1) Evergreen Fibreboard is expected to release its 1HFY10 results in August, which are forecast to meet estimates but slightly beat consensus averages.
2) Evergreen's average selling prices have risen year-over-year and quarter-over-quarter due to recovering global demand, while raw material prices have remained unchanged or fallen.
3) Political turmoil in Thailand may benefit Evergreen as buyers continue to source from Malaysia, and strengthening of the Malaysian ringgit is a risk but the company has pricing flexibility to avoid significant losses from currency fluctuations.
1) Evergreen Fibreboard is expected to release its 1HFY10 results in August, which are forecast to meet estimates but slightly beat consensus averages.
2) Evergreen's average selling prices have risen year-over-year and quarter-over-quarter due to recovering global demand, while raw material prices have remained unchanged or fallen.
3) Political turmoil in Thailand may benefit Evergreen as buyers continue to source from Malaysia, and strengthening of the Malaysian ringgit is a risk but the company has pricing flexibility to avoid significant losses from currency fluctuations.
1) Evergreen Fibreboard is expected to release its 1HFY10 results in August, which are forecast to meet estimates but slightly beat consensus averages.
2) Evergreen's average selling prices have risen year-over-year and quarter-over-quarter due to recovering global demand, while raw material prices have remained unchanged or fallen.
3) Political turmoil in Thailand may benefit Evergreen as buyers continue to source from Malaysia, and strengthening of the Malaysian ringgit is a risk but the company has pricing flexibility to avoid significant losses from currency fluctuations.
1) Evergreen Fibreboard is expected to release its 1HFY10 results in August, which are forecast to meet estimates but slightly beat consensus averages.
2) Evergreen's average selling prices have risen year-over-year and quarter-over-quarter due to recovering global demand, while raw material prices have remained unchanged or fallen.
3) Political turmoil in Thailand may benefit Evergreen as buyers continue to source from Malaysia, and strengthening of the Malaysian ringgit is a risk but the company has pricing flexibility to avoid significant losses from currency fluctuations.
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PP10551/10/2010(025682)
06 August 2010
MALAYSIA EQUITY Investment Research Daily News 1HFY10 Results Preview Vincent Lim Vi Ming +60 (3) 9207 7663 viming.lim@my.oskgroup.com Evergreen Fibreboard 2Q Fundamentals Looking Good BUY Evergreen Fibreboard (EFB) is slated to release its 1HFY10 results sometime in the third week of August. Overall, we expect its earnings to meet our estimates but Target RM2.63 Previous RM2.08 slightly beat the consensus average, which is still conservative in view of the Price RM1.52 company’s earnings prospects. We maintain our BUY recommendation on the stock with a higher target price of RM2.63 against RM2.08 previously, premised on rolling BUILDING MATERIALS over to its FY11 EPS and pegging the stock at a higher tier building material PE of Evergreen Fibreboard is involved in the 10x from 9x previously. manufacture of medium density fibreboards (MDF), particle boards, value-added fibreboard and furniture. Higher selling prices. MDF prices have risen y-o-y and q-o-q, with the average selling prices of EFB’s 2.5mm and 18mm sized MDFs having risen by 13.5% and 15.9% Stock Statistics respectively y-o-y. Q-o-q selling prices of the respective MDF sizes also increased by 4.4% Bloomberg Ticker EVF MK Share Capital (m) 513.0 and 3.6%. The overall increase in average selling prices was largely due to recovering Market Cap (RMm) 779.8 global demand as the construction and furniture sectors’ prospects brightened. We are 52 week H│L Price (RM) 1.80 0.81 3mth Avg Vol (‘000) 660.7 aware that in the latest quarter, EFB was operating at utilization of above 75%. This is YTD Returns 8.6 expected to increase to above 85% towards year-end. Beta (x) 1.84
Major Shareholders (%) Raw material prices unchanged or lower. Despite higher demand, which has pushed up EPF 5.2 selling prices, EFB’s operating costs have not changed much. Prices of two of its main raw LTH 5.1 materials, namely rubber wood and glue, have not increased YTD. Benchmarking prices as HIMB Trading Ltd 5.0 at the month of May against the start of the year, rubber wood cost in particular - which Share Performance (%) accounts for 30% of the company’s operating costs - have instead declined by 10.7%. As Month Absolute Relative for glue, comprising 25% of operating costs, it has remained unchanged YTD, only chalking 1m 11.0 -0.5 up a slight 0.7% increase. Though not currently visible, we reckon that greater economies 3m 6.0 -1.1 6m 15.7 1.1 of scale could be achieved should EFB further ramp up production capacity. EFB currently 12m 80.5 44.1 operates at a maximum production capacity of 1.3m m3 of MDF per annum. 6-month Share Price Performance Orders still heading towards Malaysia. In our 10 June 2010 report entitled, “Keeping 1.80 Tabs on the Numbers” we said that the political turmoil in Thailand may bode well for EFB. 1.70
1.60 Although it is unfortunate that recent events have caused uncertainty in downtown 1.50 Bangkok, we believe that as long as the political turmoil is confined to Thailand, MDF 1.40 buyers will continue to look out for EFB in Malaysia when considering sourcing their 1.30 products from the ASEAN region. 1.20
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OSK Research
VALUATIONS & RECOMMENDATIONS
Strengthening ringgit. Our economics team recently forecast that the year-end USD-MYR exchange rate could be a stronger 3.18 against 3.3 previously. A strong ringgit will be negative for EFB as most of the company’s exports are quoted in USD, and as such, will bring about currency losses. Nevertheless, we understand that timber related companies have pricing flexibility to avoid events such as significant currency losses.
Valuations. We make no change to our earnings estimates but are ascribing a higher target price for EFB of RM2.63 from RM2.08 previously. This is upon rolling over to its FY11 EPS of 26.3 sen and applying a higher tier end building material PE of 10x from 9x previously. We maintain EFB as our Top buy in the Building Materials sector.
Figure 1: 2.5mm MDF price from 2002-2010 Figure 2: 18mm MDF price from 2002-2010 (USD) Far East (USD) Far East 360 290 340 270 320 250 300 230 280 210 260 190 240 220 170
200 150 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Figure 3: Rubber Wood Index 2005-2010 Figure 4: Glue price Index 2005-2010 170.0 180.0 160.0 150.0 160.0
140.0 140.0 130.0 120.0 120.0 110.0 100.0 100.0 90.0 80.0 80.0 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
OSK Research | See important disclosures at the end of this report 3
OSK Research
OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned.
This report has been prepared by OSK Research Sdn. Bhd. for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. OSK Research Sdn. Bhd. has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/
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This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an “Institutional Investor”, “Expert Investor” or “Accredited Investor”, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (“DMG”).
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(A wholly-owned subsidiary of OSK Investment Bank Berhad)
Chris Eng
Kuala Lumpur Hong Kong Singapore Jakarta Shanghai
Malaysia Research Office Hong Kong Office Singapore Office Jakarta Office Shanghai Office OSK Research Sdn. Bhd. OSK Securities DMG & Partners PT OSK Nusadana Securities OSK (China) Investment 6th Floor, Plaza OSK Hong Kong Ltd. Securities Pte. Ltd. Indonesia Advisory Co. Ltd. Jalan Ampang 12th Floor, 20 Raffles Place Plaza Lippo, 14th Floor, Room 6506, Plaza 66 50450 Kuala Lumpur World-Wide House #22-01 Ocean Towers Jln. Jend. Sudirman Kav 25, No.1266, West Nan Jing Road Malaysia 19 Des Voeux Road Singapore 048620 Jakarta 12920 200040 Shanghai Tel : +(60) 3 9207 7688 Central, Hong Kong Tel : +(65) 6533 1818 Indonesia China Fax : +(60) 3 2175 3202 Tel : +(852) 2525 1118 Fax : +(65) 6532 6211 Tel : +(6221) 520 4599 Tel : +(8621) 6288 9611 Fax : +(852) 2810 0908 Fax : +(6221) 520 4598 Fax : +(8621) 6288 9633
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