Top Story : Timber – Highlights from timber conference
Sector Update
♦ We recently hosted a Timber and Furniture Day with management from Samling Global/Lingui and WTK.
♦ Low inventory in Japan is shoring up selling prices in near term. There is a risk that the Japan market could remain weak in the near term, unless construction activities start picking up more aggressively.
♦ In the medium to longer term, given that Japan’s housing starts are at such a low level, downside risk in sales volumes would be relatively limited.
♦ Cost of production is on a rising trend, mainly due to higher logging costs, caused by higher fuel, labour and machinery costs but would be offset by rising economies of scale, given the high fixed costs involved.
♦ We reiterate our Outperform call on WTK based on unchanged fair value of RM1.55 (14x CY10 EPS).
♦ We also derive Lingui’s fair value of RM0.80 based on 14x CY10 consensus EPS. However, we note that consensus numbers may not have factored in the potential upside from the rising plywood prices. There is also a possibility of privatisation by Samling Global which could generate further interest in the stock.
♦ Maintain Neutral call on timber sector.
RHB Equity 360° - 7 May 2010 (Timber, Unisem, Sime Darby, Muda, MISC; Technical: Faber)
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