What is Vietnam wood industry's export market outlook?

Vietnam wood sector's net profit increased by 28 percent yoy in 1Q22.

Strong recovery

According to VNDirect, the combined revenue of listed wood and wood products companies climbed 10.2 percent year over year in 1Q22, owing to a rebound from Southern wood producers. In 1Q22, most Southern wood firms were operating at 90 percent capacity following the shutdown (vs. 60-65 percent capacity in 2H21).

In 1Q22, the export wood group had a better result. TTF and PTB both had great business results in 1Q22, owing to 1) strong demand from US customers and 2) high inventory levels in 4Q21. TTF and PTB (just wood segment) revenue was VND952 billion and VND312 billion, respectively, in 1Q22 (18 percent yoy and 71% yoy). Despite being mostly a domestic firm, ACG's revenue and net profit improved by 8.8% and 18.8% yoy, respectively, in 1Q22, attributable to increasing export income and lower selling expenses.

Domestic wood producers such as VIF and MDF, on the other hand, experienced negative growth in 2021-22 due to high raw material costs and increased competitive pressure from the plywood industry as other businesses continue to expand their capacity.

Due to high input material and logistic costs, the gross margins of most wood and wood products industries fell in 1Q22. Due to the impact of the Russia-Ukraine war and high logistical costs, PTB's wood gross margin fell 1.4 percent pts yoy to 21.3 percent in 1Q22, as the price of imported sawn pine and round pine jumped by 52 percent yoy and 38 percent yoy, respectively, ytd. While MDF's gross margin fell 6.2 percent in 1Q22 due to a 20 percent increase in input rubber wood prices from January 15, 22.

Overall, the wood sector's net profit increased by 28 percent yoy in 1Q22, outpacing revenue growth mainly to exceptional income from PTB's real estate business (VND23 billion) and TTF's foreign currency gain (VND21.3bn).

Leveraging from U.S and China markets

According to Realtor, home sales will climb by 6.6 percent year over year in 2022, hitting 7.3 million units. With more than 45 million millennials expected to enter the housing market by 2022, demand for homes will remain strong. The value of the US wooden furniture market is expected to increase at a CARG of 7.9% in 2022-27F, according to Grand View Research, driven by 1) strong development in single-family house construction and 2) the trend of using wooden furniture due to its higher aesthetic appeal.

In addition, despite the fact that home loan interest rates in the United States are at their highest level since 2018, home loan applications increased by 8% year over year in April-22. In the years 2022-2023, VNDirect expects increased demand for homes in the United States to raise the buying of wooden furniture products.

While other countries loosened their disease control efforts, China stuck to its Zero-Covid policy, imposing a long-term embargo in places like Jiangsu, Jilin, Guangdong, and Shanghai. As a result of the impact of Covid-19, three of China's ten major wood manufacturers have had to close operations in Shanghai and Jiangsu.

Mr. Nguyen Duc Hao, a VNDirect expert, believes that China's "Zero Covid" policy will encourage the transfer of orders from China to Vietnam. China is still Vietnam's primary competitor in the wood furniture industry in the United States, accounting for 22.5 percent of the value of wood furniture imports in 2021. PTB, TTF, and NHT, for example, are expected to benefit because they export a big percentage of their furniture to the United States.

Negative impacts

The Russian government has imposed a restriction on the shipment of logs to European countries and the United States, resulting in a global lack of raw wood supplies and an increase in timber wood prices. The price of U.S. timber wood jumped by 25% ytd in Mar-22, according to Trading Economics, reaching US$1,412/board feet.

Mr. Nguyen Duc Hao believes that the gross margins of wood and wood products industries will be impacted in FY22F, as a supply scarcity will continue to drive up the price of wood materials in 2Q22. In 2022F, the GM of Vietnam's wood and wood products enterprises will continue to decline by 0.4-0.6 percent pts yoy.

Meanwhile, container transportation rates have risen six-fold in five years, from US$1,500/40ft containers (Shanghai-Los Angeles) in July 2019 to roughly US$8,852/40ft containers in March 2022. Despite the fact that shipping costs have decreased in April 2022 (-10 percent vs. March 2022), Mr. Nguyen Duc Hao predicts that logistics costs will remain high in 2022 (US$7000/ 40ft containers) due to the current high level of oil price spike. In 2022F, high logistic expenses may have an impact on the gross margin of wood and wood products industries.