LapWall's major investment in Pyhäntä confirmed

Translation: Original comment published in Finnish on 3/8/2024 at 7:24 am EET.

The confirmation of the investment was expected and we are positive about the project, even though it is very large by LapWall standards. We will include the project in our LapWall forecasts in the near future, but it will not affect our short-term earnings forecasts. In the longer term, the timing and magnitude of the benefits of the investment relative to our current forecasts will depend in particular on LapWall's ability to gain market share in the Finnish market for prefabricated elements and also on the timing of the turnaround in the construction cycle.

LapWall to significantly increase capacity with Pyhäņtä factory

LapWall announced yesterday that it has made an investment decision for its factory project in Pyhäntä. The gross amount of the investment before investment aid is estimated at 19 MEUR. The investment will significantly reduce LapWall’s costs of part manufacturing and assembly and improve material efficiency by utilizing the latest technology in the industry. The investment will enable profitable growth in line with LapWall’s strategy and a significant increase in market share. The new assembly and part manufacturing plant will become part of the current factory area of the Pyhäntä unit and it is expected to be ready for production in H2'25.

The open standard that LapWall has introduced to the industry has allowed for a significant increase in the volume of wood elements used in construction. The investment will also enable the production of new products and product structures, which will further expand the use of wood elements in construction.

One of the enablers of the factory project has been The North Ostrobothnia Centre for Economic Development (ELY Center), which has granted the project a significant development grant from the European Regional Development Fund. At full capacity, the plant will employ about 50 people.

Confirmation of investment was expected

LapWall announced its plan in December, so we think the investment was highly anticipated. We have previously commented on the investment here. As we said at the beginning, we are positive about the investment, since we believe that LapWall has excellent prospects to increase its market share in the Finnish wall element market in the next construction upward cycle thanks to its strengths (cost-competitiveness, quality, customer productivity and environmental friendliness). The investment is of course very large for LapWall, but the support from the ELY Center clearly reduces the risks.

The value of the investment seems to have increased by 10-20% to 19 MEUR compared to the original plan. However, it is our understanding that this is at least partly a matter of pre-documentation in order to obtain a grant decision from the ELY Center and that the final balance of the investment will be confirmed as the investment progresses. Neither LapWall nor the ELY Center have disclosed the scale of the aid, at least not yet, but we understand that the ELY Center's investment aid for this type of project may be in the range of 20-35%. This means that the aid is very significant in LapWall's scale. In addition to the grant, LapWall will likely use a bank loan and cash flow generated by the business to finance the project.

We will include the investment in our LapWall forecasts in the near future. For the period 2024-2025, the project will not lead to material changes in our earnings forecasts. From 2026 onwards, the main uncertainties arise from the development of demand, especially relative to our current forecasts, i.e. in practice the actual load that LapWall will receive for the new and old factories in the second half of the decade.