We believe the El Nino’s impact on edible oil supply will be one of the largest ever given its current strength. Hence, we are raising our FFBprice estimates to MYR550/tonne for 2016 (from MYR510). We maintain our BUY recommendation with a higher SOP-based TP of MYR1.20(from MYR1.08, 13% upside), as valuation of 8.9x FY16 remains below its 3-year historical average of 10x.

Unprecedented impact. We believe the El Nino’s impact on edible oil supply will be the biggest ever given its strength and high global reliance on palm oil. In the last mild El Nino in 2009-2010, palm oil price went ballistic as production stagnated. Given that the current episode is a stronger one and could match the 1997-1998 El Nino, the impact on production will be more severe with Indonesia potentially experiencing a decline in production next year. Unlike the last two episodes, there will be little or no mitigating factor from an increase in oil palm hectarage since Indonesia’s new planting has been slowing in the past few years.

Perfect storm in 2H16. While soybean supply is still healthy, rapeseed crop has already been hit. We believe a perfect storm is due in 2H16 as the La Nina weather follows the El Nino closely and could bring drought to soybean areas. This could happen while palm oil production is suffering its sharpest yield decline due to the 12-month drought impact.

Raising estimates. We raise our FFB price assumptions for WTK to MYR550/tonne for FY16 (from MYR510) and MYR560 for FY17 (from MYR530). No change to our FY15 price assumption of MYR460. With that, our earnings have been adjusted upwards by 3 -4% for FY16F-17F.

Maintain BUY. With the earnings revision, our SOP-based TP for WTK has been raised to MYR1.20 (from MYR1.08). We maintain our target P/E of 15x 2016 for the plantations division, our DCF valuation for the log division, and a replacement value calculation for its plywood division. We highlight that every MYR100/tonne change in the CPO price could affect WTK’s earnings by 1-2%. We maintain our BUY recommendation on the stock. We believe WTK is one of the prime beneficiaries of the weak MYR/USD, given that the bulk (close to 90%) of its earnings is in theUSD, while its costs are in the MYR. We highlight that every MYR0.10/USD change could increase WTK’s net earnings by c.13 -15%. In addition, with the continued strengthening in log prices, we expect WTK’s earnings to grow by a 3-year CAGR of 17% per annum over the next three years. Valuations are at attractive levels currently, below its 3-year historical average of 10x.