Analysis Type: Fundamental
Evergreen has long been a favourite of fundamental investors. It is also one of Dali's best picks. However, it's share price has not really been moving yet. That might change soon.
Last week, Evergreen made a move which will typify its M&A activities in the future - it bought over Hume Industries' Fibreboard business (Hume Fibreboard Sdn Bhd) for RM213.23 million.
Great Corporate move :
The acquisition of Hume Fibreboard makes great business sense. Firstly Evergreen will be swallowing a major competitor. Secondly, Evergreen will be expanding its yearly profits by around RM30.7 million per year, according to JP Morgan. As Evergreen made profits of RM118 million last year, RM30.7 million would translate to an additional 26% of profits for Evergreen, making its cheap PE ratio of around 5 times even cheaper at around 4 times.
Quek now a shareholder
The acquisition of Hume will be paid for by RM170 million of cash and also an issuance of 6.43% of Evergreen shares to Hume, making Hume and ultimately the illustrous Quek Leng Chan a shareholder of Evergreen. Quek's willingess to take Evergreen shares as part payment testifies to his faith in Evergreen, which means that yes, Evergreen is indeed a very nice company. So says the Malaysian billionaire.
Look out for more acquisitions :
It is likely that there will be more acquisitions to come as Evergreen seeks to become a global Fibreboard player. Look for its valuations to increase as it becomes bigger and more recognizable globally. What's more, will Quek start accumulating more shares in Evergreen in the future? Kencana 2 anybody?