Hevea rises 16.44% after CIMB initiates coverage

by **Cals** Tue 10 Feb 2015, 20:15

Hevea rises 16.44% after CIMB initiates coverage

By Gho Chee Yuan / theedgemarkets.com | February 10, 2015 : 3:49 PM MYT

KUALA LUMPUR (Feb 10): Shares of [size=14]Heveaboard Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) rose as much as 16.44% or 36 sen to RM2.55 after CIMB Research initiated coverage on the stock with an "add" rating and a target price of RM4.06.

As at 3.09pm, the stock had eased to RM2.48, still up 29 sen or 13.24%. At the current price, it has a market capitalisation of RM149.62 million.

The stock was trading at a low of RM1.48 on Dec 16 last year.

In a note to client today, CIMB said Heveaboard (fundamental: 1.3; valuation: 2.4) was a prime beneficiary of the strong US dollar, with US dollar revenues and a falling ringit cost base.

"In addition, margins are expanding from a shift to higher-margin products and falling input costs. With its deleveraging set to complete by financial year 2017 (FY17), a dividend story is also emerging," CIMB analyst Marcus Chan said in his report today.

He valued Hevea's business at 10 times financial year 2015 (FY15) price to earnings ratio (P/E), in line with the timber sector’s P/E.

"With strong free cashflow, we believe Hevea will turn net cash by end-15 and start raising dividends substantially, another potential re-rating catalyst," he added.

Chan noted more than 50% of Hevea's revenues are derived from China and Japan, where demand for low formaldehyde emission particleboards is very strong.

"Its Chinese customers are growing at 40% to 50% year-on-year," Chan said, while Japanese demand will be driven by the build-out of the Olympics 2020 facilities and increasing imports of super E0 boards.

Chan said Hevea is very undervalued and is trading at only 4 times FY15 P/E and 0.7 times price to book value (P/BV).
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