An improvement in demand was quite evident in 2Q following a steep climb in MDF selling prices from the month of March to June. EFB’s 2.5mm MDF prices went up by 10.8% while 18mm MDF prices rose 12.8%.
Indicative average selling prices for medium-density fibreboard (MDF) have jumped 16% to US$240 (RM842.40) per cubic metre (cu m) in 3Q2009 versus US$204/cu m in 2Q2009, despite management’s initial belief that average selling prices were likely to be capped at US$220 to US$230 levels, due to pick-up of demand in 2H2009.
Following the higher demand, Evergreen’s management highlighted that the company’s capacity utilisation in July 2009 was at 68% versus 64% in 2Q2009. August and September’s utilisation would be higher or close to July’s capacity utilisation rate, based on existing contracts in hand. For 2H2009, the estimated utilisation rate should average 76% versus 60% in 1H2009.Risks include a sharp drop in MDF prices, a sharp increase in log costs, further escalation in crude oil related glue and logistics costs, and strengthening of the ringgit which could reduce the company’s export competitiveness. Well-positioned to benefit from economic recovery given that EFB is one of the biggest MDF players in the world. EFB is known to be the 5th largest MDF producer (by production capacity) in the world and they are likely to be the biggest in the region.
2010 (e) / 56m
Here is the key catalyst, for the third quarter ended Sep 2009, it recorded a splendid net profit of RM30.2m, bring the 9 months cumulative figure to RM43.1m. Just look at the average estimated net profit figure above 3 months ago by most research houses, its at RM44m. Some analysts who have visited the company over the last few weeks came away totally blown away by the operations and prospects. Now it looks very likely that its 4Q 2009 figure will exceed its 3Q figure by a substantial margin as well. A net profit figure of RM100m or more has been bandied around.
At 513m shares, that works out to be a net EPS for 2009 to be 19.5 sen, or a PER of 8.2x at RM1.60. Since the 4Q has just ended, the company will be announcing the 4Q and full year's figures very soon. As most houses are only looking at RM44m-60m max for 2009's net profit, the upward revision will be substantial.
Considering that the stock got hammered from RM2.00 down to below RM1.00 owing to the global financial crisis, its noteworthy that the company still managed to eke out a decent net profit in 2009. Things on the improve and should bring them back towards the RM1.40-RM1.50 level in the medium term.
Looking at the enhanced platform, better economies of scale going forward, a 10x PER for 2009 should be the first target, bringing it to RM2.00.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.