Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Timber sector
Maintain neutral: Japan's plywood imports are expected to remain high in expectation of strong domestic demand when the reconstruction of the disaster-hit areas moves into full swing, said the International Timber Organisation (ITTO), citing the Japan Lumber Report (JLR). However, the JLR is of the view that plywood imports may have passed their peak, as manufacturers not affected by the March disaster continue to maintain high levels of production, while some of those affected have resumed production.
The affected manufacturers of softwood plywood said it will take a long time for them to return to pre-earthquake production levels. The JLR said the supply of domestic plywood may temporarily exceed demand in the short term, given the current high inventories.
The bulk of domestic plywood production involves the processing of softwood, while tropical hardwood-based plywood is mostly imported, including from Sarawak. Tropical plywood is not only used in houses, but also general construction purposes due to its durability and tough features.
The ITTO said plywood demand in the three prefectures most affected by the disaster'' has been driven by emergency repairs and the 'plywood business is booming' for the first two weeks of this month. Sales have been slow in other areas.
The ITTO said plywood imports in June grew to 384,000 cu m (up 38% year-on-year versus +63% y-o-y in May), but expects it to decline after this month. It said domestic inventories at end-June were estimated at 153,000 cu m, a slight increase over May. We believe the bulk of the inventories comprise softwood plywood.
The latest reports are still consistent with our view that the high inventory of plywood would be temporary, while a steady and constant demand for imported plywood, including Sarawak's hardwood plywood, would resume once reconstruction begins in earnest ' expected by year-end. Notably, the JLR reported that local associations have submitted a proposal to the government on the utilisation of wood debris. It is estimated about 65% of the debris is wood, which can be used to produce wood-based panels. According to the ITTO, wood waste and logs soaked in seawater were used to produce particle-board when Hokkaido suffered damage from a typhoon three years ago. We do not believe this would have a significant impact on the import of panel products, particularly tropical plywood.
We maintain 'neutral' on the timber sector. Our top pick continues to be Jaya Tiasa Holdings Bhd ('buy', fair value: RM8.51 per share) backed by its oil palm division's rapid growth. This follows a much more aggressive plantation acquisition strategy over the years, compared with Ta Ann Holdings Bhd's.
Ta Ann ('hold' FV: RM5.83) continues to be one of the beneficiaries of the'' rebuilding in Japan. It exports over 90% of its plywood, including the premium Tasmania floor base products, to Japan. However, the full impact may only be felt from FY12F onwards, in tandem with the rebuilding in Japan. Key catalysts include: (i) Japan rebuilding picks up momentum; (ii) even more funds for reconstruction; and (iii) global economic recovery resuming long-term trend pace.
The main risks include: (i) a global double-dip recession; (ii) lower-than-expected crude palm oil prices; and (iii) rebuilding in Japan stalls due to further political/budgetary issues, and/or further deterioration of the Fukushima nuclear plant crisis. ' AmResearch, Aug 17
This article appeared in The Edge Financial Daily, August 18, 2011.
Company Name: JAYA TIASA HOLDINGS BHD
| Research House: AMMB | Price Call: BUY | Target Price: 8.51 |
Timber sector
Maintain neutral: Japan's plywood imports are expected to remain high in expectation of strong domestic demand when the reconstruction of the disaster-hit areas moves into full swing, said the International Timber Organisation (ITTO), citing the Japan Lumber Report (JLR). However, the JLR is of the view that plywood imports may have passed their peak, as manufacturers not affected by the March disaster continue to maintain high levels of production, while some of those affected have resumed production.
The affected manufacturers of softwood plywood said it will take a long time for them to return to pre-earthquake production levels. The JLR said the supply of domestic plywood may temporarily exceed demand in the short term, given the current high inventories.
The bulk of domestic plywood production involves the processing of softwood, while tropical hardwood-based plywood is mostly imported, including from Sarawak. Tropical plywood is not only used in houses, but also general construction purposes due to its durability and tough features.
The ITTO said plywood demand in the three prefectures most affected by the disaster'' has been driven by emergency repairs and the 'plywood business is booming' for the first two weeks of this month. Sales have been slow in other areas.
The ITTO said plywood imports in June grew to 384,000 cu m (up 38% year-on-year versus +63% y-o-y in May), but expects it to decline after this month. It said domestic inventories at end-June were estimated at 153,000 cu m, a slight increase over May. We believe the bulk of the inventories comprise softwood plywood.
The latest reports are still consistent with our view that the high inventory of plywood would be temporary, while a steady and constant demand for imported plywood, including Sarawak's hardwood plywood, would resume once reconstruction begins in earnest ' expected by year-end. Notably, the JLR reported that local associations have submitted a proposal to the government on the utilisation of wood debris. It is estimated about 65% of the debris is wood, which can be used to produce wood-based panels. According to the ITTO, wood waste and logs soaked in seawater were used to produce particle-board when Hokkaido suffered damage from a typhoon three years ago. We do not believe this would have a significant impact on the import of panel products, particularly tropical plywood.
We maintain 'neutral' on the timber sector. Our top pick continues to be Jaya Tiasa Holdings Bhd ('buy', fair value: RM8.51 per share) backed by its oil palm division's rapid growth. This follows a much more aggressive plantation acquisition strategy over the years, compared with Ta Ann Holdings Bhd's.
Ta Ann ('hold' FV: RM5.83) continues to be one of the beneficiaries of the'' rebuilding in Japan. It exports over 90% of its plywood, including the premium Tasmania floor base products, to Japan. However, the full impact may only be felt from FY12F onwards, in tandem with the rebuilding in Japan. Key catalysts include: (i) Japan rebuilding picks up momentum; (ii) even more funds for reconstruction; and (iii) global economic recovery resuming long-term trend pace.
The main risks include: (i) a global double-dip recession; (ii) lower-than-expected crude palm oil prices; and (iii) rebuilding in Japan stalls due to further political/budgetary issues, and/or further deterioration of the Fukushima nuclear plant crisis. ' AmResearch, Aug 17
This article appeared in The Edge Financial Daily, August 18, 2011.
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