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Malaysia's timber industry makes a comeback [15-02-2011]  
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AmResearch has initiated a coverage on the sector with an "overweight" call and noted that the sector had seen price recovery

THE timber industry is making a comeback, according to a research firm.

AmResearch Sdn Bhd has initiated a coverage on the sector with an "overweight" call and noted that the sector had seen price recovery.

Quoting industry sources, AmResearch said Malaysian timber had survived the onslaught of global economic malaise, mainly due to rising demand from India and China over the past few years.

"True to available data, timber traders tell us that rising demand from India for tropical logs has hugely supported the Malaysian timber industry, as Japan continues to be in the economic doldrums.

"These sources even say that the industry owes its survival in recent years to the insatiable demand from India and China, and now Vietnam too, thereby to a certain extent supporting prices during the most recent global economic crisis," the firm said in a report released yesterday.

Based on the International Tropical Timber Organisation's (ITTO) latest data from Japan, Meranti regular log exports in Sarawak were exported at a high of US$245 (RM747.25) per cubic metre as at end-2010, up 27 per cent from the early part of the year.

The local plywood industry, meanwhile, was nearly gutted in 2009 as housing starts in Japan, the world's single largest importer of tropical plywood, plummeted 28 per cent to its lowest level in four decades, while plywood import volume fell over 20 per cent.

Of the local timber stocks, AmResearch has recommended a "buy" on Jaya Tiasa Holdings Bhd and a "hold" for TA Ann Holdings Bhd.

It rated Jaya Tiasa with a fair value of RM6 per share, based on a target price estimate of 15 times and an estimate price per share of 40 sen for the year ending 2011.

"The fair value offers a 20 per cent upside over its last traded price of RM4.98. Our stance is premised on its rapidly changing earnings profile and high-octane growth in the oil palm business."

For TA Ann, the research house puts a fair value of RM5.61 per share.

AmResearch said the two companies are reaping the fruit of their venture into oil palm about a decade ago.

"Crude palm oil is now trading at between RM3,900 and RM4,000 per tonne versus an average of RM 2,700 per tonne last year. Their rapid growth in oil palm has simply become too significant to ignore.

"For the two companies, a reclassification from the industrial products sector to plantation appears to be inevitable perhaps within the next three years. This will increase their profile among investors," it added.

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