Ekson set to ride on high plywood prices, say analysts

  • Business
  • Monday, 09 Oct 2006

THE current bullish outlook for the timber industry augurs well for Eksons Corp Bhd.  

Of late, many commodities analysts have reiterated their buy calls on this niche plywood manufacturer, given its sound fundamentals. 

In addition, there were encouraging developments such as the rising demand from Japan and East Asia and timber supply shortage in Indonesia that led to plywood being traded at above US$400 per cu metre. 

Analysts said the group's healthy balance sheet with net cash position of about RM28mil as of March 31, together with RM60mil cashflow generated from plywood manufacturing per year, allowed it to comfortably finance its maintenance capital expenditure of less than RM5mil per year. 

Despite the focus on diversifying into new businesses, plywood manufacturing will remain Eksons' core business.

One analyst expects Eksons to register 10% to 15% growth in earnings per share for financial year ending March 31, 2007, based on expectations of higher average plywood prices of around US$450 per cu m from US$350 to US$400 per cu metre in the first quarter.  

A Singapore brokerage said in its research note that 2008 would be a better year for Eksons as the group's plywood mills operation was set to lower its production cost when the new biomass power plant began operation middle of next year. 

Eksons would also continue to enjoy subnormal effective tax rates in financial years 2007 and 2008 as it had significant capital allowances and investment tax allowances for its Tawau and Sibu plywood mills, said the brokerage. 

The brokerage expects Eksons' maiden property venture to contribute about 25% or more to the group's profit.  

Standard and Poor's, in its latest research note, has recommended a buy on Eksons with a 12-month target price of RM1.25 per share. 

However, it cautioned against risk factors such as the group's inability to secure enough logs and control production costs, the weakening US dollar against the Malaysian ringgit (since Ekson sells its products in US dollars) as well as execution risks for its first property project.  

 EKSONS :  [Stock Watch]  [News]

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Related Story:Eksons goes into property, plantation 

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