Top Story : Timber – Positive Signs of Recovery Overweight (up from N)
Sector Update
- Latest July 2010 Japan housing starts saw a better-than-expected improvement (+4.3% yoy and +0.1% mom to 68,785 units), which brings it to two consecutive months of growth (Jun 10 +0.6% yoy) 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% yoy).
- According to Japan Lumber Report, tropical log inventories in Japan are dropping due to limited log production in Sabah and Sarawak as a result of poor weather condition. The shortage in tropical log supply could also be partly attributable to the strong demand from India and China. As a result, tropical log export prices are now at US$210/m3 for meranti regular FOB (up about 17% from the YTD low of about
US$180/m3).
- Average selling prices for tropical plywood have increased gradually since early this year, up by 7-17% YTD in June 2010. This was achieved on the back of steady import demand from Japan, where specifically, imports of tropical plywood from Malaysia has increased by 8.3% yoy in 1H10.
- In line with RHBRI’s economic team’s forecast, we are now revising our RM/US$ exchange rate assumption for Jaya Tiasa and Evergreen. Exchange rate assumption for WTK and Ta Ann had been adjusted in our recent reports.
- Upgrade our view on the timber sector to Overweight. Top pick is Evergreen (OP, FV = RM2.57).
RHB Equity 360°(Timber; Technical: Kulim) - 07/09/2010
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