WTK Holdings’ FY13 core net profit was  above expectations, coming in at 107% and 120% of our and consensus’  FY13 forecasts, respectively.Management expects timber prices to remain firm on the back of rising housing  starts  in  Japan  and  a  rebounding  INR,  while  profit  margins should improve on the back of the weakening MYR. Maintain BUY,  with 
our FV unchanged at MYR1.76.

• Above.  WTK  Holdings’  (WTK)  FY13  core  net  profit  was  above expectations, coming in at 107% and 120% of our and consensus’ FY13 forecasts,  respectively.  In  4Q13,  the  company  recorded  a  positive  tax credit due to reversal of over-provisions amounting to MYR6.1m, which we have excluded from our core net profit calculation.
• FY13  core  net  profit  rose  6%  y-o-y  despite  a  7%  drop  in  revenue, mainly due to better profit margins at WTK’s  timber and  manufacturing divisions. In 4QFY13, revenue at its timber division  rose 8% y-o-y  owing to  higher selling prices of logs (+13.6%) and plywood (+8.7%),  but offset by lower log (-8.7%) and plywood (-5.8%) sales volumes as a result of lower  log  production  and  a  conscious  management  decision  to  reduce production of some non-premium plywood products in anticipation of  the release of stockholding by some of the big timber players.
• Still  optimistic.  Management  expects  the  firm  export  log  price  and improving plywood price trend to  prevail in  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  has  rebounded  since  Aug  2013.  In  addition,  the weakening  MYR  will  benefit  a  pure  exporter  like  WTK.  We  estimate every MYR0.10/USD depreciation will lift earnings by 15-17%.
• Maintain BUY.  No change to our FY14 forecast and we introduce our FY15 forecast. Our  SOP-based FV is unchanged at MYR1.76, based on an unchanged CY14F  target P/E of 12x.  Maintain BUY on WTK for its exposure to the improving Japanese economy and rising timber demand, as well as its position as a beneficiary of the weaker MYR.

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 in Sarawak.

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Source: RHB