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Rising costs cast doubt on wood companies growth prospects

As wood export turnover is rebounding with rising demand in the domestic market, the revenues of wood enterprises are expected to advance.
Rising costs cast doubt on wood companies growth prospects hinh anh 1


However, skyrocketing prices of raw materials and logistics costs will weigh on these companies’ gross profit margin in 2022.

VNDIRECT Securities Corporation (VNDIRECT) estimated that the total revenue of listed wood and wood products companies in the first quarter (Q1) of 2022 rose by 10.2% year-on-year thanks to the recovery of wood producers in the south.

After the social distancing order was lifted, most wood companies in the southern region resumed operations at 90% capacity in the first quarter of 2022, while in the second half of 2021 it was only 60-65%.

The export wood enterprises achieved better business results in Q1 of 2022. Specifically, Truong Thanh Furniture Corporation (HoSE: TTF) and Phu Tai JSC (HoSE: PTB) witnessed impressive growth during the period, mainly boosted by strong demand from US customers and high inventories in Q4 of 2021.

Financial statements showed that net revenues of Truong Thanh and Phu Tai reached 537.5 billion VND (23 million USD) and 1.72 trillion VND, respectively up 71.8% and 22.5% over last year.  

An Cuong Wood - Working JSC (UPCoM: ACG)’s net revenue and net profit in Q1 of 2022 climbed 8.7% and 18.7% on-year, respectively, thanks to gains in export revenue and declines in selling costs.

Meanwhile, domestic wood producers such as Vinafor (HNX: VIF) and GEWOODCO (UPCoM: MDF) posted negative growth, due to high input materials and rising competitive pressure from the wood plank segment as other businesses continuously expanded capacity during the 2021-2022 period.

Nevertheless, there is a common factor among wood industry businesses, that is whether their revenue increases or decreases, the gross profit margin of most companies declined in 2022 due to higher input materials and logistics costs.

Of which, the gross profit margin of the wood segment of Phu Tai dropped 1.4 percentage points compared to the same period in 2021, to 21.3%, because the prices of imported sawn pine and round pine rose 52% and 38% respectively. The increase in wood prices is due to the impact of the Russia-Ukraine conflict and high logistics costs.

The gross profit margin of GEWOODCO also slid 6.2 percentage points during the same period, due to a 20% gain in input wood prices since January 15.

Higher demand but costs soar

Market research and consulting firm Grand View Research forecast that the US wooden furniture market value would grow by around 7.9% in the five years from 2022 to 2027, driven by significant growth in single-family houses, while home loans in the US are at the highest level since 2018, with home loan contracts up 8% over last year in April.

Analysts expected that high demand for housing in the US would boost the purchase of wooden furniture products in 2022-2023.

The timber industry is also said to benefit from China's reduction in production capacity. 

Despite countries around the world easing COVID measures, China continued to pursue the zero COVID policy with prolonged lockdowns in many areas such as Jiangsu, Jilin, Guangdong and Shanghai. Three of the ten largest wood manufacturers in China have had to close factories in Shanghai and Jiangsu due to the impact of COVID-19.

Experts believe that the policy will promote the shift of orders to Việt Nam. Currently, China is still Vietnam's main competitor in the US furniture market, accounting for 22.5% of the US wood furniture import value in 2021.

VNDIRECT expected that enterprises with a large proportion of wooden furniture exports to the US, such as Phu Tai, Truong Thanh and Nam Hoa Trading & Production Corporation, would have advantages over others. 

Moreover, demand in the domestic market might also recover thanks to the return from the residential real estate market.

The securities firm forecast that the real estate market would witness a recovery in the supply side in 2022, as developers would focus on boosting sales to improve cash flow. This was reflected in the prospects of strong growth in sales of listed real estate companies this year.

Even though there are many advantages to revenue growth, higher prices of raw materials add pressure on the gross profit margin of enterprises in 2022. 

The ban on exporting logs to European countries and the US by the Russian Government has tightened the global raw materials supply, leading to soaring prices.

According to financial website Trading Economics, the price of lumber in the US advanced 25% in Q1 to 1,412 USD a board foot. The gross profit margin of most wood and furniture companies was reduced in Q1 due to high input materials and post-logistics costs.

VNDIRECT believed that the gross profit margin of wood and furniture companies in 2022 would be affected, as the supply shortage would continue to push up the price of wood materials. This year, the gross profit margin of wood and furniture companies would continue to fall 0.4-0.6 percentage points, VNDIRECT said.  

Container shipping costs have increased from 1,500 USD per 40ft container (Shanghai-Los Angeles route) in July 2019 to nearly 8,852 USD per 40ft container in March, six times higher over the last five years.

Although transportation costs have shown signs of cooling down in April, down 10% from the previous month, the securities company still expected that logistics costs would remain at a high level, approximately 7,000 USD per 40ft container in 2022 due to current high oil prices.

"High logistics costs may affect the gross profit margin of wood and furniture companies in 2022”, said VNDIRECT.

Source: VNS

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