Evergreen Fibreboard - Another Quarter In The Red |
NEUTRAL
FAIR VALUE : MYR 0.58
EVF posted a 1QFY13 net loss of MYR17.5m, extending the weak showing in 4QFY12 amid rising costs as well as lower selling prices and sales volume. Near-term prospects remain bleak as rising production capacity in Asean is likely to curb medium-density fibreboard (MDF) selling prices. Japan’s determined push for growth and a gradual global recovery will be needed to help EVF turn the corner. Maintain NEUTRAL, with MYR0.58 FV.
In the red. Evergreen Fibreboard (EVF) posted its second consecutive quarter of losses with a 1QFY13 net loss of MYR17.5m versus a MYR19.8m profit a year earlier. Its MYR226.8m revenue (-16.7% y-o-y, -3.6% q-o-q) was undermined by lower sales volume and falling selling prices for its timber products. Meanwhile, the persistently high log and glue prices as well as increased shipping costs pushed up expenses, which consequently caused EVF to plunge into losses.
Competition gets more intense. Both EVF’s Malaysian and Thai operations saw wider losses than in 4QFY12 as sales retreated further. Medium-density fibreboard (MDF) prices are likely to remain muted in the near term due to rising production capacity from Thailand, Vietnam and Indonesia. The company aims to turn the corner by cutting production costs but we are unclear how it will carry this out.
Challenging near-term outlook. We are slashing our FY13 and FY14 earnings forecasts by 87.4% and 55.1% respectively following a downward revision in our sales volume and selling price assumptions as well as higher rubber wood cost estimate. The upcoming months will still be challenging ones amid the economic weakness in the Eurozone. However, Japan’s aggressive fiscal policy and accommodative monetary stance, together with a gradual global economic recovery, may boost demand and selling prices in the latter part of the year.
Maintain NEUTRAL. We now value EVF at a MYR0.58 FV, based on a 12.0x FY14 P/E, in line with our timber sector’s benchmark.