PETALING JAYA: Bursa Malaysia-listed corporations producing panel boards are anticipated to get pleasure from sturdy income in 2022 on the again of an upcycle within the wooden manufacturing sector.
The continuing Russian-Ukraine battle, which has led to Russia banning the export of wooden and forest merchandise to the West, may see consumers sourcing various suppliers from nations on this a part of the area akin to Vietnam, Indonesia and Malaysia, in accordance with Hong Leong Funding Financial institution (HLIB) Analysis.
The analysis agency mentioned that latest commerce disputes have bode nicely for native gamers within the sector amid agency demand for furnishings and wood-based merchandise from nations together with the USA.
“The US-China and US-Canada commerce wars in addition to the Russia-Ukraine battle have exacerbated the worldwide provide demand imbalances. To recap, China, Canada and Russia have been ranked among the many prime 5 exporters of wooden merchandise worldwide in 2019,” it mentioned in a report yesterday.
It identified that the US market share of imported wooden merchandise from China had plunged considerably from 31% to 12.3% in simply two years after the US-China commerce conflict started in 2018. The US housing market is a prime importer of plywood, veneered panels and sim laminated wooden in 2020, accounting for 17% of the market share.
One other issue boding nicely for the native panel board gamers is that uncooked materials prices, which had gone up on account of ongoing provide disruptions and labor scarcity, are taping off from the height, in accordance with the analysis home.
Nonetheless, producers have been capable of offset the hike in uncooked materials costs from the upper common promoting costs (ASPs) of wooden merchandise due to the sturdy demand.
Adhesive costs, which make up 20% to 30% of the medium-density fiberboard (MDF) and plywood participant’s value, had peaked in January and continued to maneuver downward amid easing urea costs and a decline in World Provide Chain Pressures Index, mentioned the analysis agency.
“With the fee coming down however ASPs remaining agency, it might enhance panel board producers’ backside line considerably throughout this increase cycle as mirrored by the latest earnings from the businesses beneath our protection, akin to Heveaboard BhdEvergreen Fiberboard Bhd and Focus Lumber Bhd,
“All in, we consider the sturdy income from the panel board gamers are right here to remain, at the very least for 2022.
“We tactically desire corporations producing panel boards as they’re deemed to be the prime beneficiaries from the commodities upcycle.
“As for furnishings gamers, we proceed to love Lii Hen Industries Bhd and Homeritz Corp Bhd, given their engaging valuation, coupled with above 5% dividend yield,” added the analysis agency.
The analysis agency mentioned Evergreen share worth “nonetheless extra legs to go as the present rally has possible but to totally worth within the potential upside in its upcoming earnings” as the corporate appeared poised to advantages from post-pandemic tendencies of hybrid working and shopping for furnishings on-line, which has made lightweight or flat-packed furnishings standard.
In the meantime, it finds Focus Lumber’s valuation, at a worth earnings (PE) of 6.3 instances and 5.6 instances for FY22-FY23, undemanding and deserves a re-rating given favorable tailwinds.
Within the case of HeveaBoard, it mentioned the inventory’s risk-reward profile was turning extra engaging now after tumbling 32.4% from 52-week excessive of 74 sen to 50 sen at March 30.
That is supported by undermanding valuations of 8.3 instances FY23 estimated PE and 0.66 instances worth to guide, plus underpinned by a robust 29% earnings per share compound annual development fee from FY20-FY23.
The group additionally has a good environmental, social, and governance profile on account of its publicity in a sustainable trade, it added.