Robust demand, strong ASP to boost Evergreen Fibreboard earnings, says HLIB Research

KUALA LUMPUR: Evergreen Fibreboard Bhd's earnings is likely on a growth trajectory due to robust demand and rising average selling price (ASP) in panel boards and furniture market, said Hong Leong Investment Bank Bhd (HLIB Research).

Analyst Tan Kai Shuen said this would outweigh near term challenges for Evergreen, despite the capacity under-utilisation, cost increase and seasonally weaker in the fourth quarter (Q4) of 2021.

"We expect rubberwood cost and supply will start normalising once weather condition improves and glue cost may start easing from February onwards," said Tan in a research note today.

Tan said the foreign labour intake should also provide further upside to its ready-to-assemble (RTA) segment.

"With the expected turnaround in its Malaysia segment in Q4 of 2021 and sustained positive contributions from its regional operations (supported by reasons highlighted above), we believe Evergreen is on track to deliver commendable results in Q4 of 2021, with earnings growth momentum sustaining in the financial year ending December 31, 2022."

HLIB Research noted that Evergreen's operations normalised in Q4 as most of the company's factories were running at full capacity.

"The company has rebuilt its order book to a healthy level. However, rubberwood costs have increased across all three operating countries (with Malaysia operations experiencing a more pronounced increase on the back of flood and rainy season), while glue prices have increased by more than 30 per cent (as increased fertiliser usage in oil palm plantations has resulted in higher urea prices)."

The research firm also said there are signs that glue cost may have peaked and may start easing from February 2022.

"The company will continue to negotiate its products' pricing with its customers given the steep increase in material costs."

Meanwhile, HLIB Research said the easing of labour intake may provide further upside to the ready-to-assemble (RTA) segment as Evergreen had applied in December 2021 to bring in additional foreign workers.

"While there is no indication on when the foreign workers can come in, the arrival of additional workers (once materialised) is expected to increase about 30 per cent capacity to its RTA segment.

"This, in turn, allows Evergreen to produce higher-margin products that are more labour intensive."

HLIB Research has maintained its forecast with a 'Buy' call with an unchanged target price of 67 sen, as Evergreen's integrated operations from upstream to downstream products allow it to be better positioned to ride on the current upcycle in the panel boards market as well as the growth in the furniture industry.