Koskisen Q3'24 flash comment: Plunge in Panel Industry led to marked earnings disappointment

Translation: Original published in Finnish on 11/15/2024 at 9:26 am EET.

Koskisen's Q3 result published this morning was, as expected, all in all significantly better than the comparison period, but the figures fell well short of our and consensus estimates due to the weak Panel Industry result. Koskisen repeated its rather broad guidance for the current year, as anticipated at this stage. In our view, there were no major surprises in the market commentary either, compared to the expectations already generated by peers' Q3 reports and the news flow for the Sawn Timber Industry, but the situation in the Panel Industry is likely to be somewhat weaker than our previous assessment, at least for the coming months. We expect Koskisen's stock to react more negatively than the general market today due to the overall weaker-than-expected Q3 report, although the valuation of the stock is not overwhelming either (Q3'24 ACT. P/B 1.1x).

Performance improved less than expected from very weak Q3'23

Koskisen's Q3 revenue increased by 22% from weak comparison figures to 68 MEUR, below our and consensus forecasts. The underperformance was mainly due to lower volumes than our projections for both businesses, which were affected not only by the sluggish market situation but also by lower deliveries due to the summer as well as holiday and maintenance shutdowns. In the Sawn Timber Industry, revenue grew by as much as 39% due to the additional capacity of the new sawmill line in Järvelä and slight price increases. Revenue in the Panel Industry increased by 9%, mainly driven by volumes. In both units, the evolution of average prices seems to have been at least in line with our forecasts.

Koskisen's adjusted EBITDA was 3.7 MEUR in Q3. The operating result rose by as much as 170% from Q3'23, although the relative change is of course partly due to the very weak comparison figure. However, the operating result was well below our and consensus estimates. In the Sawn Timber Industry, the operating result improved from a loss in the comparison period to positive and above our forecasts, thanks to volume growth and the first efficiency gains from the Järvelä investment. However, due to high log prices, profitability (Q3: adj. EBITDA-% 4.8%) was still sluggish. The disappointing operating result thus originated from the Panel Industry, where the rise in birch log prices in particular severely hampered the result in Q3, pushing the unit's operating result below even the modest benchmark in a seasonally quiet quarter. The Panel Industry's profitability in Q3 was the lowest in Koskisen's recent history (Q3: adj. EBITDA-% 5.3%). Contrary to expectations, the contribution from other activities was slightly positive.

At the lower end of the income statement, depreciation and finance costs exceeded our forecast and taxes were slightly positive after PTP turned negative. As a result, Koskisen's Q3 EPS was negative, as in the comparison period, and well below estimates. The cash flow report was also sluggish, with free cash flow clearly in the red due to the weak result, working capital commitment and moderate investments.

Guidance remained unchanged at this stage, as widely expected

Koskisen reiterated its 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%. The reiteration of the guidance was, in our view, well expected, but based on the Q3 numbers and lukewarm market commentary from the Panel Industry, our preliminary assessment is that Koskisen is most likely on track for the lower end of its profitability guidance range. In the Sawn Timber Industry, the delayed recovery in construction and high log prices indicate that the lean times will continue in the near future, which should of course be compensated by the gradual realization of the gains from the Järvelä sawmill investment in the coming quarters, similar to Q3. In the Panel Industry, Koskisen said that order books had weakened towards the end of Q3 and that the company had commenced change negotiations regarding layoffs in the unit in order to prepare for further weak demand. Against this backdrop, the unit's near-term outlook appears gloomier than we had anticipated, as we had expected the ongoing war-related supply disruption to keep the birch plywood market tight despite the European economic malaise. Our preliminary assessment is that our estimates for Koskisen's Q4 and next year are subject to some downward pressure, driven by the Panel Industry.