Losses Widen Due to Timber Segment

WTK incurred a wider-than-expected core net loss of RM36.1m in 9M19 (vs. a core net loss of RM20m in 9M18), mainly due to weakerthan-expected contribution from the timber and plantation divisions. Given the weak 9M19 results, we now project core net losses of RM51.1m/RM30.5m/RM15.6m for 2019-21E, mainly due to the lossmaking timber division. Given the earnings volatility, we change our valuation methodology to P/BV from PER. Our new 12-month TP is RM0.58, based on a 0.27x forward P/BV (2-year average). We maintain our HOLD rating on the stock.

9M19 Core Net Loss of RM36.1m, Below Expectations

WTK’s 9M19 revenue declined by 24.8% yoy to RM453.7m, attributable to lower revenue contribution from its timber (attributed to weak timber product prices), plantation (attributed to the drop in CPO and PK ASPs) and manufacturing & trading (attributed to lower export sales volume) divisions. Revenues of the timber, plantation and manufacturing & trading divisions declined by 27.3%, 22.1% and 4% yoy, respectively, to RM354m, RM48.8m and RM50m. WTK posted a wider LBT of RM35.7m vs. a LBT of RM11.9m in 9M18, due to higher losses from the timber and plantation divisions. After excluding one-off items, WTK recorded a core net loss of RM36.1m in 9M19, widening from a core net loss of RM20m in 9M18. The 9M19 results are below our expectation, mainly due to higher-thanexpected losses from the timber and plantation divisions.

Sequentially Weaker, Losses Widened

WTK reported a 7.9% qoq drop in 3Q19 revenue to RM131.5m and a wider LBT of RM17m (vs. LBT of RM15.8m in 2Q19), mainly due to weaker performance from the timber segment that was partially mitigated by higher profit from the manufacturing & trading division and lower losses from plantation. WTK’s 3Q19 core net loss also widened to RM16.8m vs. a core net loss of RM15.1m in 2Q19.

Source: Affin Hwang Research - 2 Dec 2019