1HFY20 CNL of RM36.7m was worse than expected, accounting for 69%/67% of our and consensus’ FY20E CNL estimates. This was mainly due to lower-than-expected market demand and profit margin. No dividend was declared as expected. We are ceasing active coverage with our FY20E and FY21E CNLs at RM53.5m and RM41.4m, respectively. The stock is now a NOT RATED (from MARKET PERFORM) with our last TP of RM0.740.

Below expectations. Excluding unrealised forex loss (RM5.8m), 1HFY20 CNL of RM36.7m was worse than expected, accounting for 69%/67% of our and consensus’ FY20E CNL estimates. This was largely due to lower-than-expected market demand and profit margin achieved. No dividend was announced as expected.

Results’ highlight. YoY, 1HFY20 CNL widened drastically to RM36.7m compared to RM18.4m in 1HFY19, mainly due to: (i) drop in revenue by 41% due to impact from the Covid-19 pandemic and slower construction activities, and (ii) lower profit margin due to market price competition and higher production cost. QoQ, 2QFY20 registered higher losses of RM23.1m compared to RM13.6m in the preceding quarter mainly due to a significant drop in revenue (-42%) due to the Covid-19 pandemic.

Outlook. WTHORSE’s business terrain remains challenging due to stiff market competition, high production and operation costs, fluctuation in foreign currencies and pricing strategy. Moving forward, we remain cautious over the company’s outlook which heavily relies on construction, property development and renovation industries, which are currently undergoing slower growth amid a challenging environment.

Cease coverage. Due to lack of investors’ interests and the reshuffling of our research resources, we are ceasing active coverage on WTHORSE for now. Should its outlook improve, we may seek to resume coverage in the future. Our FY20E and FY21E CNLs are RM53.5m and RM41.4m, respectively. The stock is now assigned Not Rated (from MARKET PERFORM), with our last TP of RM0.740 implying FY21E PBV of 0.31x.

Risks to our call include sharp rises in ASPs and production volume

Source: Kenanga Research - 26 Aug 2020