Evergreen Remains Sound


Despite the shares not performing to expectations since their listing in March 2005, Evergreen Fibreboard Bhd's fundamentals, return on equity and valuations remain intact, said SBB Securities Sdn Bhd.

The counter ended one sen higher yesterday at 86 sen. However, at current price levels, the stock is still trading below its initial public offering price of RM1.14.

According to SBB securities senior analyst Ng Jun Sheng, the medium density fibreboard (MDF) exporter's fundamentals are strong and the company is expected to offer very attractive dividend of 7.5% this year.

Evergreen declared 2 sen dividend for the first quarter of 2006, payable on Aug. The group paid 8.25 sen dividend in 2005, offering an attractive yield of 9.7%.

Ng said after paying almost 70% of the net profit to shareholders in 2005, he expected a lower dividend payout of 6.5 sen (7.7% yield) in 2006 and 7 sen (8.9% yield) in 2007, in view of the heavy capital spending during these periods. However, he added that the dividend payout was still much higher compared with its peers in the industry.

Evergreen is involved in the manufacture of MDF, particleboard and knocked down wooden furniture.

It is the second largest MDF manufacturer in Malaysia with an estimated 16% market share.

SBB Securities in its note said Evergreen was expected to register a compounded annual growth rate of 12.7% from financial years 2005 to 2007 despite rising raw material costs and intense competition.

"We expect the group to benefit from the higher MDF and particleboard prices, capacity expansion in Thailand, a change in product mix to focus on higher value-added MDF, improving production efficiency, coupled with the promising global demand for wood-based panel products." SBB Securities said.

The research house added that the company hedged six months forward for its Malaysian operations as its products were mainly exported and were subject to foreign exchange fluctuations.

For the first quarter ended March 31, Evergreen posted a net profit of RM10.9mil on revenue of RM123.6mil.

The firm has a "buy" call on this stock with a 12-month target price of RM1.10, which is equal to 9.6 times its projected price-earnings ratio for the current financial year.