Timber sector
Maintain neutral: According to the latest statistics from JLIA, arrivals of imported plywood in September have dropped sharply to 202,315 cu m, down 36.4% quarter-on-quarter and 24.5% year-on-year. The low arrivals were mainly due to curtailed purchases by importers as a result of the build-up in plywood inventory after the March earthquake and tsumani.
Generally, there have not been very large imports or build-up in inventory for floorbase (FB) plywood after the March earthquake. Hence, according to the Japan Lumber Report, the supply of imported FB plywood is actually tight and prices are firming, although demand is not strong enough to push prices up very much. In contrast, supply of thick panel plywood such as CP and SP remains ample due to large imports after the March earthquake, and thus prices remain weak.
Share prices of Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd have outperformed their peers such as WTK Holdings Bhd and Lingui Development Bhd year-to-date. The decline in timber prices since June dragged down the performance of purer timber players such as WTK and Lingui, but Jaya Tiasa and Ta Ann have been supported by rising earnings contribution from oil palm plantations.
We maintain our calls as we have recently adjusted our crude palm oil price assumptions for Jaya Tiasa and Ta Ann. The risks include: (i) lower-than-expected improvement in Japan’s housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
We maintain our “neutral” call on the timber sector as we remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy. This could weigh on timber prices and timber companies earnings over the longer term. — RHB Research, Dec 6
This article appeared in The Edge Financial Daily, December 7, 2011.
Maintain neutral: According to the latest statistics from JLIA, arrivals of imported plywood in September have dropped sharply to 202,315 cu m, down 36.4% quarter-on-quarter and 24.5% year-on-year. The low arrivals were mainly due to curtailed purchases by importers as a result of the build-up in plywood inventory after the March earthquake and tsumani.
Generally, there have not been very large imports or build-up in inventory for floorbase (FB) plywood after the March earthquake. Hence, according to the Japan Lumber Report, the supply of imported FB plywood is actually tight and prices are firming, although demand is not strong enough to push prices up very much. In contrast, supply of thick panel plywood such as CP and SP remains ample due to large imports after the March earthquake, and thus prices remain weak.
Share prices of Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd have outperformed their peers such as WTK Holdings Bhd and Lingui Development Bhd year-to-date. The decline in timber prices since June dragged down the performance of purer timber players such as WTK and Lingui, but Jaya Tiasa and Ta Ann have been supported by rising earnings contribution from oil palm plantations.
We maintain our calls as we have recently adjusted our crude palm oil price assumptions for Jaya Tiasa and Ta Ann. The risks include: (i) lower-than-expected improvement in Japan’s housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
We maintain our “neutral” call on the timber sector as we remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy. This could weigh on timber prices and timber companies earnings over the longer term. — RHB Research, Dec 6
This article appeared in The Edge Financial Daily, December 7, 2011.
