WTK Holdings’ (WTK) 9MFY13 core net profit was in line with our expectations, but below consensus. Management expects the firm export log price and improving plywood price trend to persist in the next few months, possibly up to 1Q2014, on the back of improving fundamentals in Japan and the stabilising INR. Maintain BUY, with higher FV of MYR1.70 (from MYR1.60).

- In line.  WTK Holdings’ (WTK) 9MFY13 core net profit was in line with our expectations, but below consensus, coming in at 78% and 70% of both FY13 forecasts, respectively.

- 9MFY13 core net profit was flat y-o-y despite a 10% drop in revenue, mainly due to better profit margins at WTK’s manufacturing division. In 3QFY13, revenue at its timber division fell 21% due to lower log (-25.8%) and plywood (-27.7%) sales volumes as a result of lower log production and management’s decision to cut back on the production of some of WTK’s non-premium plywood products in anticipation of some of the other big timber players releasing their stockholding. This was offset by higher y-o-y selling prices of logs (+5.1%) and plywood (+8.9%) during the same period. 

- Positive prospects. Management expects the firm export log price and improving plywood price trend to continue for the next few months on the back of: i) rising housing starts in Japan; ii) the impending rise in sales tax in Japan in April 2014, which could see an acceleration in plywood demand prior to its implementation; and iii) an improvement in Indian log demand as the INR is showing signs of stabilising.

- Maintain BUY. No change to our FY13 forecasts. However, we lift our FY14 forecasts by 10.6% after raising our MYR/USD assumption to MYR3.10/USD (from MYR3.00/USD). Maintain BUY call, with a higher FV of MYR1.70 (from MYR1.60), based on an unchanged 12x CY14 EPS. WTK is the purest timber play within our universe 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 earnings. WTK is also the cheapest timber company within our coverage as its peers are trading at 12-14x FY14 P/Es.

Source: RHB