Wood & Wooden Products sector – More challenges ahead

• Wood & wooden products (W&WP) 2023 outlook remains weak following sluggish demand in both U.S and EU markets.
• We expect W&WP companies to recover in 2024 thanks to cooling down the U.S mortgage rate and improving home supply in the U.S market.
• We rate NEUTRAL for the sector.

Some silver linings in the dark for export sectors

After decreased 6.8% yoy in 4Q22 due to weak orders, Vietnam export value extended the downward trend, fell 17% yoy in 2M23. However, we see positive signals from both domestic and global market. The Manufacturing Purchasing Managers’ Index (PMI) of Vietnam, the U.S and China increased by 3.8 pts, 0.9 pts, 2.6 pts mom, respectively. While the inflation in the U.S and E.U are still high level but the downward trend remains.

But still more challenges for Vietnam wood and wooden products

In 2022, about 90% of Vietnam W&WP value was from export markets, 54% from U.S; followed by China with 13.4%. Thus, weak U.S macro outlook has weighed on residential property market and house construction. U.S mortgage rates climbed to 6.1%, highest level since 2011 while median home price rose 10.4% yoy in 4Q22 which dented the housing purchasing. The U.S Housing demand index plunged 48.1% yoy by Feb-23. We believe wooden furniture exporters which have large exposure to U.S market, like PTB, GDT, SAV will experience a drop of about 10 – 15% yoy in FY23F export revenue. While we expect that the GM of sector will edge down 0.6%-1% pts in 2023F due to lower average selling price.

The demand will not recover until 2024

According to National Association of Home Builders, single-family home sales will fall to 744,000 units (-25.5% yoy) in 2023 before rebounding to 925,000 units in 2024. While Forest Economic Advisors expect the demand for softwood lumber in North America will fall 8.3% yoy in 2023, following a 1.6% drop in 2022, as end-use markets weaken, and a recession remains likely. This will be short-lived, however, with a 7.5% rise forecast in 2024 at 62.5 billion board feet (BBF).

We rate NEUTRAL for the sector

W&WP stock prices currently are traded at average TTM PE of 9.3x. We believe valuation of W&WP stocks are relatively fair as subdued global demand and margin pressure still persist at least by 4Q23. We think that the investor should wait for clearer recovery signals to invest in W&WP stocks. Upside catalyst is better than- expected inflation control in the US market. Downside risk is weaker-than-expected housing demand in the foreign market due to adverse macro developments.

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