KUALA LUMPUR (Feb 8): Shares in Focus Lumber Bhd (FLB) rose 2.78% in early trade on Tuesday (Feb 8) following a positive technical and quarterly earnings outlook.
At 9.15am, FLB had added four sen to RM1.48, with 684,400 shares traded.
Hong Leong Investment Bank Bhd (HLIB) expects FLB's earnings to rebound strongly in the fourth quarter ended Dec 31, 2021 (4QFY21) and achieve a compound annual growth rate (CAGR) of 54% in FY21-23, driven by promising growth in the buoyant recreational vehicle sector and US housing market.
In a stock idea note on Tuesday, the research house said valuations are undemanding at 6.3 times-5.7 times FY22-23 price-earnings (P/E), supported by attractive dividend yields of 6.4%-7% for FY22-23.
“We value FLB at RM1.98 based on 8.6 times FY22 EPS (earnings per share) of 23 sen (average 10-year P/E), which is about a 34% discount to peers' average of 13.2 times,” it said.
HLIB said it sees FLB as the prime beneficiary of orders’ diversification amid the recent US-and-Canada “lumber war”.
It said Canada is the main exporter of plywood to the US and the former is also the largest softwood lumber exporter in the world — and it had been imposed a higher average duty of 17.9% on softwood lumber imports to the US (twice the previous rate of 8.99%).
“Coupled with the US’ ongoing trade spat with China, this will likely result in US importers diverting their timber products from Canada to elsewhere — such as Malaysia, Vietnam and Indonesia — amid booming housing demand in the US.
“We project FLB to register a sustainable turnaround from 4QFY21 onwards, supported by: i) bullish plywood product prices; and ii) ramped-up delivery due to an accumulated backlog. All in, we are projecting FLB’s FY21-23 core PATAMI (profit after tax and minority interests) to experience a strong CAGR of 54% to RM27.1 million in FY23,” it said.