Severe winter storms that damaged and knocked over a tenth of China’s forests in recent weeks should have a relatively neutral impact on Sino-Forest Corp. (SNOFF.PK), the Canadian-listed Chinese plantation owner, Dundee Securities analyst Richard Kelertas wrote in a recent research note.
According to Chinese state media, wind and snow damaged 17.3-million hectares of forest, causing C$2.25-billion in losses. In some areas of the country, 90% of forests were completely destroyed by the winter weather.
Despite this damage, Mr. Kelertas left his C$31.50 target for Sino (which is nearly double its current trading value) untouched, arguing that whatever tree losses the company experiences will be offset by opportunities for cheap plantation acquisitions, and quick salvage harvesting.
He wrote:
We don’t believe that other producers have the capabilities or logistics to salvage cuts as quickly as Sino will be able to do so. As a result, they can get the wood out quicker than others.
Sino’s Chinese pine forests should also be hardy enough that "we don¹t expect much damage," he wrote, although he acknowledged that "a flood of salvage timber" could oversupply the market and lead to a drop in wood prices. Ultimately, though, a decline in supply could work to Sino’s advantage, and Mr. Kelertas sees the C$1 decline in the company’s stock price this week as "a buying opportunity."