Koskisen Q1 on next week’s Wednesday: The situation remains very contrasted

Translation: Original comment published in Finnish on 5/17/2023 at 6:25 am.

Koskisen, the wood processing company listed at the end of 2022, will publish its Q1 report on Wednesday May 24. By business area, Koskisen’s market situation is twofold but we expect that the strong pricing situation in the Panel industry has driven the company to good profitability in Q1. At this time of the year we expect Koskisen to reiterate its guidance for 2023. The initiation of coverage report on Koskisen published in February is available here .

There are no comparison figures, but we expect the Panel industry to have grown and the Sawn Timber industry to have contracted

Koskisen has not published comparison figures from Q1’22. We estimate that Koskisen’s Q1'23 revenue is around EUR 72 million. We expect the EBIT of the Sawn Timber industry to be below the comparison period at EUR 32 million in the seasonally weakest quarter of the year. We estimate that volume development has remained on a downward trend considering seasonal factors and the weakened construction cycle. Average prices of sawn timber have also decreased clearly in annual comparison, due to the soft demand/supply situation. We do, however, expect that the fall in prices has already stopped relative to the end of last year, as the weak profitability of several players has started to limit the downside in prices. For the Panel industry, we expect higher revenue than in the comparison period of EUR 40 million driven by still high plywood and chipboard prices. We expect the Panel industry’s volume to remain healthy despite the slowdown in the economy, as we expect the gap left by the previous supply from Russia in the European birch plywood market to help the demand for plywood in Koskisen’s Panel industry. The lack of Russian supply has also kept birch plywood prices historically high in Q1, but we do not believe that prices have risen substantially relative to the levels at the end of last year.

The Panel industry is responsible for earnings

We estimate that Koskisen's adjusted EBITDA in Q1’23 will be EUR 10 million corresponding to an adjusted EBITDA margin of some 14%. We expect Koskisen’s profitability to have remained good in Q1 as we predict that the Panel industry has achieved an excellent 24% EBITDA margin in Q1 thanks to high prices even though the price for birch is also high. We estimate that the profitability of the Sawn Timber industry has fallen to zero, as the margins have been under pressure from both volumes, prices and costs, which would still be better than for many peers. Considering typical depreciation, financial expenses and taxes, we expect Koskisen's adjusted EPS to be EUR 0.25 in Q1.

Expectations for 2023 are at the bottom of the guidance range

In the prospectus Koskisen issued a guidance for 2023, based on which it expects that its 2023 revenue will not exceed the 2022 level, and its adjusted EBITDA margin is 12-14%. We estimate that revenue will decrease by 13% to EUR 277 million in 2023 and adjusted EBITDA to be around EUR 33 million. The earnings level corresponds to a 11.7% adjusted EBITDA margin that is near the bottom end of the guidance range. We, therefore, expect the company to repeat its guidance at this stage. In our estimates, the full year 2023 is much like Q1. In the Panel industry, the supply disruption in the birch plywood market (i.e. Russia's exit from the market through sanctions) should keep birch plywood prices and thus the profitability of the business at high levels. By contrast, we expect the current year to be difficult for the Sawn Timber industry in the discord of decreasing volumes and price pressure in sawn timber and processed products (vs. exceptionally high levels in the previous year) and cost inflation. In addition to the earnings and outlook, we are interested in the management's comments on the progress of the Järvelä factory investment.