Maintain SELL

WHIT’s challenging outlook is expected to be drawn out over the medium to long term given a lack of construction and property job awards ahead coupled with supressed tile ASPs. With no expectations for near-term earnings recovery, risk-reward remains negative, in our view. Maintain SELL with an unchanged TP of MYR1.00 based on 0.36x FY20E PBV (about -3SD to 10-year mean).

No Catalyst for Revenue Growth

WHIT depends heavily on sales volume from the property and construction sectors in Malaysia as they are drivers for both tile demand and ASP growth. Note that WHIT’s domestic sales account for c.72% of overall group revenue. We believe that job flows from the property sector will continue to be weak as property developers focus on reducing existing inventory; while construction job awards will also stage a slow pick-up. According to data from the National Property Information Centre (NAPIC) (Fig 1), we have observed increasing unsold residential units YoY since Jun 2018 to +40% YoY in Mar 2019 (latest data).

Low Utilisation Rate & ASP Competition

Total ceramic tile production volume in Malaysia has been on a downtrend since 2013 (Fig 2) and we believe this will continue in 2019. WHIT is the market leader with total production capacity of 40.7m m2 (Malaysia: 28m m2; Vietnam: 12.7m m2). However, its utilisation rate has fallen to only 60% and 40% in Malaysia and Vietnam respectively, we understand. Further, stiff ASP competition amongst peers has also caused YTD tile ASP to fall 5% YoY. Our model has imputed for -15% YoY decline in WHIT’s Malaysia tile demand and -6% YoY decline in WHIT’s blended ASP in FY19.

Still Challenging

We believe that the tile industry faces a challenging environment going forward as operational headwinds hinder significant earnings recovery. Uncertain turnaround in its revenue dependent sectors (property & construction) also adds to our negative view on WHIT.

Source: Maybank Research - 25 Sept 2019