WTK incurred a core net loss of RM51m in 2017 mainly due to losses from the oil & gas and plantation divisions. We have cut our 2018-19E EPS forecasts by 16-38% to account for the weaker-than-expected 2017 results. Our SOTP-derived TP for WTK is now lower at RM0.57 due to our earnings cut. Maintain SELL.

2017 Results Below Expectations

WTK’s 2017 revenue increased by 23.3% yoy to RM793.3m mainly due to higher revenue from its timber, plantation and manufacturing divisions, but partially offset by lower revenue from its trading division. However, WTK recorded a core net loss of RM51m vs. a core net profit of RM0.6m in 2016, mainly due to losses from its plantation division and the discontinued oil & gas division. The weak results came in below our expectations due to higher-than-expected losses from the plantation and the discontinued oil & gas divisions. WTK declared a DPS of 1 sen in 2017 (2016 DPS: 2 sen).

4Q17 Core Net Loss of RM33.3m

WTK’s 4Q17 revenue increased by 36.9% yoy to RM225.5m, mainly due to an increase in revenue contribution from the timber and plantation divisions. Despite the higher revenue, WTK’s PBT was lower at RM3.8m, down by 75.1% yoy, partly due to the allowance for impairment. WTK registered a core net loss of RM33.3m in 4Q17, which widened from the RM2m core net loss in 4Q16.

Maintain SELL With a Lower Target Price of RM0.57

We have cut our 2018-19E core EPS estimates by 16-38% mainly to account for the weaker-than-expected 2017 results. Due to our earnings cut, our SOTP-derived TP for WTK is now lower at RM0.57 (from RM0.59), based on 8x 2018E EPS for its timber division, and 1x P/BV for its forest plantation and palm oil division. We maintain our SELL rating on WTK.

Key Risks

The potential upside risks to our recommendation would be: 1) higher-thanexpected log production; 2) a substantial rise in demand for timber and plywood products; 3) a sharp increase in ASP for log and plywood; and 4) strengthening of US$.

Source: Affin Hwang Research - 1 Mar 2018