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Author: kltrader   |   Latest post: Fri, 15 Feb 2019, 02:37 PM

 

White Horse - No Recovery Yet

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Maintain SELL with a lower MYR1.33 TP

WHIT’s 4Q18 earnings are expected to be unexciting. Overall tile demand remains subdued as property developers focus on clearing inventory and less construction jobs are awarded. With no near-term earnings recovery and the absence of dividends, risk-reward remains negative, in our view. Maintain SELL with a lower MYR1.33 TP (-11sen) pegged to its GFC trough valuation of 0.41x PBV (previously 0.44x FY19E PBV).

Weak tile demand and ASPs

We expect WHIT’s 4Q18 earnings to be lacklustre (3Q18 core net loss of MYR1m; 9M18: -MYR2m). As WHIT relies heavily on both residential and commercial property projects to drive tile demand, the subdued property and construction market in Malaysia still poses a significant barrier to WHIT’s earnings recovery. The ratio of WHIT’s overall residential/commercial sales volume is 60:40, we understand. Further, with slower tile demand, we also expect 4Q18’s average ceramic tile ASP to remain supressed, amid on-going stiff price competition among peers.

Vietnam still making losses in FY18

We believe WHIT’s Vietnam operation could remain in the red in FY18. Similar to its Malaysian operation, tile demand in Vietnam remained weak given intense industry competition. Hence, WHIT has been rationalising its obsolete stock at below break-even costs which continued into 4Q18, we suspect. We estimate that WHIT’s manufacturing plants in Vietnam are now running at <50% utilisation.

Pegging to GFC trough valuations

With WHIT’s challenging outlook and lack of near-term catalysts, we do not discount the possibility that valuations could revisit their GFC troughs; WHIT traded at 0.41x PBV at end-Oct 2008. Moreover, we believe that WHIT is likely to cease its dividend payout from FY18 onwards to conserve cash, which we have imputed into our estimates. Into FY19, our model imputes for +3% YoY demand growth but there is downside risk to our estimates if there is no gradual recovery in the residential/commercial demand going forward. We maintain our earnings estimates for now pending the release of WHIT’s 4Q18 results.

Source: Maybank Research - 08 Feb 2019

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