY15) as refurbishments and upgrades on existing facilities, coupled by investments in highly automated machinery improved production levels while reducing overhead and labour costs.

The research arm noted that in FY15, with higher revenue registered at RM1.01 billion (up 7.7 per cent year on year (y-o-y)) coupled with higher operational efficiency, gross profit (GP) soared by leaps and bounds (up 77.8 per cent, with gross profit margin (GPM) improved to 29.2 per cent from 17.7 per cent) to close at RM296.3 million, sending profit after tax and minority interests (PATAMI) to RM92.6 million (from FY14 PATAMI RM0.2 million).

Kenanga Research highlighted that management believes that Evergreen is able to improve earnings further with the stabilisation of the medium density fibreboards (MDF) market and new strategies in place to expand the company’s customer base in the ready-to-assemble (RTA) segment, which yields more favourable margins.

“Management aims to further explore opportunities to widen its streamlining efforts to bring about continuous growth in earnings potential.

“In addition, a minimum dividend payout policy of 25 per cent was enforced from FY16 onwards, having not paid any in the last two years in lieu of disappointing results,” the research arm said.

Kenanga Research’s initial projection expected a steady revenue growth in FY16E/FY17E of 7.6 per cent/5.9 per cent with sustainable GP margin of 32.1 per cent/33.7 per cent, and with a 13.2 per cent/17.5 per cent growth in net earnings growth.

“Applying the minimum dividend payout of 25 per cent of net profit (NP), FY6E/FY17E is poised to provide investors 3.5 sen/four sen or 3.2 per cent/3.7 per cent dividend yield,” it said.

Although the growth prospects of Evergreen appear promising, the research arm was conservative with its valuation due to the prevailing forex risks and the prolonged unrest in the Middle East which contributes circa 45 per cent of the company’s revenue (based on FY15 results).

It added that Evergreen appears expensive PER-wise with a lower dividend yield against fellow MDF peer, Heveaboard Bhd.

Management aims to further explore opportunities to widen its streamlining efforts to bring about continuous growth in earnings potential. Kenanga Research

Streamlining initiatives has successfully turned Evergreen around in FY15 as refurbishments and upgrades on existing facilities, coupled by investments in highly automated machinery improved production levels while reducing overhead and labour costs.

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