PETALING JAYA: Evergreen Fibreboard Bhd is well positioned to capitalise on the current upcycle in the panel boards market given the recalibration of its production process in recent years.

       Hong Leong Investment Bank (HLIB) Research said it continues to like Evergreen for its integrated business segments, diversified production bases across Malaysia, Thailand and Indonesia and broadening export markets.

       “With more than 50% of revenue denominated in the United States dollar, while cost is mainly in local currencies, Evergreen offers a good proxy for export play,” the research house said in its latest report.

       HLIB Research also maintained a “buy” call on the stock with an unchanged target price of RM0.94.

       It pointed out that the strong rebound in the group’s earnings in the fourth quarter of financial year 2021 and associated run up in the share price, up 47.1% year-to-date, have reignited investors’ interest on the stock.

       On the local front, Evergreen enjoyed a home base advantage as it supplies the bulk of its medium-density fibreboards (MDF) and particle board (PB) to the furniture producers in Muar, Johor.

       “The proximity of its factories to the Muar furniture producers, coupled with rising transport cost associated with elevated crude oil prices enhance its competitiveness against Thailand producers, the main suppliers to Muar previously,” added the research house.

       Furthermore, local demand for its MDF and PB remain strong as local furniture producers scale up production to catch up on backlog orders from the production halt previously as well as the continued healthy inflow of furniture orders especially from the United States market.

       HLIB Research said, “The combination of a natural barrier to import boards as a result of high logistic cost and the continued robust demand from local furniture makers will continue to provide support for its rising average selling price.”

       Moving forward, the research house believed that demand for Evergreen’s products such as MDF, PB and ready-to-assemble (RTA) will remain well supported.

       “Its MDF and PB will continue to enjoy the strong demand from local furniture makers due to the trade diversion from China to the South-East Asia region amid the US-China trade friction.

       “Likewise, this will also benefit its RTA segment,” it said.

       The rising trend in buying furniture online has led to the rise in popularity for light-weight or RTA furniture that are easier and cheaper to deliver.

       HLIB Research also noted that the key challenge the group faces lies in the tight log supply exacerbated by the prolonged monsoon season and flood.