HLIB Research said Evergreen Fibreboard’s 3Q23 results might see similar results where profitable markets like Thailand and Indonesia are offset by the Malaysian segment that has been loss-making.
PETALING JAYA: Analysts are cautious about the future earnings of Evergreen Fibreboard Bhd
, as its second-quarter results came in below expectations.
Hong Leong Investment Bank (HLIB) Research said the fibreboard maker posted a core net profit of RM2.9mil for the second quarter of its current financial year (2Q23), bringing the first-half (1H23) sum to RM17.7mil.
This was below HLIB Research’s full-year net loss forecast of RM4.9mil.
“The negative deviation was due to lower sales volume recovery from the Malaysian segment,” HLIB Research said.
HLIB Research added that Evergreen Fibreboard’s 3Q23 results might see similar results where profitable markets like Thailand and Indonesia are offset by the Malaysian segment that has been loss-making. According to the research house, this might be possible as the housing demand has not recovered in the United States or European regions.
“Note that the average US 30-year mortgage rate hit a 21-year high of 7.09% recently, which we believe will continue to delay any recovery in US housing demand and consequently, furniture demand,” it said.
Furthermore, HLIB Research said there is uncertainty whether the United States will enter a recession at the end of this year or early next year. “For these reasons, we believe that the group’s near-term prospects will remain challenging,” it said.
Evergreen Fibreboard posted a 28.8% decrease in its revenue year-on-year as all three of its segments experienced a decline, namely, Malaysia (44.7%), Thailand (19.%) and Indonesia (5.7%).
The decrease in revenue from Malaysia was due to lower sales volume, as the group had idled a medium density fibreboard line in preparation to move it to Indonesia, as well as lower furniture demand from the North America and European Union regions.
For Thailand and Indonesia, the lower revenue was contributed by lower average selling prices (ASP), similar to 2022 when the group’s products reached its peak.
“However, core net profit decreased by a larger magnitude of 82.1% as the group incurred higher operational costs, caused by the hike in electricity surcharge and higher minimum wage in Malaysia,” HLIB Research noted.
On Evergreen Fibreboard’s quarterly results, its revenue increased by 37.8% due to higher sales volumes and ASP of both panel boards and ready-to-assemble products.All three regions recorded improvements because of this, with the Thailand segment recording the highest improvement due to recovering demand from the Middle East.
Meanwhile, HLIB Research said in light of Evergreen’s results shortfall, it will cut its financial year 2023 (FY23), FY24 and FY25 forecasts to RM6.5mil, RM8.9mil and RM16.9mil, respectively.
It added it will maintain its “hold” call on the group with an unchanged target price of RM0.29.
HLIB Research said the reason for this is despite some uncertainties still remaining over the furniture demand recovery in the United States, there are some signs of hope coming from the Middle East, which could help partially support the group’s earnings in subsequent quarters.
“Moreover, the recent dollar strength against the ringgit should help to partially cushion the margin compression caused by lower ASP, as more than 70% of the group’s revenue is denominated in dollar, while most of its costs are in local currencies,” it noted.
