Koskisen Q3'24 preview: Earnings trend reversed despite sluggish market

Translation: Original published in Finnish on 11/13/2024 at 7:20 am EET.

Koskisen will publish its Q3 result on Friday. The comparison period was by far the weakest quarter in Koskisen's recent history, so the company's earnings and revenue have probably grown strongly in volume terms, even though the operating environment has still not been favorable. Koskisen is expected to repeat its broad guidance in the Q3 report. We also do not believe that the company is signaling any significant changes in the market situation in terms of demand, pricing or raw material costs compared to the recent past. We will not change our view on Koskisen before the Q3 report, as we believe the impending but lingering cyclical turnaround (in construction) and the risks are somewhat balanced in the share price.

Strong revenue growth from very weak comparison level

Koskisen's revenue in Q3'23 was very low, as in the comparison period deliveries were heavily concentrated in Q2 due to the timing of the summer shutdowns and the start-up of the new sawmill line in Järvelä.  Thus, we forecast Koskisen's revenue to have grown by 29% to 72 MEUR in Q3, which is slightly above consensus. In the Sawn Timber Industry, growth has been driven by both higher volumes due to progress in ramping up the new sawmill line in Järvelä and slightly shorter summer shutdowns than last year, as well as slightly higher sawn timber sales prices. As a result, we project that revenue in the Sawn Timber Industry will grow exceptionally by around 45% in Q3. We also expect volume-driven growth in the Panel Industry from tepid comparison figures, although the 3–4-week holiday and maintenance shutdowns will lead to a seasonal decline in revenue. Prices in the Panel Industry are unlikely to have changed significantly in quarterly or annual comparison.

We expect both units to improve their results sharply

Due to low volumes, Q3'23 was the weakest quarter in Koskisen's recent history in terms of the result. We forecast that Koskisen’s adjusted EBITDA will have more than quadrupled in Q3 to 6.1 MEUR. Our estimates are slightly above consensus. Our forecast corresponds to a modest adjusted EBITDA margin of 8.6% for a quarter that is also seasonally weak due to holiday season production breaks. We anticipate a significant improvement in the profitability of both units, but due to the current market situation, the main responsibility for the performance remains with the Panel Industry. In the Sawn Timber Industry, the main drivers for improvement are revenue growth and the first efficiency gains from the new sawmill line in Järvelä. The earnings growth we have projected for the Panel Industry is revenue-driven. Taking into account the small loss of the Other unit, increased depreciation due to the commissioning of the new saw line as well as low finance costs and taxes, we expect Koskisen's EPS to have improved to EUR 0.11 in Q3 from the clear loss in the comparison period. Our bottom-line forecast is also below consensus. 

We expect Koskisen to repeat its guidance for the current year

Koskisen has issued a guidance for 2024 according to which revenue will grow from last year (2023: 271 MEUR revenue) and the adjusted EBITDA margin will be 8-12%. We expect the company to reiterate this guidance in the Q3 report. We expect Koskisen's revenue to grow by 8% this year and the adjusted EBITDA margin to be in the middle of the guidance range at 10%. Consensus forecasts are roughly at the same level.

Based on the recent news flow and peers' Q3 reports, there are no concrete signs of a recovery in construction, although the decline in market interest rates that has already started and is expected to continue in the near future will eventually revive Koskisen's demand. We believe that the war-related supply restrictions for birch plywood in the Panel Industry and the more stable demand in the logistics sector have kept the market situation moderate, but a clearer improvement in the situation (incl. price increases) would probably require a pick-up in European economic growth. On the other hand, log prices, which have so far shown only minor signs of easing, remain a major challenge for Koskisen's results. Thus, there is still considerable uncertainty about the earnings improvement that we and especially the consensus forecast for next year, but on the other hand, the forecast risks are balanced by the relatively low valuation of the stock (2024e: P/B 1.1x).