Companies: WTK ************ WTK Holdings Bhd (WTK) is set to leverage on the improving prices of log and plywood as the prospects for the timber sector continue to look promising. WTK explained in its explanatory notes for its second quarter of 2013 (2Q13) financial results, its timber division recorded a revenue of RM146.4 million as compared with the 1Q13’s revenue of RM130.9 million, with pre-tax profit of RM10 million whilst 1Q13’s pre-tax profit was RM5.7 million. The group attributed the slight increase in its timber division revenue to the increase in sales of round log and plywood of 8.2 and 14.2 per cent, respectively. Nevertheless, RHB Research Institute Sdn Bhd (RHB Research) analyst Hoe Lee Leng in a recent research note said, WTK’s first half of 2013 (1H13) results came below expectations as the improvement in log prices only began taking effect in the later part of 2Q13. “The main variance came from the lower-than-expected average export log prices, which rose 10 to 20 per cent year-on-year (versus our projected 25 to 35 per cent for the financial year 2013). “Although log prices have been rising since 1Q13 (with year-to-date prices up 20 to 30 per cent year-on-year in Augus), the company may not be able to hit our projected price assumption for financial year 2013, given the lower prices achieved in 1H13,” the analyst opined. Core net profit rose 18 per cent while revenue fell four per cent on a yearly basis in 1HFY13, as the plywood sales volume rose 10.4 per cent, while log production was relatively flat. “Selling prices, however, continued recovering in 2Q13, with log prices climbing 10.7 per cent year-on-year (y-o-y) while plywood prices rose 4.4 per cent y-o-y,” Hoe explained. Going forward, the analyst noted, WTK continues to see firm export log prices and improving plywood sales volumes. “Should plywood sales volumes continue at the current levels for the next few months, WTK could likely look to implement more significant selling price increases for its plywood products by 4Q13,” Hoe highlighted. However, the group in its notes, retained a cautious view as the mixed sentiment in Japan’s economic growth, the poor state of economies of India and eurozone countries and the state of affairs of Syria, could effect the overall timber industry. Meanwhile, on its other operations, WTK said as its non-timber manufacturing division enters in the second half of the year, it is expected to be challenging amid the market saturation. “The division shall continue its approach to maintain its competitive advantage by streamlining its supply chain, focusing on its core products and strengthening branding to deliver product differentiation to customers,” the group reported. To note, revenue for its manufacturing and trading division’s 2Q13 was at RM36.8 million, a decline of RM5.2 million or 12.4 per cent as compared with the 1Q13. The group attributed the decline in revenue to the reduced volume for flexible packaging and aluminum foil products. Profit before tax was reported at RM5.7 million, indicating a decline of RM2.2 million or 27.8 per cent when compared with the 1Q13. WTK said the decline in profit before tax was mainly due to the decline in revenue. Aside from that, RHB Research noted that WTK is the purest timber play within the research firm’s coverage, as its plantations division is not expected to contribute significantly to profits until FY16 onwards. As such, it said any improvement in timber prices will have a bigger impact on earnings.
Posted on: Tue, 03 Sep 2013 00:29:49 +0000
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