Thursday, August 30, 2007

Cymao III

I had a chance to look at NetResearch write-up on Cymao and I found the section under earnings outlook rather interesting.

This is what they had to say.

  • Earnings Outlook

    · Management expects demand from major export markets to remain weak whilst competition is likely to increase in view of the shrinking market size, leading to greater pricing pressure.

    · As a result, management has indicated in the 2Q07 results announcement that it is highly probable that the company may not be profitable in 2007, contrary to earlier expectations.

    · Cymao’s immediate plans are to commence logging operations in Sabah once the government gives the go-ahead to commence logging activities. The logging venture in Papua New Guinea is facing some delay due to the local elections.

    · Although the immediate outlook for Cymao appears difficult, we believe longer-term fundamentals for the company remain intact due to the following:

    o The still-firm log prices will eventually push up plywood prices as plywood makers look to recover the higher costs. These plywood makers would include the big Chinese operators which are currently importing logs mostly from Russia;
    o The inventory build-up situation in the US will eventually wind down;
    o The company’s new logging operations in Sabah and Papua New Guinea will reduce Cymao’s reliance on third party log supplies and cushion the volatility in log supply and log costs for the company.

Well, I only have one issue on the US market. Yes, the inventory situation WILL correct itself and the issue of high inventory build up cannot last forever. However, on the other hand, some serious consideration is due on the US housing market. A lame US housing market should probably do no wonders to such plywood players (plywood exporters to US market).

Won't you agree?