欧博注册:Relocation of manufacturing plant bodes well for Evergreen
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research lauds the decision by Evergreen Fibreboard Bhd to move some of its business to Indonesia.
Close to one fifth of its medium density fibreboard (MDF) manufacturing capacity at Batu Pahat is being relocated to its subsidiary PT Hijau Lestari Fibreboard in Indonesia, in a move that holds distinct advantages on both cost and demand factors, said HLIB Research.
In a virtual meeting, Evergreen’s management team informed HLIB) Research of their plans to move its MDF Line 2, with the dismantling of the line to begin in the current quarter and the commissioning there to be completed by the final quarter of 2023.
Evergreen cites an insufficient rubber wood supply, the imposition of new royalty charges on plantation wood by certain Malaysian states, as well as a lack of support from the Malaysian government to protect raw materials for local primary industries as wood chips are freely exported, which further deprives local industries of critical wood supply, for the reasons behind its relocation decision.
“While we are wary of the near-term headwinds arising from uncertainties around the global economy, we believe Evergreen is relatively better positioned to ride through the challenges due to its more resilient target market from Indonesia and the Middle East, which will partially cushion the weakening demand from the United States,” HLIB Research said in a note yesterday.
“In addition, we believe this decision to relocate will bear fruits for Evergreen in the longer term.”
It added that Indonesia offers a plentiful rubber wood supply as the country possesses the largest rubber plantation by acreage in the world at 3.6 million hectares and continues to replant new trees to replace the ageing trees.
Elaborating, HLIB Research said there is also more than one million hectares of rubber wood within a 300km radius of the PT Hijau plant, as compared to less than a million hectares for the whole of Malaysia, which is why the cost of wood is lower for Evergreen’s Indonesian operations.
“Indonesia does not face an issue of a foreign labour shortage, and the cost of labour is also lower than in Malaysia.
“The cost of doing business is much lower in Indonesia when compared with its two other operations in Malaysia and Thailand,” said HLIB Research.
Indonesia also holds the edge in having a more competitive electricity tariff as well as a subsidy on the price of urea. To capitalise on this, Evergreen is planning to start up a new glue plant so that PT Hijau will benefit from lower glue costs and sidestep purchasing it from the international market, it added.
The research house maintains its “buy” call on the counter with a target price of 74 sen, lower from its 82 sen target earlier, as it is wary of unstable global market conditions heading into 2023.