Update On Evergreen Fibreboard

Not content to leave my doubts alone over Evergreen's share price following my post, I have dug and searched and asked around for information. Managed to talk to a couple of people who are close to the company (analyst/ fund manager) and came away better informed. It seems that the sell down was part and parcel of the over-riding sell down on timber related stocks, and many were apparently in single digit PER as well. That could very well been from the housing slowdown in the US.

For FY2007, Evergreen's net profit increased by 98.2% from RM59.8 million to RM118.5 million, while its turnover has increased by 38.5% from RM528 million to RM732 million. Its trading at less than 6x current year's earnings and only 4.5x next year's earnings. Medium density fibreboard prices has risen from an average of US$260 pcm to US$305 in 2007, and the trend is firm to flat this year. Maybe the weaker USD is creating some pressure on margins as 85% of revenue are priced in USD. Economic slowdown in US and Japan could be a negative for the company. Rising methanol, oil, freight costs and bunker fuel costs all add up. At current share price, the company is likely to pay 7.5 sen in dividend in FY08 and 9.0 sen in FY09, which translates into a very attractive dividend yield of 5.5% and 6.6% respectively.

While I am not keen to hold any kind of stocks in general, Evergreen could be an exception with those kind of yields. The owners apparently wanted to buy more shares, which I would strongly object to using company share buybacks. The best solution I can give them is to announce loudly the previous year's dividends and the projected dividend for 2008. The yield figures would speak for themselves. 6% yield is nothing to sneeze at. Having found a better comfort level (nothing sinister within the company), Evergreen will be back in my buy list.. Instead of an outright buy, its becoming a long term buy. Still a buy nonetheless, and there are not many making my list of late.