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PETALING JAYA: Focus Lumber Bhd (FLB) is expected to sustain or record better quarter-on-quarter (q-o-q) earnings due to higher demand and average selling prices (ASP) for plywood.
The stronger US dollar will also help the wood product exporter overcome cost pressures arising from higher operational and material costs which are mainly denominated in ringgit, Hong Leong Investment Bank (HLIB) Research stated in a report yesterday.
HLIB Research noted the downstream timber company‘s first quarter results for financial year 2022 (1Q22) exceeded forecast despite the shipment delays due to congestion at US ports.
The research house anticipated Focus Lumber would report even stronger yields in the second quarter period.
“The group posted commendable 1Q22 results with a core net profit of RM7.4mil, which came in above our expectation. It accounted for 30% of our FY22 core net profit forecast mainly due to higher-than-expected realised ASPs,” HLIB Research noted in its report.
Following the disruption of the supply chain of timber due to the export ban of wood and forest products to western countries by Russia, Europe is now experiencing tight plywood supply.
HLIB Research projected this could benefit Focus Lumber as the United States, its main export market, is reportedly seeing a decline in sectors that use plywood as their inputs, namely in housing starts and recreational vehicle sales.
The research house also noted dampening of demand for timber in the US will impact Focus Lumber moderately given that US distributors want to build up their inventories to buoy over deteriorating supplies.
“We believe the impact to (the group) will be moderate in the near to medium term as the current tight plywood supply and worsening supply chain continue to incentivise US distributors to place orders in advance to build up inventory.
The group would be able to divert some of its US sales to Europe should the former slowdown,” stated HLIB Research.
Overall, the company is expected to see a positive outlook in plywood sales with the rise of inquiries from potential new customers from Europe and Asia to make up for the drop in orders from the US.
At present, HLIB Research said Focus Lumber has pending orders until the third quarter with locked-in plywood prices nearing a record high.
Given the rising demand for plywood is resulting in higher realised plywood prices, HLIB expects Focus Lumber will record stronger q-o-q earnings in the 2Q22.
“Going into 2Q22, we believe Focus Lumber will likely post stronger q-o-q earnings on the back of sustaining or slightly stronger gross profit margin; delayed revenue recognition from 1Q22, and higher plywood realised price amid rising geopolitical tension,” said HLIB Research.