WTK incurred a wider-than-expected core net loss of RM90.6m in 2019 (vs. a core net loss of RM6.5m in 2018), and the variance was mainly due to weaker-than-expected contribution from the timber division. We believe WTK’s earnings outlook will remain weak, especially due to the loss making timber division given the challenging operating environment. We cease coverage on WTK and our last recommendation is HOLD with a TP of RM0.58.

2019 Core Net Loss of RM90.6m, Worse-than-expected

WTK’s 2019 revenue plunged by 27.6% yoy to RM590.7m, 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. The timber, plantation and manufacturing & trading division’s revenue declined by 32.1%, 11.9% and 1.7% yoy, respectively, to RM453.5m, RM69.3m and RM66.8m. WTK posted a wider LBT of RM93.1m vs. a LBT of RM1.8m in 2018, due to higher losses from the timber and plantation divisions. After excluding one-off items, WTK recorded a core net loss of RM90.6m in 2019, widening from a core net loss of RM6.5m in 2018. The 2019 results was below our expectation, mainly due to higher-than-expected losses from the timber division.

Weaker Sequentially, Losses Widened

WTK reported an increase in 4Q19 revenue by 4.2% qoq to RM137.1m but a wider LBT of RM57.3m (vs. 3Q19 LBT of RM17m), due to widening losses in the timber and plantation division. WTK’s 3Q19 core net loss also widened to RM54.5m vs. a core net loss of RM16.8m in 3Q19.

Cease Coverage

We cease coverage on WTK mainly due to the low interest and challenging operating environment. Our last call on the stock is HOLD with a 12-month TP of RM0.58, based on a 0.27x forward P/BV. The upside/downside risks to our recommendation would be: 1) higher/lower-than-expected log and FFB production; 2) a substantial increase/drop in demand for timber and plywood products; 3) a sharp increase/decline in ASP for log, plywood and CPO; and 4) a strengthening/weakening of US$ against the MYR.

Source: Affin Hwang Research - 27 Feb 2020