Still in the Red

WTK incurred a 9M17 core net loss of RM16.5m mainly due to losses from the oil & gas and plantation divisions. We have cut our 2018-19E core EPS by 36-56%, while projecting a RM18.9m core net loss for 2017E, to account for the weak 9M17 results. We are still cautious on WTK due to its loss-making Oil & Gas division. Our SOTP-derived TP for WTK is now lower at RM0.59 due to our earnings cuts. We maintain our SELL rating on the stock.

9M17 Results Below Expectations

WTK’s 9M17 revenue increased by 15.4% yoy to RM592.3m mainly due to higher revenue from its timber and plantation divisions, but partially offset by lower revenue from its manufacturing, trading and oil & gas divisions. However, WTK recorded a 9M17 core net loss of RM16.5m vs. a core net profit of RM3.5m in 9M16 mainly due to higher losses from its oil & gas and plantation divisions. The weak results came in below our expectations mainly due to higher-than-expected losses from the oil & gas divisions and higher production costs from the timber and plantation divisions.

3Q17 Core Net Loss of RM6.4m

Sequentially, WTK’s revenue increased by 15.2% qoq to RM198.4m. The timber, plantation, oil & gas and trading divisions reported higher revenue of RM151.3m (+7.1%), RM17.8m (>100%), RM12.1m (>100%) and RM7.6m (+0.9%), respectively. Meanwhile, manufacturing division revenue declined by 10.5% qoq to RM9m. 3Q17 EBITDA margin was better at 7.2%, up by 5.4ppt from 1.8% in 2Q17. However, WTK recorded a core net loss for the second consecutive quarter at RM6.4m vs. a core net loss of RM11.1m in 2Q17, mainly due to higher losses from the oil & gas division.

Maintain SELL With a Lower Target Price of RM0.59

We have cut our 2018-19E core EPS by 36-56%, while projecting a RM18.9m core net loss for 2017E, to account for the weak 9M17 results. We remain cautious on WTK due to its loss-making Oil & Gas division. Due to our earnings cut, our SOTP-derived TP for WTK is now lower at RM0.59 (from RM0.71), based on 8x 2018 EPS for its timber division, and 1x P/BV for its forest plantation and palm oil. We maintain our SELL rating on WTK.

Source: Affin Hwang Research - 4 Dec 2017