Wood and wood products companies with a high proportion of exports to the US such as PTB, NHT, and GDT will face difficulties in the second half of 2023.
After Q4/2022 with poor results, the total export value of wood and wood products decreased by 34.8% over the same period last year due to the pressure from the declining housing market in the US.
In the report of the wood industry’s outlook recently updated, VnDirect said that demand will not recover until 2024. In 2022, about 90% of Vietnam’s wood and wood products value is from export markets, 54% from the US, and followed by China with 13.4%.
Vietnamese wood and wood products businesses have to face more challenges after China’s reopening.
The poor macro outlook for the US has affected the housing and real estate markets. Interest rates on home loans in the US rose to 6.1% which is the highest level since 2011. Meanwhile, average home prices rose 10.4% in Q4 of 2022, which has slowed down homebuying power in the US.
The US housing demand index was down 48.1% in Feb 2023 compared to the same period. Enterprises exporting wooden furniture with a high rate of export to the US such as PTB, GDT, and SAV will suffer a decrease in export revenue of about 10-15% over the same period in 2023.
In addition, the industry’s gross profit margin will fall by 0.6-1% points in 2023 due to lower average selling prices.
According to the National Association of Home Builders, single-household home sales will drop to 744,000 (-25.5% svck) in 2023 before increasing to 925,000 by 2024.
While Forest Economic Advisors forecast that demand for softwood lumber in North America will fall by 8.3% in 2023, after a 1.6% decline in 2022 due to a weakening consumer market and the possibility of a recession. However, this will be short-term with a forecast of a 7.5% increase over the same period in 2024 at 62.5 billion feet (BBF).
VnDirect expects gross profit margins of wood and wood products companies to decline slightly in 2023 before improving in 2024.
The price of T12/22 plywood reached 409 USD/sheet (-14.6% svck) due to weak demand in the world market. The price of plywood – the main input material of the wood industry will remain low in the range of 410 USD/sheet to 415 USD/sheet since the real estate market is still unstable. Therefore, it is forecast that plywood prices will decrease by 5%-10% in 2023.
However, wood and wood products companies will have to lower their average selling prices to attract more customers. Therefore, it is expected that the gross profit margin of the industry will decrease by 0.6% -1% point in 2023.
The PMI index in China rose to 52.6 in Feb 2023. It was the first time manufacturing activity recovered since July last year and the highest level in 08 months after the COVID policy change.
China will fully reopen its economy in Q2 of 2023. This country is Vietnam’s second-largest wood importer, accounting for 13% of total exports. However, 80% of Vietnam’s total exports to China in 2022 are raw wood (code HS44) with more than 20 items, mainly wood chips.
Wood companies with a high proportion of exports to the US such as PTB, NHT, and GDT will face difficulties in the second half of 2023.
Currently, wood chips are exported to China mainly by small and unlisted enterprises. In contrast, China is Vietnam’s main wood import market, accounting for 37% of the market share in 2022. Reopening some of China’s net exports can help reduce the input costs of wood businesses such as PTB, TTF, and GDT.
On the other hand, China’s reopening of its economy may pose many challenges for wood furniture businesses in 2023. Currently, China is Vietnam’s main competitor in the US market. The two countries have the same market share in the US, at 31%.
The price of wood stocks is now trading at an average PE slippage of 9.3 times. VnDirect believes that the valuation of wood and wood products stocks is at a reasonable level due to declining global demand and pressure on gross margin remaining at least until Q4 of 2023. Investors should wait for clearer signs of recovery to invest in wood stocks./.