August 10, 2010 / 11:06 AM / in 7 years

UPDATE 2-Sino-Forest Q2 beats market estimates

* Q2 EPS $0.26 vs est EPS $0.23

* Revenue up 36 pct

* Remains upbeat about China’s wood fiber market (Adds conference call details, background, share movement)

Aug 10 (Reuters) - Canada’s Sino-Forest Corp TRE.TO posted quarterly results above market estimates, helped by higher average selling prices of standing timber, as well as an increase in its wood log trading business.

The Chinese government continues to provide stimulus spending for infrastructure improvements, construction of low-income housing, and economic development in rural and western regions of the country, the company said in a statement.

“The government is also setting up incentives (to) increase stabilization and (has) encouraged the building of housing for low income families,” Chief Executive Allen Chan said on a conference call with analysts.

“We expect 5 million new housing units will require about 800 million to 1.4 billion cubic meters of wood fiber over the next 5 years.”

Demand for wood products is continuing to rise in China, CEO Chan said, adding that the country’s wood deficit is also rising.

“As demand for wood logs increases while the flow of imported logs slows, China’s wood deficit continues to grow and log prices continue to rise,” the company said.

Sino-Forest also said it has access to a substantial supply of fiber at fixed prices.

Q2 BEATS STREET

The company, which owns and manages forest plantations in China, earned $63.7 million, or 26 cents a share, in the second quarter, up from $45 million or 23 cents a share, last year.

Revenue rose 36 percent to $305.8 million, the company said.

The largest contribution to the rise came from a 77 percent increase in the trading of wood logs, whose sales stood at $100.4 million for the quarter.

Sino-Forest saw a 58 percent rise in the average selling price of standing timber, helped by a difference in its sales mix.

Analysts on average were expecting the company to earn 23 cents a share on revenue of $302.9 million according to Thomson Reuters I/B/E/S.

Despite heavy rainfall in the second quarter, which caused severe flooding in many provinces across China, Sino-Forests’ operations were not significantly affected and the company said it expects a short-term fiber shortage in China’s wood markets.

“Currently, log prices are about 5 percent below their highs in 2008, and we anticipate that these prices will continue to rebound given solid demand and the short-term impact from flooding,” the company said.

The flooding affected the ability of certain customers to harvest plantation trees that the company sold to them, which resulted in a build-up of its receivables, the company added.

Sino-Forest shares which have risen about 10 percent in the last one month, were down 3 percent at C$16.71 Tuesday in morning trade on the Toronto Stock Exchange. (Reporting by Isheeta Sanghi in Bangalore; Editing by Jarshad Kakkrakandy) ((isheeta.sanghi@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: isheeta.sanghi.thomsonreuters.com@reuters.net))

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