EAS STRATEGIC OPTIONS
THE RECOVERY OF THE MALAYSIAN ECONOMY: DOES THE TIMBER INDUSTRY SECTOR FOLLOW THE SAME TREND?
An important indicator of the dynamics of the economy and its day to day evolutions is the performance of stock exchanges market. In the case of Malaysia, the KL Composite Index shows that since the world economic downturn in early 2008, the Malaysian economy started to recover in March 2009 (Fig. 1), while most of the developed countries are now still struggling with their sluggish economies.
Figure 1: Last 2 years of KLCI Index dynamics
Source: finance.yahoo.com
2009/SEPTEMBER - No: 02
ISSUE
PROBLEM/OPPORTUNITY
To what extent does the economy of Malaysian timber industry follow the national trend of the stock exchange?
Our analyses of 11 randomly chosen companies (from the main board of BSKL) with their main activity in the timber sector (70 to 100%) show that they are three types of responses by the industries to the Malaysian economic slow-down and recovery.
1- The “Dependant group”
The industries belonging to this group, such as Ta Ann Holdings, Sinora Industries, Mieco Chipboard, Mentga Corp, Evergreen Fibreboard, Ninho and WTK Holdings, follow almost exactly the KLCI trend. Their stock exchanges have been hit severely by the slow-down, and are now recovering in harmony with the national economy and the Asian growth (Fig. 2)
2- The “Depressed group”
The industries belonging to this group are Malaysia Aica, Leweko Resources and Heveaboard. Their stock exchanges have been fully hit by the economic down-turn, and do not show any significant sign of recovery yet (Fig. 3)
3- The “Resistant group”
There is only one industry (Maxtral Industry) belonging to this group in our sample, due to the limited number of companies that was studied. Its stock exchanges are immune to the economic down-turn, showing no change of trust by the share holders during the turmoil, and even presenting a slight increase along with the Malaysian recovery (Fig. 4)
In the case of the “Dependant group”, we observe that the companies focus on Asian markets.Their common feature is the geographical market rather than the kinds of products. For the “Depressed group”, we note that the companies are very dependant of the Western and developed countries markets.
Obviously, a good share of their products is on added value because the specificity (such as environmental concerns, quality standards, packaging..) of those markets. In the case of the
“Resistant group”, the implied company is essentially producing plywood linked to the domestic construction industry in Malaysia. The construction activity cycle of Malaysia was less affected by the international economy, due to governments financial recovery packages consequently this kind of industry has remained resistant over the period.
OPTIONS
A wise option for any Malaysian timber industry, regardless of its own product transformation and added value strategy, would be to diversify simultaneously into different markets with contra-cycles.
The wealth of the domestic trade is obviously a strong factor of the Malaysian economy resilience compared to international economic shocks. A wise option for the country would be to strengthen the domestic market.
FURTHER INFORMATIONS Please contact:
Economic and Strategic Analysis Programe (EAS) Commercialization & Innovation Division,
Forest Research Institute Malaysia (FRIM), 52109 Kepong, Selangor Darul Ehsan, Malaysia Tél. : +603 6279 7542 / 7563 / 7541 / 7544 Fax : +603 6273 6587
email : [email protected] ; [email protected] Website : http://www.frim.gov.my
Figure 2: Ta Ann Holdings Berhad (5012.kl)
Source: finance.yahoo.com
Figure 3 : Malaysia Aica Berhad (3743.kl)
Source: finance.yahoo.com
Figure 4: Maxtral Industry Berhad (9202.kl)
Source: finance.yahoo.com
Dr Jean-Marc Roda Dr Ahmad Fauzi Puasa Dr Lim Hin Fui Dr Ismariah Ahmad Ms Rohana Abd Rahman Ms Noor Aini Zakaria
