Timber related stocks initial coverage part I

In 2015, the value of Malaysia total export was RM779.95 billion (Read more here), while the total export of timber product was RM22.14 billion (Read more here), about 2.8% of total Malaysia export value.

According to the statistics published by Malaysia Timber Industry Board (MTIB), more than half of the total value of timber product export were contributed by Wooden Furniture and Plywood.  See Figure 1 for detail.  The top destination for Wooden Furniture export was USA while the top destination for Plywood export was Japan. The similar trend has been observed for the past five years.  See Figure 2, Figure 3, and Graph 1 for details.

Figure 1

Figure 2

Figure 3

Graph 1

Graph 2

Graph 3

Graph 4

Graph 2 shows the trend of Malaysia timber export from 2003 to 2012 from a research report (Read more here).  It is quite similar to the US housing start trend, as depicted in Graph 3.  Both trends were showing a sharp drop during 2007 – 2008 then gradually recovering since 2009.  The 3 years and 5 years moving average of the US annual housing start crossed over on 2012, and the uptrend is still intact.  Graph 4 is the US monthly housing start.  It is trending upwards at a cautious pace.  As long as the long term trend is intact, the chances of a sudden sharp reversal of the upward trend are low.

In another report (Read more here), it showed that since 2013, for the first time the Chinese outbound direct investment into the US exceeded US investment into China.  The largest portion of the investment inflow went into the real estate sector.  On 2014, the Chinese investment into US real estate was at a record $38 billion.  This trend is in line with the US house hold start and also the Wooden Furniture export data.  As long as the policy does not change, the trend may continue to grow.

In Japan, 90% of the plywood supply was used in housing sector (Read more here).  Graph 5 and 6 are the Japan building start trend, yearly and monthly respectively.  The trend is declining since 2013.  It is projected that the 2016 demand will remain flat compare to 2015.  Both yearly and monthly charts are trending below their three and six periods moving average.  2020 Japan Summer Olympic might boost the demand of plywood but this may not lift the overall housing slowdown trend.  A flat outlook is more likely for the next few years.

Graph 5

Graph 6

Based on the above data, the stock selection will focus on timber stocks that derived majority of their earnings on US and Japan market.  The valuation model in part II will assign slightly upward bias growth for Wooden Furniture and flat outlook on Plywood.

Disclaimer:  The above analysis does not imply any buy or sell recommendation.  The author disclaims all liabilities arising from any use of the information contained in this article.