Maintain SELL With Lower TP of MYR0.85

WHIT’s 4Q19 core net loss was within our and consensus expectations. As the tile industry continues to face near to mid-term headwinds from the weak demand (from construction and property developers), we reiterate our SELL call with a lower TP of MYR0.85 based on a lower 0.33x FY20E PBV peg (0.36x FY20E PER previously), -3 SD below LT mean.

4Q19 Core Net Loss Widened

WHIT’s 4Q19 headline net loss of MYR32m included write down of inventories related to obsolete stocks in Malaysia and Vietnam and a write down in PPE relating to its Vietnam manufacturing plant. Excluding the one-offs, 4Q19 core net loss of MYR11m (4Q18 core net loss: MYR22m; 3Q19 core net loss: MYR15m) brought FY19 core net loss to MYR44m (FY18 core net loss: MYR22m), in-line at 97%/101% of our/consensus estimates.

All Segments Were in the Red

4Q19 revenue declined by 3% YoY predominantly due to weaker Malaysia sales volume (-8% YoY) where both tile demand and ASPs remained surpressed. Additionally, WHIT’s Vietnam operations were still showing no signs of recovery with flattish sales volume growth YoY given ongoing stiff industry competition. Meanwhile, both Malaysia and Vietnam operations fell into pre-tax losses in 4Q19 as WHIT underwent further clearance of obsolete stocks at below break-even prices.

Challenging Outlook

Into FY20, we do not believe overall tile demand will meaningfully recover as domestic construction and property projects have not picked up. With this, tile ASPs will also remain weak due to stiff competition amongst industry peers. We keep our core net loss estimates for now until we see concrete signs of an improvement in the broad operating environment.

Source: Maybank Research - 28 Feb 2020