Stock Name: EVERGRN
Company Name: EVERGREEN FIBREBOARD BHD
Research House: RHB
Timber sector
Upgraded to overweight: Given the improving outlook for the timber sector where average selling prices have been rising since the start of the year on the back of steady demand from Japan (mainly plywood) and India (mainly logs), we are now upgrading our sector call to overweight from neutral.
We maintain our outperform calls on WTK Holdings Bhd, Jaya Tiasa Holdings Bhd and Evergreen Fibreboard Bhd, and our market perform call for Ta Ann Holdings Bhd. Our top pick for the sector is Evergreen with a fair value of RM2.57.
We like Evergreen as we expect earnings to remain strong due to higher sales volume, higher average selling prices, and cost savings arising from improved efficiency. The commissioning of its Indonesia operations, which we think have started in July 2010, would provide further upside to FY2010 earnings.
Latest July 2010 statistics for Japan housing starts saw a better-than-expected improvement (+4.3% y-o-y and +0.1% m-o-m to 68,785 units), which brings it to two consecutive months of growth (June 10 +0.6% y-o-y) and signifies that Japan's housing recovery may start gaining pace soon.
This is supported by the number of building permits issued, which has been increasing for the eight months up to the latest May 2010 data (+8.7% y-o-y). Going forward, we expect further improvement in Japan housing starts to gain momentum and improve the overall sentiment for the timber sector.
According to the Japan Lumber Report (JLR), tropical log inventories in Japan are dropping due to limited log production in Sabah and Sarawak as a result of poor weather conditions. While overall demand for plywood is slow, the report specifically highlighted that the consumption of tropical plywood has been steady, and thus Japanese plywood mills are "hungry' for tropical logs.
We highlight that log selling prices currently achieved by all timber players (of US$165-US$210/m3 due to different quality and size) under our coverage have generally experienced a rising trend from the start of this year, with exports mainly to India.
The underlying rising trend for logs price bodes well for the timber sector, more so with the recent one-year extension of the 50% export quota by the Sarawak Forestry Department.
Some of the downside risks include lower-than-expected improvement in Japan's housing starts and price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets. - RHB Research, Sept 7.
This article appeared in The Edge Financial Daily, September 8 2010.
Company Name: EVERGREEN FIBREBOARD BHD
Research House: RHB
Timber sector
Upgraded to overweight: Given the improving outlook for the timber sector where average selling prices have been rising since the start of the year on the back of steady demand from Japan (mainly plywood) and India (mainly logs), we are now upgrading our sector call to overweight from neutral.
We maintain our outperform calls on WTK Holdings Bhd, Jaya Tiasa Holdings Bhd and Evergreen Fibreboard Bhd, and our market perform call for Ta Ann Holdings Bhd. Our top pick for the sector is Evergreen with a fair value of RM2.57.
We like Evergreen as we expect earnings to remain strong due to higher sales volume, higher average selling prices, and cost savings arising from improved efficiency. The commissioning of its Indonesia operations, which we think have started in July 2010, would provide further upside to FY2010 earnings.
Latest July 2010 statistics for Japan housing starts saw a better-than-expected improvement (+4.3% y-o-y and +0.1% m-o-m to 68,785 units), which brings it to two consecutive months of growth (June 10 +0.6% y-o-y) and signifies that Japan's housing recovery may start gaining pace soon.
This is supported by the number of building permits issued, which has been increasing for the eight months up to the latest May 2010 data (+8.7% y-o-y). Going forward, we expect further improvement in Japan housing starts to gain momentum and improve the overall sentiment for the timber sector.
According to the Japan Lumber Report (JLR), tropical log inventories in Japan are dropping due to limited log production in Sabah and Sarawak as a result of poor weather conditions. While overall demand for plywood is slow, the report specifically highlighted that the consumption of tropical plywood has been steady, and thus Japanese plywood mills are "hungry' for tropical logs.
We highlight that log selling prices currently achieved by all timber players (of US$165-US$210/m3 due to different quality and size) under our coverage have generally experienced a rising trend from the start of this year, with exports mainly to India.
The underlying rising trend for logs price bodes well for the timber sector, more so with the recent one-year extension of the 50% export quota by the Sarawak Forestry Department.
Some of the downside risks include lower-than-expected improvement in Japan's housing starts and price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets. - RHB Research, Sept 7.
This article appeared in The Edge Financial Daily, September 8 2010.
In the first half year, trade of plywood, timber boom . But now slow business season comes.
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