1H14 log and FFB production increases BUY (maintain) Price Target

COMPANY UPDATE
31 July 2014
1H14 log and FFB production increases
WTK
Sector: Timber
WTKH MK
RM1.38 @ 30 July 2014
BUY (maintain)
Price Target: RM1.76 (↔)
Indian log demand should remain firm on tight log supply
Log exports to India constitute a large portion of WTK’s total log exports,
accounting for 68% of total log exports for 1Q14. This was followed by China and
Taiwan, contributing 10% and 9% of total log exports respectively. Going
forward, we opine that India’s demand for logs from Malaysia should gradually
improve underpinned by: 1) their strong infrastructure demand; 2) slightly more
stable Rupee; and 3) ban of log exports in Myanmar. Given the tight log supply
situation, we believe that round logs average selling prices would remain firm.
3
WTK’s average selling price for log was up 12% yoy to US$160/m in 1Q14.
Price Performance
Absolute
Rel to KLCI
1M
-1.4%
-1.3%
3M
+3.8%
+2.5%
12M
+12.2%
+8.0%
Stock Data
Issued shares (m)
434.2
Mkt cap (RMm)/(US$m)
599.2/188.2
Avg daily vol - 6mth (m)
1.15
52-wk range (RM)
1.15-1.49
Est free float
42.0%
BV per share (RM)
2.87
P/BV (x)
0.48
Net cash/ (debt) (RMm) (1Q14)
(8.5)
ROE (2014F)
4.5%
Derivatives
Nil
Shariah Compliant
Yes
Key Shareholders
WTK Realty
Ocarina Development
Harbour-view Realty
OCBC
Dakota Clinic
15.0%
9.4%
9.4%
7.3%
5.8%
Earnings & Valuation Revisions
14E
Prev EPS (sen)
13.8
Curr EPS (sen)
13.8
Chg (%)
Prev target price (RM)
Curr target price (RM)
1H14 log production increased by 12% yoy
3
In 1H14, WTK’s log production came in at 232,795m , 11.5% higher than 1H13.
Log production was lower in late 2013 until January 2014 due to the monsoon
season that disrupts logging activities. However, production started to pick up
from February 2014 onwards on better weather conditions. WTK’s average
3
3
monthly log production YTD is also higher at 38,799m as compared to 34,802m
3
in 1H13 (2013 monthly average: 35,551m ). Given the high demand for round log
and favourable log average selling prices, we believe WTK will try to continue to
maximize their log production in 2H14. Also, in view of the stronger production
numbers, we estimate the timber division to have generated revenue of RM160m
in 2Q14, up from RM146.4m in 2Q13, assuming log average selling price of
3
US$165/m . This is largely in line with our expectations.
15E
16.2
16.2
-
16E
17.4
17.4
1.76
1.76
Source: Affin, Bloomberg
Nadia Aquidah
(603) 2143 4526
[email protected]
FFB production improves but is still relatively small for now
For its palm oil plantation division, WTK has planted 11,300 ha as at endDecember 2013 (accounting for 56.5% of its total plantable area) and the Group
plans to plant another 1,500 ha this year. WTK is expected to fully plant its palm
oil plantation by 2018. In 1H14, WTK’s FFB production increased by 88% yoy to
9,734 MT. We believe FFB production will continue to grow strongly given: 1) the
rising maturity of its palm oil plantations; and 2) young average age profile of 4-5
year old palm oil trees. In addition, with the construction of its first palm oil mill in
2H15, we opine the Group’s palm oil segment should show some meaningful
contribution to the Group’s earnings starting in 2016.
Maintain BUY with a TP of RM1.76
We maintain our BUY recommendation on WTK as we believe the Group would
benefit from a favourable rise in timber prices as its bottom-line still is largely
driven by its timber operations. At RM1.38 and trading at a FY15 PER of 8.5x,
stock looks attractive next to historical 4-year mean PER of 10x. We value WTK
based on an unchanged SOP-derived target price of RM1.76, based on a 10x
PER target on 2015E timber division’s earnings, book value for its forest and
palm oil plantation. Key downside risk to our view are: 1) disruption in harvesting
of logs due to extreme bad weather; 2) sharp drop in timber product prices; and
4) lower contribution from its manufacturing and trading division.
Earnings & Valuation Summary
FYE 31 Dec
2012
Revenue (RMm)
768.7
EBITDA (RMm)
97.8
Pretax profit (RMm)
54.5
Net profit (RMm)
44.7
EPS (sen)
10.3
PER (x)
13.4
Core net profit (RMm)
43.9
Core EPS (sen)
10.1
Core EPS growth (%)
(35.5)
Core PER (x)
13.6
Net DPS (sen)
2.1
Dividend Yield (%)
1.5
EV/EBITDA (x)
6.6
Consensus profit (RMm)
Affin/Consensus (x)
2013
714.8
109.0
61.6
54.4
12.5
11.0
59.1
13.6
34.4
10.1
2.7
2.0
5.7
2014E
848.6
115.7
72.4
59.8
13.8
10.0
59.8
13.8
1.2
10.0
2.8
2.0
5.7
60.0
1.0
2015E
879.6
130.7
85.3
70.3
16.2
8.5
70.3
16.2
17.7
8.5
3.3
2.4
5.3
72.9
1.0
2016E
900.4
139.0
91.4
75.4
17.4
7.9
75.4
17.4
7.2
7.9
3.5
2.6
5.3
78.7
1.0
Source: Company, Affin forecasts
Important disclosures at the end of report
Page 1
COMPANY UPDATE
31 July 2014
Focus Charts
Fig 1: WTK monthly log production
Fig 2: WTK monthly FFB production
Source: Bursa, WTK
Source: Bursa, WTK
Fig 3: WTK log export market
Fig 4: WTK plywood export market
Source: Affin, WTK
Source: Affin, WTK
Fig 5: WTK’s log and plywood ASPs (US$/m3)
Fig 6: Indian Rupee exchange rate
Source: Affin, WTK
Source: Bloomberg
Important disclosures at the end of report
Page 2
COMPANY UPDATE
31 July 2014
WTK – FINANCIAL SUMMARY
Profit & Loss Statem ent
FYE 31 Dec (RMm )
Revenue
Operating expenses
EBITDA
Depreciation
EBIT
Net int inc/(exp)
Associates' contribution
Exceptional items
Pretax profit
Tax
Minority interest
Net profit
Core net profit
2012
768.7
(670.8)
97.8
(38.0)
59.8
(4.3)
(1.8)
0.7
54.5
(9.7)
(0.1)
44.7
43.9
2013
714.8
(605.8)
109.0
(40.0)
69.0
(2.4)
(0.3)
(4.7)
61.6
(6.8)
(0.4)
54.4
59.1
2014E
848.6
(733.0)
115.7
(39.4)
76.2
(4.8)
1.0
72.4
(12.3)
(0.4)
59.8
59.8
2015E
879.6
(748.8)
130.7
(41.7)
89.1
(4.8)
1.0
85.3
(14.5)
(0.4)
70.3
70.3
2016E
900.4
(761.4)
139.0
(43.8)
95.2
(4.8)
1.0
91.4
(15.5)
(0.5)
75.4
75.4
Balance Sheet Statem ent
FYE 31 Dec (RMm )
Fixed assets
Other long term assets
Total non-curr assets
2012
699.3
441.8
1,141.2
2013
683.8
479.4
1,163.2
2014E
674.4
529.2
1,203.6
2015E
712.7
579.2
1,291.9
2016E
749.0
629.2
1,378.1
Cash and equivalents
Stocks
Debtors
Other current assets
Total current assets
237.0
159.3
143.5
11.3
551.0
263.6
149.9
147.8
8.5
569.8
229.2
179.9
175.5
8.5
593.1
189.2
183.8
181.9
8.5
563.4
157.6
187.1
186.2
8.5
539.4
Creditors
Short term borrow ings
Other current liabilities
Total current liab
90.5
148.7
3.2
242.4
77.5
141.9
2.6
221.9
93.0
141.9
2.6
237.5
95.1
141.9
2.6
239.5
Long term borrow ings
Other long term liabilities
Total long term liab
130.1
84.1
214.2
147.1
81.1
228.3
147.1
81.1
228.3
Shareholders' Funds
1235.6
1282.8
1330.9
Cash Flow Statem ent
FYE 31 Dec (RMm )
EBIT
Depreciation & amortisation
Working capital changes
Cash tax paid
Others
Cashflow frm operation
Capex
Disposal/(purchases)
Others
Cash flow frm investing
Debt raised/(repaid)
Equity raised/(repaid)
Net int inc/(exp)
Dividends paid
Others
Cash flow from financing
Key Financial Ratios and Margins
FYE 31 Dec (RMm )
2012
Grow th
Revenue (%)
12.0
EBITDA (%)
18.3
Core net profit (%)
(34.6)
2013
2014E
2015E
(7.0)
(9.7)
21.7
18.7
21.0
9.9
3.6
2.2
17.7
2.4
1.7
7.2
Profitability
EBITDA margin (%)
PBT margin (%)
Net profit margin (%)
Effective tax rate (%)
ROA (%)
Core ROE (%)
ROCE (%)
Dividend payout ratio (%)
12.7
7.1
5.8
17.8
2.6
3.6
1.5
27.7
15.2
8.6
7.6
11.0
3.1
4.2
1.7
27.0
13.6
8.5
7.0
17.0
3.3
4.5
1.8
27.0
14.9
9.7
8.0
17.0
3.8
5.1
2.1
27.0
15.4
10.2
8.4
17.0
3.9
5.2
2.2
27.0
2.3
159.5
82.5
0.2
2.6
87.7
18.4
0.0
2.5
57.4
(22.6)
(0.1)
2.4
104.2
(25.8)
(0.1)
2.2
113.7
(16.3)
(0.0)
Asset m anagem ent
Debtors turnover (days)
Stock turnover (days)
Creditors turnover (days)
68.1
91.8
52.2
75.5
95.5
49.4
75.5
95.5
49.4
75.5
95.5
49.4
75.5
95.5
49.4
96.8
141.9
2.6
241.2
Capital structure
Net gearing (%)
Interest cover (x)
3.4
14.0
2.0
28.4
4.6
15.9
7.3
18.6
9.2
19.9
147.1
81.1
228.3
147.1
81.1
228.3
1387.5
1448.1
Quarterly Profit & Loss
FYE 31 Dec (RMm )
1Q13
Revenue
173.8
Operating expenses
(149.9)
EBIT
13.9
Int expense
(1.5)
Associates' contribution
(0.2)
Net int inc/(exp)
(0.7)
Exceptional items
(0.3)
Pretax profit
12.7
Tax
(3.0)
Minority interest
(0.2)
Net profit
9.4
Core net profit
9.7
2Q13
184.1
(158.2)
15.9
(1.6)
(0.1)
(0.5)
(0.4)
15.0
(3.1)
(0.2)
11.7
12.0
3Q13
159.2
(129.2)
20.1
(1.7)
(1.0)
(1.0)
18.1
(4.0)
(0.1)
13.9
14.9
4Q13
197.8
(168.6)
19.1
(1.5)
(0.2)
(3.0)
15.9
3.4
0.1
19.3
22.4
1Q14
169.6
(144.7)
14.5
(1.2)
(0.1)
4.4
18.8
(2.8)
(0.1)
15.9
11.5
2012
59.8
38.0
70.7
(6.3)
(2.8)
159.5
(77.0)
3.5
0.3
(73.2)
(50.2)
(14.1)
11.3
(52.9)
2013
69.0
40.0
(13.4)
(7.8)
(0.1)
87.7
(69.3)
2.1
7.9
(59.4)
10.2
(9.3)
(11.8)
(10.9)
2014E
76.2
39.4
(42.2)
(12.3)
(3.8)
57.4
(80.0)
(80.0)
(12.0)
(12.0)
2015E
89.1
41.7
(8.3)
(14.5)
(3.8)
104.2
(130.0)
(130.0)
(14.2)
(14.2)
2016E
95.2
43.8
(5.9)
(15.5)
(3.8)
113.7
(130.0)
(130.0)
(15.3)
(15.3)
82.5
18.4
(22.6)
(25.8)
(16.3)
Free Cash Flow
Liquidity
Current ratio (x)
Op. cash flow (RMm)
Free cashflow (RMm)
FCF/share (sen)
Margins (%)
EBIT
PBT
Net profit
8.0
7.3
5.4
8.7
8.1
6.3
12.6
11.4
8.8
9.7
8.0
9.8
2016E
8.5
11.1
9.4
Source: Company, Affin forecasts
Important disclosures at the end of report
Page 3
COMPANY UPDATE
31 July 2014
Equity Rating Structure and Definitions
BUY
Total return is expected to exceed +15% over a 12-month period
TRADING BUY Total return is expected to exceed +15% over a 3-month period due to short-term positive development, but fundamentals are
(TR BUY)
not strong enough to warrant a Buy call. This is to cater to investors who are willing to take on higher risks
ADD
Total return is expected to be between 0% to +15% over a 12-month period
RE DUCE
TRADING SELL
(TR SELL)
SELL
NOT RATED
Total return is expected to be between 0% to -15% over a 12-month period
Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but fundamentals are
strong enough to avoid a Sell call. This is to cater to investors who are willing to take on higher risks
Total return is expected to be below -15% over a 12-month period
Affin Investment Bank does not provide research coverage or rating for this company. Report is intended as information only
and not as a recommendation
OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12
months
NEUTRAL
Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next
12 months
UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12
months
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Important disclosures at the end of report
Page 4

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