Evergreen's net profit jumped in QE31/3/2007

Background

Evergreen is a fibreboard maker. It currently has a total production capacity of 700,000 cu m per annum – 280,000 cu m at its Batu Pahat plant, 320,000 at its plant in Hatyai, Thailand and 100,000 at its Permas Jaya facility.

Evergreen has just formed a JV in Indonesia, which will set up a plant in Palembang by October this year. The plant will have an annual production capacity of 110,000 cu m of fibreboard in the first year and 300,000 cu m in the third year. Evergreen will hold a 51% stake in this JV. In addition, Evergreen will add a third line at the Hatyai plant by the third quarter 2008.

When these expansion programs are completed in late 2008, Evergreen’s total annual production capacity would increase to 1.06 million cu m of fibreboard, making it one of Asia's top five fibreboard makers.

Recent Financial Results

Evergreen has just announced its results for QE31/3/2007. Its net profit has increased by 63.8% q-o-q or 182.4% y-o-y to RM28.4 million. Turnover has also increased by 21.7% q-o-q or 34.9% y-o-y to RM166.8 million.

Current Financial position

Evergreen’s liquidity position as at 31/3/2007 is satisfactory, with current & quick ratio at 3.9 & 2.0 times, respectively. Debtors & inventory’s quality should be acceptable as debtors’ collection period & inventory turnover period are fairly low at 26 & 39 days, respectively. Gearing is low at 0.33 times.

Valuation

Based on its closing price of RM1.73 as at May 10 and an annualized EPS of 23 sen (basing on latest quarterly EPS of 5.91 sen), Evergreen is now trading at a PE of 7.5 times. This is not a demanding multiple, considering Evergreen’s future growth prospect.

Technical Outlook

Evergreen has broken above its downtrend line in October last year, at the RM0.90 level (which I've posted in October last year). In the past 6 months, Evergreen share price has been moving in an upward channel, with a failed breakout in February. Two weeks ago, Evergreen share price again surpassed the upper channel at the RM1.50 level. With the good results just announced, I expect the share price to stay above this breakout level.

Chart: Evergreen's daily chart as at May 10 (courtesy of Tradesignum.com)

Conclusion

Evergreen is a good stock for the medium-term investment. While its price has moved up a bit in the past 2 weeks, the current price may reflect its improved performance. On weakness, you may accumulate this stock if the price were to drop back to RM1.60-70 level.