Evergreen seeks more efficiencies

Evergreen seeks more efficiencies

Its profit margin widens despite price drop

PETALING JAYA: Regional manufacturer Evergreen Fibreboard Bhd seeks more of the kind of production efficiencies that has enabled it to widen its profit margins. 

Evergreen announced a 49% increase in revenue to RM192.6mil for its second quarter ended June 30, while its net profit rose by 128% to RM32.1mil compared with the same quarter last year. 

This was achieved in spite of a slight dip in fibreboard prices in the second quarter following a surge in prices last year, executive director Kuo Jen Chiu told StarBiz yesterday. 

The second-quarter net profit was a 13% improvement over the preceding quarter's earnings. "There were production efficiencies. Plant utilisation was higher in the second quarter than in the first," Kuo said. 

The higher revenue was also partly due to the purchase of the assets of Takeuchi MDF for RM107mil cash in December last year. The assets include a plant in Johor that makes extra-thin medium-density fibreboard (MDF) for the Japanese and Middle Eastern markets. 

In recent years, Evergreen expanded into Thailand, where it also operates an MDF plant. 

In spite of this major expansion, the group was virtually debt-free. It held cash and financial assets of RM159mil against borrowings that totalled RM162mil at end-June. This is partly due to its strong operating cashflow, which amounted to RM88mil in the first half this year. 

Evergreen is in the process of acquiring the assets of an MDF company in Indonesia for US$21mil (RM73mil). Kuo pointed out that these assets included a glue plant. 

The group's plant in Thailand had glue manufacturing facilities and a similar glue plant would be built in Malaysia too, he added. 

"Glue is one of our major costs. Glue accounts for about 30% of our total costs, about the same as wood, which also accounts for 30%. 

"We're integrating upstream into our major costs," he added. Hence, the company plans to acquire concession leases for either rubber or acacia tree plantations so that about 20% of its wood requirements would be within its control. 

"We're also constantly reducing our overhead costs, which form 40% of our total costs," he said. 

Citigroup initiated coverage of Evergreen last week, forecasting that it would earn a net profit of RM125mil or earnings per share of 26 sen this year. The investment bank, which set a target price of RM3.40 for the stock, said the group was the biggest MDF maker in the country and it could become the biggest in Asia-Pacific when it expanded its Thai plant by the end of next year. 

Credit Suisse said in a note yesterday that Evergreen could post a net profit of RM109.5mil this year and its target price was RM2.65.

                                                                        The stock closed at   RM1.42 yesterday.