Evergreen has just announced its results for QE30/9/2010. Its net profit dropped by 47% q-o-q or 37% y-o-y to RM19.5 million while its turnover declined 5% q-o-q but rose 8% y-o-y to RM229 million. The company attributable its "sharp decline in profit... the weaker US dollar, higher log costs, sharp hike in freight charges to the Middle East during the Ramadan festive period and higher initial cost incurred as the Indonesian plant began to resume commercial production."
Table: Evergreen's last 8 quarterly results
Chart 1: Evergreen's 23 quarterly results
Financial Position
Evergreen's financial position is deemed satisfactory as at 30/9/2010. Its current ratio was at 1.4 times while its debts to equity stood at 0.5 time.
Future Prospect
While the company has expressed confident that it can achieve satisfactory results in the next quarter (due to greater efficiency & cost control), the market may be concern about the next round of capacity expansion as announced by some players in this sector, especially among the Thai producers. The last round of aggressive expansion program in 2007-2008 had caused an overhang which has yet to be fully absolved. Why are these producers expanding again?
Valuation
Evergreen (closed at RM1.40 yesterday) is trading at a trailing PE of 5.5 times. At this multiple, Evergreen is deemed undemanding.
Technical Outlook
As noted earlier, Evergreen appeared to have broken below its uptrend line at RM1.55 in October. However, the stock staged a rebound in the 2nd week of November, hitting a high of RM1.55 before faltering. Its next support levels would be the horizontal lines RM1.30 & RM1.20.
Chart 2: Evergreen's weekly chart as at Nov 23, 2010_10.00am (Source: Quickcharts)
Conclusion
Based on the drop in Evergreen's bottom-line, bearish technical outlook & uncertainty generated by another round of expansion program in the sector, I believe that we should reduce our position in this stock. Since Evergreen is trading at an undemanding multiple, I do not foresee an immediate sharp drop in the share price.
Hi Alex, This is an unrelated question to Evergreen. I have got some Eng shares entry at 2.70. I am kindof thinking if I should stop loss at this point, or I should keep waiting. Can you share me some advice (no worries, I will analyse your advice before taking any action).
ReplyDeleteHi Specialist,
ReplyDeleteBased strictly on the chart, it seems that ENG has broken below its uptrend line at RM2.15 in June this year. Since then, the stock has been trading on a sideway trend between RM1.80 & RM1.90. A medium-term downtrend line has formed & this line will act as a resistance at about RM1.90 as well. Based on this, I believe you should consider cutting loss when the stock rebound to the RM1.90.
Please visit Bursa website & check on the company's recent financial statements for the fundamental analysis of the stock.