Evergreen Fibreboard to see recovery in 4Q21 onwards as ops normalise
KUCHING: Evergreen Fibreboard Bhd (Evergreen Fibreboard) has been projected to see a meaningful recovery from the fourth quarter of 2021 (4Q21) onwards as operations normalise.
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) gathered that Evergreen had resumed its Malaysia operations since early September.
“Management previously shared that there were no major hiccups in restarting its operations and order book is improving post business resumption,” HLIB Research recalled.
On the cost side, while log cost remains flattish for now, the research arm noted that log cost may increase towards year end due to wet season.
“Glue cost, on the other hand has seen a large increase, up 20 to 30 per cent quarter on quarter (q-o-q), which translates to an overall circa eight per cent increase in cost of goods sold (COGS).
“The steep increase is due to an increase in crude oil price (up 63.5 per cent year to date (YTD)), increase in demand for the raw material components: urea in Indonesia and India as well as methanol and melamine in China, supply shortage due to power outage in China impacting production and freight cost increase.”
However, HLIB Research believed Evergreen will be able to pass on most of the cost increases to its customers in their next price adjustment owing to the current strong demand in the panel boards market.
On regional contribution, HLIB Research gathered that Thailand continues to see strong export demand from the Middle East mainly driven by stocking up activities and increase in private consumption as more job opportunities were created as a result of increased government spending from higher oil revenues.
“To cater to the increased demand, the group restarted a production line recently which will boost its Thailand’s capacity by circa 20 per cent.
“Furthermore, the weakening of Thai baht against US dollar bodes well for the group as more than 90 per cent of sales are priced in US dollar while circa 70 per cent of costs are priced in local currency.”
As for Indonesia, the research arm noted that demand from the local market remains robust as the current elevated freight cost acts as a natural barrier for Indonesian furniture makers to import panel boards and the group is gearing up its marketing efforts to the local market.
“Although Malaysia’s operations were closed for two months in 3Q21, we understand that the group was able to divert 60 to 70 per cent of its medium density fibreboard (MDF) orders to its Thailand operations.
“As such, we expect Malaysia’s operations to remain in the red in 3Q, while this is well cushioned by its profitable Thailand and Indonesia operations.
“The group should see a meaningful recovery from 4Q21 onwards as operations normalise.”
Overall, HLIB Research expects FY21 to be profitable, a turnaround from FY20 when it incurred losses.
“Furthermore, should the foreign labour intake restrictions be lifted, there is potential to scale up contribution from ready-to-assemble (RTA) going forward.”