Sunday, December 19, 2010

Evergrn: 听其言而观其行 - 冷眼


I am one of the minor shareholders of Evergreen Fiberboard Group. I am very interested to invest more in your company but my concern is that the company's products are sold in USD while costs are based on MYR. Can the company provide some guidance for the investors like me to estimate the impact of Ringgit appreciation to the company's earning? In view of the strong MYR, what are the measures the company has taken to prevent the earning from being deteriorated? Thank you very much.

COO reply:
Dear Investor:

My name is Mr. Kuo Jen Chiu, Chief Operating Officer of Evergreen Group.

First of all , thank you very much for your trust and investment in our company. In reply to your concern, which I wouldn’t say there is no impact, but to be exact it is short term. In other words, long term wise it is comfortable.

Out of our total sales, 30% is domestic, in other words not subject to currencies impact, and from our total cost ex-factory, 30% (Glue cost) is US peg, that means this cost is not subject to currency fluctuations, that means out of 70% of our sales that is related to export, 30% of the cost is US peg, the net effect is 42% exposure to the impact of currencies fluctuations.

Action taken
1) The good thing is the market has strengthened a fair bit and we are able to increase prices, even the slower market experienced in the far east has picked up lately and we are able to increase prices by Usd 10/ cubic metre.

2) Before we had anticipated this situation to happen and of course hedging could be a solution, but in 2008, Ringgit was as strong compared to current situation and we hedged at that time at 3.2-3.28 level for a period of almost a year with 15%-20% of our group sales. We suffered exchange losses especially 1st half of 2009. We are worried to commit the same mistake and that is why we decided to work hard to open up more domestic market then to do more exports and exposed to this currencies fluctuations.

On the other hand, we are taking taking steps to convert some of our loans to USD base so as to act as a natural hedge and we can use the proceeds to pay off some loans, furthermore interest is fairly low compared to ringgit interest.

Hope I have answered to your questions and feel free to write to us as and when you have doubts. Our group is still very healthy and our net gearing has gone down to 0.42 as compared to 0.72 a years ago. I believe going ahead the road will still be a bit bumpy but we are in good shape to weather through.

Jen Chiu


I have asked the management with regards to the possibility of share buyback due to the undervaluation of the share. But, they say the priority will be paying down the debts and reward shareholder with dividends to compensate them for the dividend not paid during 2009(I think they show this by the 2 cents dividend for 1st Q). I personally prefer part of the fund intended for dividend to be diverted to share buyback as it will bring much more good to the shareholder in the long run.




Please see the reply in red.


> Subject: Investor enquiries
> Hi,
> I'm one of the shareholder for Evergreen. I'm very impressed by Evergreen for having prudent and aggressive plans for future growth. I am glad to join one of the world top MDF manufacturers. I have few questions would like to ask and appreciate if you are able to take some of your valuable time to feedback:
> 1) The company are planning to invest in rubber wood plantation to secure wood chip supply.
> In that case how long does a rubber wood take to be mature as raw material?
> Is it cost efficient to grow own rubber wood?

The plan is to get cheap plantation land to plant both fast growing species (ie acacia) and rubber wood species. Both species will take about 5 years to be mature as raw material for MDF production. But since Rubber Tree has more commercial value, considerations will be also on tapping rubber and have longer growth period before it is cut down. In answering to your question, it is not so viable to grow rubber trees for wood, but more for latex. As for other species (fast growing), i think it is viable as it cost less to plant these other species. Anyway these are just plans and must get cheap land then it would be viable. Still working on it and nothing concrete yet.

> 2) How is the current utilization of Indonesia MDF plant?
> As mention in latest quarter report, some technical problems in Indonesia MDF plant had been rectified, are those the problems that affect the efficiency of operation in the past?

Normally it takes about 3-5 months to correct things up and run to efficiency. Indo plant was commissioned in Aug 2010 and we expect 2011 onwards it will contribute to 85% utilisations. Currently it is running at 55-60% utilisation rates.
> 3) Will it be higher dividend to be pay out in next quarter if there are no significant capex plans?

Certainly if no significant capex plans.
> 4) How the company will respond to the current weakening of share price?

With more dividend payout, which we are targeting 30-60% payout, it gives a dividend yield of about 5.5-7.5%, think it should be quite attractive price at moment and price should hold well.
> Thanks in advance.

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