Business Studies

PP10551/10/2010(025682) 12 April 2010 MALAYSIA EQUITY Investment Research unremarkable News Company Update Vincent Lim Vi Ming +60 (3) 9207 7663 viming.lim@my.oskgroup.com Evergreen Fibreboard Stepping Up to higher(prenominal) Demand RM2.08 RM1.62 RM1.70 We recently met the management of Evergreen Fibreboard (EFB) and came away with a positive outlook on its operations. We see earnings modify this year on the back of higher sales tidy sum and wider operating margins due to the cost cutting measures initiated inhabit year. We fiat upwards our FY10 and FY11 net earnings by 35%-45% on an individual basis on factoring in the developments mentioned earlier. We also arrive at a higher TP for the stock of RM2.08 from RM1.62 (derived by tagging a low-down end peers timber sector PE at 9.7 times) previously. BUY recommended. Orders on the rise. EFBs sales have been on an uptrend since the start of last year. As at 1Q09, utilization at its domestic implant was at breakeven level of 50%. However as orders picked up in subsequent quarters, its plant utilization climbed to approximately 80% by end2009. Riding on robust regional longing for MDF products, demand is envisaged to be at healthy levels for the rest of FY10 and tumesce into FY11. More skill.

Compared to 2 years ago, EFB has expanded its production capacity from 700,000 m3 per annum to 1.3m m3 per annum. This applies to its operations in Malaysia, Thailand and Indonesia. We expect EFB to operate at a utilization rate of 80%-85% this year (excluding Indonesian plant) and later rising 90% next year on in tandem with surging demand for MDF in the ASEAN region. Costs down the stairs control. Amid rising raw material prices early this year, management believes that preventive wood cost is still manageable. The price surge, which was due to a shortage arising from heavy rain at logging sites, is expect to be only temporary. Glue costs should remain unexceptionable as well as EFB produces its own glue at 10% below the market spot price. Earnings revision....

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