MARKET DEVELOPMENT
Analyst: A Good Year Ahead for Quasi-timber Plantation Entities
Analyst: A Good Year Ahead for Quasi-timber Plantation Entities
11/01/2014 (Borneo Post) - Quasi-timber plantation companies are set to leverage more on its plantations divisions, driven by positive growth in fresh fruit bunch (FFB) production coupled with the improvements in crude palm oil (CPO) in 2014.
Analysts Eilen Ng Yi Ling and Nadia Aquidah Subhan from Affin Investment Bank Bhd’s research firm (Affin Research) identified three companies under their coverage – Ta Ann Holdings Bhd (Ta Ann), Jaya Tiasa Holdings Bhd (Jaya Tiasa), and WTK Holdings Bhd (WTK) – taking an aggressive stance to boost oil palm earnings via plans for additional CPO mills as most of their palm oil trees start to enter prime age.
The analysts viewed that the companies’ strategy to expand their milling capacity would reduce reliance on third party millers, thus reducing FFB transportation cost, which would in turn contribute to their bottomlines.
“We believe this strategy will enable the companies to achieve higher efficiency and profitability through a vertical integration of the supply chain,” they said.
“The plantation business will undoubtedly serve as a strong earnings driver in the long term.”
The analysts further observed that all three companies under their coverage were taking an aggressive stance to boost oil palm earnings through additional CPO mills.
They noted that Ta Ann has just completed its second CPO mill at Igan, Sarawak with a capacity of 90 metric tonne per hour in December 2013.
Likewise, Jaya Tiasa has completed its second CPO mill at Daro Jaya, Sarawak in September 2013 and is currently building its third CPO mill at Lassa, Sarawak, which is expected to begin operations in April 2014.
Also, Jaya Tiasa plans to add another mill in Hariyama, Sarawak, increasing its total CPO mills to four mills by end 2014. WTK is also planning to construct their first CPO mill in the second half of 2015 (2H15).
Meanwhile, the overall timber sector is expected to continue to see sturdier demand with moderated timber prices underpinned by diminishing natural resources, recent stabilisation of the rupee, Myanmar’s log export ban, as well as rising plywood demand from Japan.
Affin Research projected that log prices would average to about US$250 to US$260 per cubic metre in 2014 (up by circa US$20 to US$30 per cubic metre from an average of US$230 to US$240 per cubic metre in 2013).
“Given the average log production cost of circa US$120 per cubic metre, timber players are expected to continue to enjoy healthy margins from the log segment,” the analysts said.
While export sales to India – accounting for 61 per cent of Sarawak’s total log exports – have slowed since mid-2013 due to a sharp depreciation of the Indian rupee against the US dollar, log prices started to rise in December 2013 on expecverations of a log shortage during the monsoon season and recent stabilisation of the rupee.
In addition, as the Sarawak Government had lifted the export log quota to 50 per cent from 40 per cent until June 30, 2014, log exports sales are expected to increase in 2014 on the back of robust market demand for tropical logs in India, driven by their need for affordable timber for building and renovation.
Myanmar might also tighten its log supply due to its ban on log exports starting April 1, 2014. This could have a positive spillover on other timber exporting countries such as Malaysia.
As for the increase in demand for plywood, the research team noted that in 2013, Japan’s housing market finally showed some signs of sustained recovery and importantly, gained traction.
“This is positive for our local plywood manufacturers given their focus on the Japanese market (circa 58 per cent of Sarawak’s total plywood exports),” it said.
Additionally, the research team said that although Japan has implemented new regulations to promote the use of domestic wood, the demand for tropical hardwood plywood would likely be sustained due to its specialist applications.
“In general, tropical plywood has a higher durability and is largely used for flooring applications due to their immense strength. As such, we opine that tropical plywood would still be in demand especially for the applications for concrete panel and floor base,” it viewed.
Japan will step up its plywood export activities over the near to medium term as the Japanese LDP government has undertaken massive stimulus measures boost reconstruction work from the earthquake and subsequent nuclear damage in Fukushima.
Japan is also said to raise its plywood imports in preparation for the Olympic Games in 2020.
Analysts Eilen Ng Yi Ling and Nadia Aquidah Subhan from Affin Investment Bank Bhd’s research firm (Affin Research) identified three companies under their coverage – Ta Ann Holdings Bhd (Ta Ann), Jaya Tiasa Holdings Bhd (Jaya Tiasa), and WTK Holdings Bhd (WTK) – taking an aggressive stance to boost oil palm earnings via plans for additional CPO mills as most of their palm oil trees start to enter prime age.
The analysts viewed that the companies’ strategy to expand their milling capacity would reduce reliance on third party millers, thus reducing FFB transportation cost, which would in turn contribute to their bottomlines.
“We believe this strategy will enable the companies to achieve higher efficiency and profitability through a vertical integration of the supply chain,” they said.
“The plantation business will undoubtedly serve as a strong earnings driver in the long term.”
The analysts further observed that all three companies under their coverage were taking an aggressive stance to boost oil palm earnings through additional CPO mills.
They noted that Ta Ann has just completed its second CPO mill at Igan, Sarawak with a capacity of 90 metric tonne per hour in December 2013.
Likewise, Jaya Tiasa has completed its second CPO mill at Daro Jaya, Sarawak in September 2013 and is currently building its third CPO mill at Lassa, Sarawak, which is expected to begin operations in April 2014.
Also, Jaya Tiasa plans to add another mill in Hariyama, Sarawak, increasing its total CPO mills to four mills by end 2014. WTK is also planning to construct their first CPO mill in the second half of 2015 (2H15).
Meanwhile, the overall timber sector is expected to continue to see sturdier demand with moderated timber prices underpinned by diminishing natural resources, recent stabilisation of the rupee, Myanmar’s log export ban, as well as rising plywood demand from Japan.
Affin Research projected that log prices would average to about US$250 to US$260 per cubic metre in 2014 (up by circa US$20 to US$30 per cubic metre from an average of US$230 to US$240 per cubic metre in 2013).
“Given the average log production cost of circa US$120 per cubic metre, timber players are expected to continue to enjoy healthy margins from the log segment,” the analysts said.
While export sales to India – accounting for 61 per cent of Sarawak’s total log exports – have slowed since mid-2013 due to a sharp depreciation of the Indian rupee against the US dollar, log prices started to rise in December 2013 on expecverations of a log shortage during the monsoon season and recent stabilisation of the rupee.
In addition, as the Sarawak Government had lifted the export log quota to 50 per cent from 40 per cent until June 30, 2014, log exports sales are expected to increase in 2014 on the back of robust market demand for tropical logs in India, driven by their need for affordable timber for building and renovation.
Myanmar might also tighten its log supply due to its ban on log exports starting April 1, 2014. This could have a positive spillover on other timber exporting countries such as Malaysia.
As for the increase in demand for plywood, the research team noted that in 2013, Japan’s housing market finally showed some signs of sustained recovery and importantly, gained traction.
“This is positive for our local plywood manufacturers given their focus on the Japanese market (circa 58 per cent of Sarawak’s total plywood exports),” it said.
Additionally, the research team said that although Japan has implemented new regulations to promote the use of domestic wood, the demand for tropical hardwood plywood would likely be sustained due to its specialist applications.
“In general, tropical plywood has a higher durability and is largely used for flooring applications due to their immense strength. As such, we opine that tropical plywood would still be in demand especially for the applications for concrete panel and floor base,” it viewed.
Japan will step up its plywood export activities over the near to medium term as the Japanese LDP government has undertaken massive stimulus measures boost reconstruction work from the earthquake and subsequent nuclear damage in Fukushima.
Japan is also said to raise its plywood imports in preparation for the Olympic Games in 2020.