WTK incurred a smaller-than-expected core net loss of RM6.9m in 2018 vs. a core net loss of RM43.6m in 2017. This was mainly attributable to a better-than-expected contribution from the timber division. We are raising our 2019-20E core net profit forecasts to RM11.6-19m (from RM5.6-10.8m previously). We expect core earnings to return to profitability and continue to improve going forward as losses from the plantation division narrow. Given our earnings forecast revisions, our SOTP-derived TP is now higher at RM0.56. Maintain our BUY call on the stock.

2018 Results Above Expectations

WTK’s 2018 revenue increased by 3.8% yoy to RM822.2m, mainly due to a higher revenue contribution from its timber (attributed to increased sales revenue from the plywood sub-segment) and plantation (attributed to higher CPO sales volume) divisions, but partially offset by lower revenue from its manufacturing and trading division (attributed to lower export sales due to lower demand for masking tape). The timber and plantation divisions’ revenues increased by 1.2% and 42.6% yoy, respectively, to RM667.9m and RM84.9m, while the manufacturing and trading division’s revenue was down by 4.5% yoy to RM67.6m. WTK’s 2018 PBT surged >100% yoy to RM80m, mainly due to the gain on deconsolidation of its subsidiary. After excluding one-off items, WTK recorded a core net loss of RM6.9m in 2018, narrowing from a core net loss of RM43.6m in 2017. The results were above our expectations, mainly due to a better-than-expected contribution from the timber division. WTK declared a DPS of 1.5 sen in 2018 (2017 DPS: 1 sen).

Stronger Core Net Profit Sequentially

WTK reported a stronger 4Q18 revenue (+2.7% qoq) of RM218.9m while its EBITDA margin improved to 13.0% (+4.5 ppt) mainly due to an improvement from the timber division. WTK’s core net profit also surged to RM12.5m (>100% qoq) in 4Q18.

Source: Affin Hwang Research - 28 Feb 2019