KUCHING: Local Timber companies, Lingui Development Bhd (Lingui) and WTK Holdings Bhd (WTK) were sourcing out new markets due to the weak Japanese market.RHB Research Institute Sdn Bhd (RHB Research) said that Lingui and WTK were basically in agreement that there was a risk that the Japan market would remain weak in the near term unless construction activities pick up in a more aggressive manner.
Due to the weak Japanese market, both companies have found ways to supplement their revenue. In Lingui’s case, the management indicated that it has shifted its focus to other countries like Korea, US, Taiwan and the Middle East where demand was strong.
The management estimated that its log exports to Japan made up less than 10 per cent of the total log exports in 2009 versus 20 to 30 per cent previously. Plywood exports to Japan made up 50 per cent of its exports in 2009.
The markets that took over from Japan have already contributed 13 per cent and 12 per cent to Lingui’s plywood exports.
However, it was noted that there was no greater need to shift focus for WTK to other export markets given the bulk of its exports to Japan were for higher-end floor-based products where demand was relatively stable.
Plywood exports to Japan continued to contribute 80 per cent to sales, while WTK does not really export logs to Japan. WTK’s main export market for logs was India, which contributed 65 per cent.
Furthermore, the research house noted that the increase in timber product prices has been largely driven by restocking activities in Japan rather than the actual demand growth coming from higher construction activity.
Stock in Japan was currently low due to the supply constraints caused by domestic plywood manufacturers cutting back production.
However, in the medium term the management of both companies believed that the downside risk of sales volumes would be relatively limited in the view of a recovering economy.
The research house opined that Japan would continue to be the price setter for Malaysian plywood products, given that it was still the largest importer of Malaysian plywood with Malaysian products comprising 53 per cent of Japan’s plywood imports.
On the other hand, Lingui experienced a 10 per cent rise in selling prices for its plywood products up to April, 2010 while May-June indicative prices were up by another four to five per cent.
Given the strong price trend, management expected plywood prices to rise to 20 per cent on a year to year basis.
WTK has seen an eight to 17 per cent increase in selling prices for its plywood products since Jan 2010.
The research house noted that there was a possibility that Samling Global Ltd might privatise Lingui given its high 67.2 per cent shareholding level currently, which could potentially generate further interest in the stock.
The research house was of the opinion that the recent increase in shareholding might be another attempt to privatize the company at a later stage. As current price levels, Samling Global would need RM270.4 million to privatize Lingui.