Risk-reward remains negative

WHIT’s 3Q19 core net loss was higher than our/consensus expectations. With no signs of a meaningful recovery in tile demand and tile ASP in the near term, WHIT faces a challenging operational outlook. We raise our FY19 core net loss estimate by 18% but keep FY20-FY21E unchanged due to slightly higher contribution from export sales. Maintain SELL with a lower TP of MYR0.99 (based on unchanged 0.36x FY20E PBV; about 3SD below LT mean).

Core net losses wider than expected

3Q19 core net loss of MYR15m was worse than our/consensus estimates and deepened vs. the loss of MYR1m in the year ago period, as did the 9M19 core net loss of MYR33m vs. the 9M18 loss of MYR2m.. The shortfall was mainly due to higher-than-expected tax expense as a catch up for those previously deferred.

All divisions underperformed

WHIT’s 3Q19 revenue declined by 22% YoY mainly due to weaker revenue contribution from its Malaysia business (-26% YoY) where sales volume were adversely affected by softer tile demand and ASPs. Further, its Vietnam operations also reported lower revenue (-13% YoY) given higher industry competition. Meanwhile, we believe WHIT’s LBIT widened as a result of clearance of obsolete stock in both Malaysia and Vietnam at below break-even prices.

Lifting FY19 core net loss estimate by 18%

Upon factoring in the weak set of results, we raise our FY19 core net loss estimate by 18% but leave our FY20-FY21E unchanged on expectation for a slight increase in export sales. We understand WHIT has secured two customers in the US that have ordered a range of its mid to high-end glazed porcelain tiles totalling c.10% of its total capacity (~4m sq m) to be delivered in FY20. Historically, export sales contributed to c.15% of total sales. Overall, WHIT still faces a challenging outlook until domestic tile demand (from construction and property developers) significantly improves.

Source: Maybank Research - 21 Nov 2019