A local research house is positive about the fibreboard maker’s move as Indonesia possesses strong advantages in both the cost and demand side
by M JAY SHEILA / pic TMR
EVERGREEN Fibreboard Bhd will be moving close to one fifth of its medium density fibreboard (MDF) manufacturing capacity to Indonesia, with dismantling of lines taking place in this quarter (4Q22).
A local research house is positive about the fibreboard maker’s move as Indonesia possesses strong advantages in both the cost and demand side.
“We are wary of the near-term headwinds arising from uncertainties around the global economy but believe that Evergreen is relatively better positioned to ride through the challenges due to its more resilient target market from Indonesia and Middle East which will partially cushion the weakening demand from the US,” Hong Leong Investment Bank Bhd (HLIB) said in a research note released today.
The research house has maintained a ‘Buy’ call on the story with a lower price target of 74 sen.
In a virtual meeting, Evergreen management told the research house that they are in the middle of planning to move their Batu Pahat MDF Line 2 to PT Hijau Lestari Raya Fibreboard in Indonesia.
Dismantling of the line will begin in 4Q22 and will be commissioned in PT Hijau by 4Q23 with 19% of the group’s total MDF manufacturing capacity being moved to Indonesia, according to the report.
The move was primarily due to persistent issues of insufficient rubber wood caused by a number of factors.
They include more rubber plantations being replaced by oil palm plantations, as well as existing rubber plantation owners (mainly small holders) neglecting their fields due to the foreign labour shortage. The next generation are also unwilling to take over from the pioneering generation and there is a general lack of funds to carry out proper upkeep of the plantations.
Besides this, the report said that management also shared that certain states are imposing new royalty charges on plantation wood, including rubber wood, thus increasing the cost of the business in Malaysia. Through this royalty charge, the supply of wood is also disrupted as all wood shipments would have to be certified by a forestry ranger. Without one, no shipment of wood can be made, thus ruling out the transport of wood stock at night, during weekends and holidays, the report noted.
“In addition, there is also 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 these reasons, the group has decided to go ahead with its relocation plans to Indonesia,” it said.