WTK’s  one-day  non-deal  roadshow  (NDR)  in  Singapore  was  a successful  one,  as  investors  were  able  to  catch  up  on  the  recent developments  in  the  timber  industry  and  understand  the  improving dynamics of WTK’s business model. WTK remains our Top Pick for the timber  sector,  given  its  pure  timber  status,  which  will  bode  well  amid rising timber prices. Maintain BUY, with MYR1.60 FV.  
 
- NDR in Singapore. We brought WTK’s head of corporate finance, Jenny Kek,  to  Singapore  on  a  one-day  NDR  last  week  and  met  six  fund managers  from  six  different  institutional  funds.  WTK  has  not  been  on such a roadshow for the last two years.  

- Fund managers agree on timber industry view. Most fund managers, having not followed the timber industry over the last few years, wanted to learn  more  about  its  recent  developments  and  future  prospects  in tandem with the ongoing economic recovery in Japan. Most agreed with the investment thesis that WTK would be one of the prime beneficiaries of Japan’s recovery, given its pure timber player status and pure export earnings, in light of the recent depreciation of the MYR. However, some were wary of the sustainability of Japan’s recovery due  to  its  previous volatile track record.   

- Key highlights: i) plywood prices are on the rise, with floorbase plywood leading  the  way,  ii)  the  margin  for  floorbase  plywood  is  the  highest,  iii) WTK aims to shift its product mix to produce more floorbase plywood, iv) demand from Japan is still improving, v) log prices have stabilised, which bodes  well  for  plywood  production  costs,  and  vi) WTK’s strong  balance sheet and improving outlook will translate into higher dividends.  

- Maintain  BUY.  We  maintain  our  BUY  call  and  MYR1.60  FV,  based  on 12x CY14 EPS. WTK is the purest timber play within our coverage, as its plantations  division  is  not  expected  to  contribute  significantly  to  profits until FY16. As such, any improvement in timber prices will have a bigger impact on its earnings. WTK is also the cheapest timber company within our coverage, as its peers are trading at 12-14x FY14 P/Es.

Source: RHB