WTK HOLDINGS BHD By RHB Research
Buy (maintain)
Target price: RM1.80
RHB Research said that most timber data-points were still pointing upwards, with higher log volumes as well log and plywood prices.
Although Japan’s demand for plywood had stalled slightly due to the recent increase in sales tax, this was expected to recover in the second half of 2014, it said.
Meanwhile, demand for logs from India continues to be stable.
The research house is maintaining its “buy” call on WTK, with a fair value of RM1.80 (from RM1.87 previously).
During a recent company visit, WTK management said some log inventory were not sold in the first quarter of 2014 but should be sold in the second quarter and that log prices were gradually moving up.
Plywood volume, RHB Research said, was expected to be relatively flat but prices were up year-on-year with the change in product mix, and the new planting of oil palm land was slower than expected.
“We have revised our forecasts slightly downward to take into account the slower-than-expected planting at WTK’s oil palm plantation. While financial year 2014 (FY14) forecasts have been left relatively unchanged, FY15 forecasts were reduced by 4.3%,” it said.
The company continues to be the purest timber play within RHB Research’s coverage, as its plantations division is not expected to contribute significantly to profits until FY16/FY17 onwards.
As such, any improvement in timber prices will have a bigger impact on earnings.
In addition, the research house highlights that the weakness in the ringgit should also continue to benefit a pure exporter like WTK.
The brokerage estimates that every 10 sen depreciation versus the US dollar will lift earnings by 15%-17%.