Following  our  recent  CPO  price  upgrade,  we  raise  our  earnings projections for WTK by 1.3% for FY14 and 5.9% for FY15. We lift our FV slightly  to  MYR1.76  (from  MYR1.70),  based  on  unchanged  12x  CY14F P/E, as WTK’s plantation division does not contribute very significantly to earnings yet (<10% in FY13-14). Maintain BUY  for WTK’s exposure  to the improving Japanese economy and timber demand.

• Upgrading CPO price assumptions.  We have upgraded our in-house CPO  price  assumptions  for  CY14  and  CY15  to  MYR2,700/tonne  and MYR2,900/tonne respectively  (from MYR2,600/tonne). We maintain our price assumption for CY13 at MYR2,400/tonne.
• Four main factors driving the upgrade. These are: i) a stronger global economy  –  which  means  food  demand  will  continue  to  grow,  ii) Indonesia’s  lacklustre  production  growth  on  the  double  impact  of  dry weather in 2012 and 2013, iii) mandatory biodiesel implementation in the world’s two biggest palm oil producing countries, and iv) production cost to remain flattish-to-lower on significantly cheaper fertilisers following the potash cartel breakup in mid-2013.
• Forecasts raised.  We have raised our forecasts for WTK following the price hike by 1.3% for FY14 and 5.9% for FY15. Our  fresh fruit bunches (FFB)  price  assumptions  are:  MYR540/tonne  for  FY14  (from  MYR520) and MYR580/tonne for FY15 (from MYR520). Our price assumption for FY13 remains unchanged at MYR480/tonne.
• Maintain BUY. Post earnings revision, we lift our SOP-based FV slightly to MYR1.76 (from MYR1.70), based on an unchanged CY14F target P/E of 12x, as WTK’s plantation division does not contribute very significantly to  earnings  yet  (<10%  in  FY13-14).  Maintain  BUY  on  WTK  for  its exposure to the improving Japanese economy and timber demand.

Financial Exhibits

SWOT Analysis

Company Profile
WTK is involved in the harvesting of timber and the manufacturing of plywood and sawntimber. All of its natural forest concession, 
plywood mills and sawntimber mills are situated in Sarawak.

Recommendation Chart

Source: RHB