Inside a wood production line of Truong Thanh Furniture Corporation. (Photo truongthanh.com) However,skyrocketing prices of raw materials and logistics costs will weigh on thesecompanies’ gross profit margin in 2022.
VNDIRECTSecurities Corporation (VNDIRECT) estimated that the total revenue of listedwood and wood products companies in the first quarter (Q1) of 2022 rose by 10.2%year-on-year thanks to the recovery of wood producers in the south.
After thesocial distancing order was lifted, most wood companies in the southern regionresumed operations at 90% capacity in the first quarter of 2022, while in thesecond half of 2021 it was only 60-65%.
The exportwood enterprises achieved better business results in Q1 of 2022. Specifically,Truong Thanh Furniture Corporation (HoSE: TTF) and Phu Tai JSC (HoSE: PTB)witnessed impressive growth during the period, mainly boosted by strong demandfrom US customers and high inventories in Q4 of 2021.
Financialstatements showed that net revenues of Truong Thanh and Phu Tai reached 537.5billion VND (23 million USD) and 1.72 trillion VND, respectively up 71.8%and 22.5% over last year.
An CuongWood - Working JSC (UPCoM: ACG)’s net revenue and net profit in Q1 of 2022climbed 8.7% and 18.7% on-year, respectively, thanks to gains in export revenueand 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 competitivepressure from the wood plank segment as other businesses continuously expandedcapacity during the 2021-2022 period.
Nevertheless,there is a common factor among wood industry businesses, that is whether theirrevenue increases or decreases, the gross profit margin of most companiesdeclined in 2022 due to higher input materials and logistics costs.
Of which,the gross profit margin of the wood segment of Phu Tai dropped 1.4 percentagepoints compared to the same period in 2021, to 21.3%, because the prices ofimported sawn pine and round pine rose 52% and 38% respectively. Theincrease in wood prices is due to the impact of the Russia-Ukraine conflict andhigh logistics costs.
The grossprofit margin of GEWOODCO also slid 6.2 percentage points during the sameperiod, due to a 20% gain in input wood prices since January 15.
Higherdemand but costs soar
Marketresearch and consulting firm Grand View Research forecast that the USwooden furniture market value would grow by around 7.9% in the five years from2022 to 2027, driven by significant growth in single-family houses, while homeloans in the US are at the highest level since 2018, with home loan contractsup 8% over last year in April.
Analystsexpected that high demand for housing in the US would boost the purchase ofwooden furniture products in 2022-2023.
The timberindustry is also said to benefit from China's reduction in productioncapacity.
Despitecountries around the world easing COVID measures, China continued to pursue thezero COVID policy with prolonged lockdowns in many areas such as Jiangsu,Jilin, Guangdong and Shanghai. Three of the ten largest wood manufacturers inChina have had to close factories in Shanghai and Jiangsu due to the impact ofCOVID-19.
Expertsbelieve that the policy will promote the shift of orders to Việt Nam.Currently, China is still Vietnam's main competitor in the US furnituremarket, accounting for 22.5% of the US wood furniture import value in 2021.
VNDIRECTexpected that enterprises with a large proportion of wooden furniture exportsto the US, such as Phu Tai, Truong Thanh and Nam Hoa Trading &Production Corporation, would have advantages over others.
Moreover,demand in the domestic market might also recover thanks to the return from theresidential real estate market.
Thesecurities firm forecast that the real estate market would witness arecovery in the supply side in 2022, as developers would focus on boostingsales to improve cash flow. This was reflected in the prospects of stronggrowth in sales of listed real estate companies this year.
Even thoughthere are many advantages to revenue growth, higher prices of raw materials addpressure on the gross profit margin of enterprises in 2022.
The ban onexporting logs to European countries and the US by the Russian Government hastightened the global raw materials supply, leading to soaring prices.
According tofinancial website Trading Economics, the price of lumber in the US advanced 25%in Q1 to 1,412 USD a board foot. The gross profit margin of most wood andfurniture companies was reduced in Q1 due to high input materials andpost-logistics costs.
VNDIRECTbelieved that the gross profit margin of wood and furniture companies in 2022would be affected, as the supply shortage would continue to push up the priceof wood materials. This year, the gross profit margin of wood and furniturecompanies would continue to fall 0.4-0.6 percentage points, VNDIRECT said.
Containershipping costs have increased from 1,500 USD per 40ft container (Shanghai-LosAngeles route) in July 2019 to nearly 8,852 USD per 40ft container in March,six times higher over the last five years.
Althoughtransportation costs have shown signs of cooling down in April, down 10% fromthe previous month, the securities company still expected that logistics costswould remain at a high level, approximately 7,000 USD per 40ft container in2022 due to current high oil prices.
"Highlogistics costs may affect the gross profit margin of wood and furniture companiesin 2022”, said VNDIRECT./.
VNA
