Evergreen’s 9MFY12 results were below ours and consensus estimates, accounting for only 56.5% and 57.7% of both forecasts respectively. The weaker than expected earnings were mainly due to: i) a drastic hike in cost of glue, ii) the weaker USD, and iii) high latex prices due to the prolonged rainy season. As the near term prospects remain negative, we are downgrading our FY12 and FY13 earnings forecasts by 24.0% and 26.8% respectively. In line with our earnings downgrade and pegging the stock to a lower target 6x multiple vs 7x previously, we downgrade our call from BUY to NEUTRAL, with a revised FV of RM0.66 (previously RM1.02).
Earnings continue to disappoint. Evergreen’s 9MFY12 results came in below ours and consensus expectations, accounting for only 56.5% of our and 57.7% of consensus’ expectations. The weaker than expected earnings, which were 7.2% lower y-o-y, were largely due to: i) a drastic hike in the cost of glue, ii) a weakening USD, and iii) high latex prices due to the prolonged rainy season, which offset the 4.1% revenue growth y-o-y.
Downgrading our FY12 and FY13 earnings. We believe that the company’s near term prospects remain negative for the time being, due to: i) higher raw material costs, and ii) competition in the industry, which is hindering sales growth. Hence, we are downgrading our FY12 and FY13 earnings forecast by 24.0% and 26.8% respectively. That said, next year’s earnings could improve if the company successfully sets up its sales and marketing team and is able to sell the excess glue it produces internally.
Downgrade to NEUTRAL. In line with our earnings downgrade and pegging the stock to a lower target multiple of 6x compared to 7x previously, we are lowering our fair value to RM0.66 from RM1.02 previously. Hence, we are downgrading the stock from BUY to NEUTRAL on the back of the company’s dimmer prospects in the near term. The stock’s key re-rating catalysts next year included: i) successful marketing of the company’s excess glue, and ii) better-than-expected sales for logs in relation to its recent land acquisition.
Earnings continue to disappoint. Evergreen’s 9MFY12 results came in below ours and consensus expectations, accounting for only 56.5% of our and 57.7% of consensus’ expectations. The weaker than expected earnings, which were 7.2% lower y-o-y, were largely due to: i) a drastic hike in the cost of glue, ii) a weakening USD, and iii) high latex prices due to the prolonged rainy season, which offset the 4.1% revenue growth y-o-y.
Downgrading our FY12 and FY13 earnings. We believe that the company’s near term prospects remain negative for the time being, due to: i) higher raw material costs, and ii) competition in the industry, which is hindering sales growth. Hence, we are downgrading our FY12 and FY13 earnings forecast by 24.0% and 26.8% respectively. That said, next year’s earnings could improve if the company successfully sets up its sales and marketing team and is able to sell the excess glue it produces internally.
Downgrade to NEUTRAL. In line with our earnings downgrade and pegging the stock to a lower target multiple of 6x compared to 7x previously, we are lowering our fair value to RM0.66 from RM1.02 previously. Hence, we are downgrading the stock from BUY to NEUTRAL on the back of the company’s dimmer prospects in the near term. The stock’s key re-rating catalysts next year included: i) successful marketing of the company’s excess glue, and ii) better-than-expected sales for logs in relation to its recent land acquisition.
Source: OSK
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