Timber Related Companies - Japan Economic Recovery Play ...

The Japan core consumer prices rose the fastest in almost five years indicating a gradual shift from deflation to inflation. Its housing market also appears to be rousing from slumber as consumer confidence picks up.

The Japanese construction sector and overall Japanese economy is benefiting strongly from Abe’s dynamic new economic policies consisting of the three arrows of Abenomics.

Japanese residential construction starts were year on year by May 2013. Construction starts for homes constructed from wood, which account for about half of total Japanese housing starts have surged over the latest three months (April 2013 – June 2013).

With more than half of Malaysian timber products exported to Japan, local exporters like Ta Ann, Jaya Tiasa, Subur Tiasa and WTK stand to benefit from a Japanese housing recovery.

A short term catalysts for the timber industry will be the increase in Japan’s consumption tax from 5% to 8%. This will push forward some of the housing demand to 2013, increasing demand for timber.

Expect timber stocks to come into focus in the 2HFY2013 … as new Japanese home buyers rush to beat the planned increase in sales tax. The risk of course, is if the consumption tax is delayed.

However a weaker yen, a result of Abe’s policies, is negative for timber exporters since it makes it more expensive for Japan to import timber. But the US dollar pricing for timber can be justified as most Japanese can still afford.

In July 2013, the log prices have already been driven higher due to a combination of supply shortage in Sarawak, owing to seasonal wet weather and higher demand from India. There will be better prices in the HFY2013 in light of Japan economic recovery. Prices will improve in tandem with stronger demand, which will be driven by macroeconomic fundamentals of the Japanese economy.

In US dollar terms, plywood prices have risen marginally but enough to offset any production cost increase.

Those with the best exposure to Japan will be the purer timber companies such as WTK and Subur Tiasa. However TA Ann may benefit more. It is exposed to higher production costs due to its operations in Tasmania. Therefore its earnings will be more leveraged to any price increase. So if plywood prices go up, TA Ann will benefit.

More than 90% of TA Ann’s plywood production and 20% of its log production is exported to Japan.

WTK is another company that exports over 80% of its plywood to Japan. Unlike TA Ann however its timber segment makes up the bulk of its earnings, with 76% profit contribution in FY2012.

Jaya Tiasa which has the highest number of timber assets of the four companies draws about 63% of its revenue and 68% of its profit from its timber division.

Subur Tiasa is the smallest timber player. Logging and manufacturing of timber products make up about 83% of its profits.