KUALA LUMPUR (Feb 8): Hong Leong Investment Bank Bhd (HLIB) expects Focus Lumber Bhd’s (FLB) 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 (Feb 8), 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.