Evergreen might see a weaker 2Q22 due to near-term headwinds, says HLIB

TheEdge Tue, May 24, 2022 09:17am - 1 year View Original


KUALA LUMPUR (May 24): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” rating on Evergreen Fibreboard Bhd at 69.5 sen with a higher target price (TP) of 95 sen (from 94 sen) and said the company’s 1Q22 core net profit of RM16.8 million was within house expectation, making up 25% of HLIB’s FY21 forecast of RM67.2 million.

In a note on Tuesday (May 24), the research house said despite near-term headwinds in the global macro environment, Evergreen’s well-integrated business segments as well as its diversified production bases across three countries would enable the group to weather through these uncertainties.

However, it said that Evergreen might see a weaker 2Q22 due to near-term headwinds such as elevated raw material costs caused by the Russia-Ukraine war and inflationary pressures, lingering supply chain issues, and lower operating days due to the Raya holidays.

The research house said the group will use the downtime to perform plant maintenance and build up its wood stock.

“However, we believe Evergreen will be able to overcome these issues as we reiterate that these near-term headwinds are not structural or permanent in nature as well as the fact that the group has well-integrated business segments.

“Maintain 'buy' with a slightly higher TP of RM0.95 based on 12x P/E of FY22 EPS of 7.9 sen. Moreover, its strong operating cash flow coupled with no major capex in sight indicates that there is potential for the group to pay out higher dividends going forward,” it said.

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