Koskinen started sawn timber production in the new wood processing unit as planned

Translation: Original comment published in Finnish on 7/5/2023 at 7:57 pm.

In our estimates, we expected the new unit to start ramping up sawn timber production at the beginning of H2, so this news does not cause immediate pressure to change our estimates. In the longer term, there could be upside in our estimates for Koskinen’s Sawn Timber industry supported by the major strategic investment if the medium-term market situation in the sawn timber segment would materialize more positively than we currently expect.

Production is gradually ramped up during H2

Koskinen announced on Tuesday that the sawn timber production in the new wood processing unit has started as planned at the beginning of July. Production of the new unit will be ramped up gradually during H2, and full operating capacity will be reached in early 2024. The new unit will significantly improve the productivity of the Sawn Timber Industry starting next year.

According to the company, the EBITDA of the Sawn Timber segment will improve by approximately EUR 8 million annually once full production capacity has been reached. The EBITDA improvement consists of, e.g., higher sales volumes, increased side streams, as well as improved material efficiency and quality yield. The unit's significantly higher degree of automation and more efficient logistics will also improve profitability.

The total investment in the new unit is approximately EUR 50 million in 2021–2024.

The start of the significant investment is slightly positive but expected news

The construction of a new wood processing unit in Järvelä has been a very significant strategic investment for Koskinen and the company has managed to keep the project on schedule until the end. We estimate that in the very subdued market situation in the sawn timber market, Koskinen will be able to ramp up the new unit at a moderate pace, partly in parallel with the old unit. We believe this will partly reduce the risk level associated with the ramp-up, even if the ramp-up of a saw is, in principle, less risky than many other sectors in the process industry. In our estimates, we expected the new unit to start ramping up sawn timber production at the beginning of H2, so this news does not cause immediate pressure to change our estimates.

We feel that the EBITDA improvement Koskinen targets with the investment is plausible but the absolute earnings level of the Sawn Timber unit depends essentially on the demand and competition situation in the global sawn timber market and the price of wood in Finland. In our estimates, the market scenario for Koskinen’s sawn timber industry is subdued for the next few years for the time being with weak construction sector demand, tight competition and high price level for wood in Finland. Thus, there could be upside in our medium-term estimates for Koskinen’s Sawn Timber industry if the market situation were better than we expect once the new unit runs at full speed.