Rising costs cast doubt on wood companies growth prospects

Rising costs cast doubt on wood companies growth prospects

HÀ NỘI —  As wood export turnover is rebounding with rising demand in the domestic market, the revenues of wood enterprises are expected to advance. 

However, skyrocketing prices of raw materials and logistics costs will weigh on these companies’ gross profit margin in  二0 二 二.

VNDIRECT Securities Corporation (VNDIRECT) estimated that the total revenue of listed wood and wood products companies in the first quarter (Q 一) of  二0 二 二 rose by  一0. 二 per cent 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  九0 per cent capacity in the first quarter of  二0 二 二, while in the second half of  二0 二 一 it was only  六0- 六 五 per cent.

The export wood enterprises achieved better business results in Q 一 of  二0 二 二. Specifically, Trường Thành Furniture Corporation (HoSE: TTF) and Phú Tài JSC (HoSE: PTB) witnessed impressive growth during the period, mainly boosted by strong demand from US customers and high inventories in Q 四 of  二0 二 一.

Financial statements showed that net revenues of Trường Thành and Phú Tài reached VNĐ 五 三 七. 五 billion (US$ 二 三 million) and VNĐ 一. 七 二 trillion, respectively up  七 一. 八 per cent and  二 二. 五 per cent over last year.  

An Cường Wood - Working JSC (UPCoM: ACG)’s net revenue and net profit in Q 一 of  二0 二 二 climbed  八. 七 per cent and  一 八. 七 per cent 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  二0 二 一- 二 二 period.

Nevertheless, there is a co妹妹on factor among wood industry businesses, that is whether their revenue increases or decreases, the gross profit margin of most companies declined in  二0 二 二 due to higher input materials and logistics costs.

Of which, the gross profit margin of the wood segment of Phú Tài dropped  一. 四 percentage points compared to the same period in  二0 二 一, to  二 一. 三 per cent, because the prices of imported sawn pine and round pine rose  五 二 per cent and  三 八 per cent 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  六. 二 percentage points during the same period, due to a  二0 per cent gain in input wood prices since January  一 五.

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  七. 九 per cent in the five years from  二0 二 二 to  二0 二 七, driven by significant growth in single-family houses, while home loans in the US are at the highest level since  二0 一 八, with home loan contracts up  八 per cent over last year in April.

Analysts expected that high demand for housing in the US would boost the purchase of wooden furniture products in  二0 二 二- 二0 二 三.

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- 一 九.

Experts believe that the policy will promote the shift of orders to Việt Nam. Currently, China is still Việt Nam's main competitor in the US furniture market, accounting for  二 二. 五 per cent of the US wood furniture import value in  二0 二 一.

VNDIRECT expected that enterprises with a large proportion of wooden furniture exports to the US, such as Phú Tài, Trường Thành and Nam Hoà 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  二0 二 二, 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  二0 二 二. 

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  二 五 per cent in Q 一 to $ 一, 四 一 二 a board foot. The gross profit margin of most wood and furniture companies was reduced in Q 一 due to high input materials and post-logistics costs.

VNDIRECT believed that the gross profit margin of wood and furniture companies in  二0 二 二 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. 四-0. 六 percentage points, VNDIRECT said.  

Container shipping costs have increased from $ 一, 五00 per  四0ft container (Shanghai-Los Angeles route) in July  二0 一 九 to nearly $ 八, 八 五 二 per  四0ft container in March, six times higher over the last five years.

Although transportation costs have shown signs of cooling down in April, down  一0 per cent from the previous month, the securities company still expected that logistics costs would remain at a high level, approximately $ 七,000 per  四0ft container in  二0 二 二 due to current high oil prices.

"High logistics costs may affect the gross profit margin of wood and furniture companies in  二0 二 二”, said VNDIRECT. — VNS

Rising costs cast doubt on wood companies growth prospects