Koskisen Q2 on Friday: Two-fold performance continues

Translation: Original comment published in Finnish on 8/21/2023 at 6:01 am EEST.

Koskisen will report its Q2 result on Friday. Koskisen's market situation has remained very mixed by business lines, but we expect the strong pricing situation in Panel Industry to have pushed Koskisen to a still quite good profitability level in Q2. For the current year, we expect Koskisen to reiterate its guidance reflecting the high uncertainties prevailing at this stage of the year, but our current profitability estimates are right at the top end of the company's guidance range following a strong Q1. In addition to the results and outlook, we are especially interest in management's comments on the progress of Järvelä's new sawmill ramp-up, which started at the beginning of Q3.

No comparison figures, but Panel Industry has grown and Sawn Timber Industry has shrunk

Koskisen has not published comparison figures for Q2’22. We estimate that Koskisen’s Q2 revenue is around EUR 76 million. We forecast that Sawn Timber Industry's revenue will be down year-on-year at EUR 32 million. Our estimate is in line with the Q1 outturn, as we estimate that the normal seasonal pick-up in sawmill demand in the spring has failed to materialize this year due to the weak construction market. As a result, we expect volumes in Sawn Timber Industry to remain low in Q2 and to decrease year-on-year. We expect selling prices to fall only marginally from the low levels of Q1, as current price levels are already in line with cash costs for the weakest players. In Panel Industry, we expect revenue to be higher than last year at EUR 41 million, driven by plywood and chipboard prices, which remained at a high level. We estimate volumes in Panel Industry to have remained healthy, but due to the economic slowdown and birch log availability constraints, we do not expect the unit to see volume growth in Q2.

Earnings responsibility still rests on the shoulders of Panel Industry

We forecast that Koskisen’s EBITDA lands at EUR 10 million in Q2, corresponding to an adjusted EBITDA margin of 13%. We estimate that Koskisen's profitability has remained quite good in Q2, with the sheet industry achieving an excellent EBITDA margin of 23% in our estimates, as the support created by high prices for earnings far outweighs the burden created by the high price of birch logs. We estimate that Sawn Timber Industry has fallen to around zero in terms of EBITDA-%, as margins have come under pressure from volumes, prices and costs. However, this would be a tolerable level in relation to peers. In other items, we expect Koskisen to have sold fewer emission allowances in Q2 than in Q1, but our estimate still includes small gains from allowance sales. Considering typical depreciation, financial expenses and taxes, we expect Koskisen's adjusted EPS to be EUR 0.25 in Q2.

Our estimates are at the top of the guidance range, driven by a strong Q1

Koskisen has provided guidance for the current year, estimating that in 2023 its revenue will not exceed the 2022 level and its adjusted EBITDA margin will be 12-14%. We estimate that revenue will decrease by 7% to EUR 296 million in 2023 and adjusted EBITDA to be around EUR 42 million. The earnings level corresponds to an adjusted EBITDA margin of 14.2%, so our estimate is around the upper end of the guidance range after a strong Q1 (Q1: adj. EBITDA-% 17%). However, we expect the company to reiterate its guidance at this stage, as uncertainty about the market outlook for the rest of the year remains high. In Sawn Timber Industry, there are no clear signs of improvement in sight, while in Panel Industry, the supply disruption in the birch plywood market (i.e. Russia exit from the market due to sanctions) is expected to keep the unit's profitability at high levels and support the group's bottom line also for the rest of the year. In addition to the results and outlook, we follow management's comments on the ramp-up of the Järvelä factory investment in the report, but we expect the benefits of the project to be visible in the income statement only next year.