Thursday, March 21

Earthquake in Japan to affect Malaysian timber players

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KUCHING: Analysts believe that the 8.9-magniture earthquake which struck off Japan’s north-eastern coast would affect Malaysian timber players as Japan was anticipated to require higher timber demand for rebuilding purposes.

AmResearch Sdn Bhd (AmResearch) in its latest research note revealed that though reconstructions were to be expected, timber players did not expect a sudden and significant jump in timber exports towards the reconstruction process.

“We have contacted timber players, who are also unsure of the extent of damage stemming from the latest earthquake and the aftershocks,” revealed the research firm.

“One timber player rules out a ’30-40 per cent jump in exports’ to Japan – which mostly buys plywood from Malaysia – but expects a probable steady rise in demand from Japan to help in the reconstruction process, depending on the extent of the damage to buildings.”

Of the two timber companies under AmResearch’s coverage, Ta Ann Holdings Bhd (Ta Ann) currently exports 90 per cent of its plywood production to Japan. Its timber products are shipped to trading houses in Osaka, which is located further south of Tokyo, in the central-southern region of Japan.

Japan’s Research Institute of Construction Economy has projected Japan’s housing starts to rise 9.9 per cent to 898,900 units in the fiscal year ending March 31, 2012.

Japan reportedly imported nearly 1.15 million cubic metres of panel products worth RM1.7 billion, representing almost half of the Sarawak’s total exports of 2.5 million cubic metres (or RM3.43 billion) for the 11 months through November last year.

This, highlighted AmResearch, translated to an average selling price of RM442 per cubic metre. Plywood, in recent times, had traded up to around US$500 per cubic metre, an increase of 13 per cent.

“In the meantime, we advise accumulate Ta Ann on weakness as the recent price pullback has caused an upside of more than 15 per cent over our fair value for the stock,” opined the researchers.

“Ta Ann and Jaya Tiasa Holdings Bhd will also benefit from rising crude palm oil prices. Our CPO price assumption remains at RM3,300/tonne. The two companies undergoing a structural transformation, with their timber business now significantly supplemented by their respective oil palm division,” they concluded.