Stock Name: WTK
Company Name: WTK HOLDINGS BHD
Research House: RHB
WTK Holdings Bhd
(Jan 24, RM1.27)
Maintain outperform at RM1.28 with revised fair value RM1.56 (from RM1.44): WTK is expected to report lower log-production volume of 4%to 5% quarter-on-quarter for 4QFY10 as a result of the seasonal wet weather. Nevertheless, the company is still expected to post a strong profit contribution from its log division for 4QFY10 as the selling price for its logs has been climbing up consistently, averaging about US$180 per cubic metre in 4QFY10 (compared with US$165 for 3QFY10).
WTK indicates that its plywood sales volume (mainly to Japan) has remained fairly stable since 3QFY10. Moreover, selling prices for its floorbase plywood (which constitutes 60% to 70% of WTK's production capacity) have been averaging close to US$615per cubic metre in 4QFY10, up by 7% from US$575 per cubic metre recorded in 3Q2010.
Capacity utilisation has also improved to 75% to 80% in 2HFY10, but cost of production has roughly remained at the same level of about RM1,650 per cubic metre due to higher log prices.
Currently, WTK has about 7,000ha to 8,000ha of planted area out of the 23,000ha of plantation land it owns. Planting has been slow in the past due to funding issues and also to the slump in its timber business. Hence, WTK's oil palm plantation is only expected to mature and start contributing meaningfully to its bottomline from 2012 onwards.
Management has guided that capex will be about RM75 million to RM80 million in 2011, mainly for maintenance of plant and machinery, oil palm plantation, and reforestation activity. We are forecasting a net dividend payout of 2.5 sen for FY10, which translates into a net yield of about 2%.
Risks include a decline in timber demand resulting in lower-than-expected timber prices; a slower-than-expected recovery in Japan's economy; and significant hike in glue and logistics costs.
We reduce our FY10 earnings forecast slightly by 3.8%, but raise our FY11/12 earnings forecasts to between 8% and 8.8% after adjusting for: 1) lower log prices in FY10; 2) higher log prices in FY11/12; 3) higher average selling prices for its plywood division in FY11/12; and 4) higher cost of production for its plywood division in FY11/12.
We are positive on WTK as we expect average selling prices for logs as well as plywood products to remain firm going forward on the back of steady demand from Japan (mainly plywood) and India (mainly logs).
Post-earnings adjustment, we revise our fair value to RM1.56 (from RM1.44 previously) based on unchanged target PER of 12 times revised FY11 EPS of 13 sen. Maintain 'outperform'. ' RHB Research Institute Sdn Bhd, Jan 24
This article appeared in The Edge Financial Daily, January 25, 2011.
Company Name: WTK HOLDINGS BHD
Research House: RHB
WTK Holdings Bhd
(Jan 24, RM1.27)
Maintain outperform at RM1.28 with revised fair value RM1.56 (from RM1.44): WTK is expected to report lower log-production volume of 4%to 5% quarter-on-quarter for 4QFY10 as a result of the seasonal wet weather. Nevertheless, the company is still expected to post a strong profit contribution from its log division for 4QFY10 as the selling price for its logs has been climbing up consistently, averaging about US$180 per cubic metre in 4QFY10 (compared with US$165 for 3QFY10).
WTK indicates that its plywood sales volume (mainly to Japan) has remained fairly stable since 3QFY10. Moreover, selling prices for its floorbase plywood (which constitutes 60% to 70% of WTK's production capacity) have been averaging close to US$615per cubic metre in 4QFY10, up by 7% from US$575 per cubic metre recorded in 3Q2010.
Capacity utilisation has also improved to 75% to 80% in 2HFY10, but cost of production has roughly remained at the same level of about RM1,650 per cubic metre due to higher log prices.
Currently, WTK has about 7,000ha to 8,000ha of planted area out of the 23,000ha of plantation land it owns. Planting has been slow in the past due to funding issues and also to the slump in its timber business. Hence, WTK's oil palm plantation is only expected to mature and start contributing meaningfully to its bottomline from 2012 onwards.
Management has guided that capex will be about RM75 million to RM80 million in 2011, mainly for maintenance of plant and machinery, oil palm plantation, and reforestation activity. We are forecasting a net dividend payout of 2.5 sen for FY10, which translates into a net yield of about 2%.
Risks include a decline in timber demand resulting in lower-than-expected timber prices; a slower-than-expected recovery in Japan's economy; and significant hike in glue and logistics costs.
We reduce our FY10 earnings forecast slightly by 3.8%, but raise our FY11/12 earnings forecasts to between 8% and 8.8% after adjusting for: 1) lower log prices in FY10; 2) higher log prices in FY11/12; 3) higher average selling prices for its plywood division in FY11/12; and 4) higher cost of production for its plywood division in FY11/12.
We are positive on WTK as we expect average selling prices for logs as well as plywood products to remain firm going forward on the back of steady demand from Japan (mainly plywood) and India (mainly logs).
Post-earnings adjustment, we revise our fair value to RM1.56 (from RM1.44 previously) based on unchanged target PER of 12 times revised FY11 EPS of 13 sen. Maintain 'outperform'. ' RHB Research Institute Sdn Bhd, Jan 24
This article appeared in The Edge Financial Daily, January 25, 2011.
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