PP 7767/09/2010(025354)

Corporate Highlights
Malaysia
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
R e su lts N ot e Company No: 233327 -M

27 August 2010
MARKET DATELINE

WTK Holdings Share Price

Fair Value
:
:
RM1.08
RM1.60
Improving Fundamentals Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (WTK; Code: 4243) Bloomberg: WTKH MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF Gearing ROE NDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009a 555.4 (1.3) (0.3) >(100) n.m. - 0.6 8.4 0.1 (0.1) 4.1
2010f 679.7 39.7 9.1 >100 11.9 9.0 0.6 5.5 0.1 3.7 2.3
2011f 751.1 59.2 13.5 49.1 8.0 12.0 0.6 6.9 0.1 5.3 3.2
2012f 810.3 74.4 17.0 25.6 6.4 17.0 0.5 5.5 0.1 6.4 4.1
Main Market Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Within expectations. WTK’s 1HFY12/10 net profit of RM5.1m came in at RHBRI Vs. Consensus
13% of our full-year forecasts and market consensus. This is within our Above
expectations as we anticipate a stronger 2HFY12/10 underpinned by √ In Line √
steady increase in log and plywood prices. We previously highlighted in our Below

report dated 24 Aug 2010 that management has seen its log and plywood
Issued Capital (m shares) 438.0
average selling prices rising gradually over the past few months to about Market Cap (RMm) 473.0
US$165/m3 and US$575/m3 in mid-Aug (from US$160/m3 and US$545 in Daily Trading Vol (m shs) 0.2
1HFY10). 52wk Price Range (RM) 1.03-1.50
Major Shareholders: (%)
♦ Yoy, revenue jumped 50.5% as demand and average selling prices for its WTK Realty Sdn Bhd 13.1
timber division recovered strongly after a sharp collapse in 1H09. On YTD Ocarina Development 9.4
basis, average round logs prices increased marginally whilst sales volume Harbour-View Realty 9.4

increased by 50.8%. For its plywood division, it recorded 15.5% higher FYE Dec FY09 FY10 FY11
average selling prices along with a 62.8% increase in sales volume. EPS chg (%) - - -
Var to Cons (%) 1.1 12.5 0
♦ Qoq, WTK recorded a net profit of RM7.1m in 2Q10 vs. a net loss of
RM2.0m in 1Q10. This is mainly due to the improved prices of both its log Share Price Chart
and plywood divisions. Recall that WTK achieved lower average selling
prices for its logs division in 1Q10 due to poor quality of logs as a result of
unfavourable weather conditions.

♦ Plywood division gaining momentum. We are positive on the current

gradual increase in plywood prices on the back of steady demand from
Japan as we think this is relatively sustainable. Utilisation rate has picked
up, and this will result in lower average unit cost of production for WTK
plywood division. In a worst case scenario where demand for plywood
Relative Performance To FBM KLCI
turns weak, WTK will still have the flexibility to export up to 50% of its logs
production, given the strong demand from India. Currently, it is exporting
less than 35% of its logs production
FBM KLCI
♦ Forecasts. We maintain our forecast.
WTK Holdings
♦ Risks include: 1) A decline in timber demand would result in lower-than-
expected timber prices; 2) A slower-than-expected recovery in Japan’s
economy; and 3) Significant hike in glue and logistics costs.

♦ Investment case. No change to our indicative fair value of RM1.60 based

on unchanged target PER of 12x FY11 EPS of 13.5sen. Maintain our
Outperform recommendation on the stock.
Hoe Lee Leng
Please read important disclosures at the end of this report. (603) 92802158
hoe.lee.leng@rhb.com.my

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 27 August 2010

Table 2. Earnings Review (YoY Cumulative)

FYE Dec (RMm) 2Q09 1Q10 2Q10 QoQ YoY 1H09 1H10 YoY Comments
(%) (%) (%)
Revenue 133.1 177.7 191.0 7.5 43.5 244.9 368.7 50.5 Average round log price
increased marginally whilst
-Timber 104.3 147.9 158.4 7.1 51.9 190.5 306.3 60.8
sales volume increased by
- Manufacturing 17.9 17.9 19.0 6.0 6.4 32.6 36.9 13.3 50.8% yoy. For its plywood
division, it recorded 15.5%
- Trading 10.2 11.1 12.9 16.2 26.1 20.5 24.0 17.2
higher average selling prices
- Others 0.7 0.7 0.7 (1.7) 2.9 1.4 1.4 2.7 yoy along with a 62.8% yoy
increase in sales volume .

EBITDA 9.2 10.0 20.1 >100 >100 9.1 30.1 >100 Due to improved selling prices
of both its log and plywood
division. Higher utilisation rate
also lowered the average unit
cost of production for plywood.

Finance cost (2.4) (1.8) (2.3) 26.9 (5.3) (5.0) (4.1) (17.3) In tandem with the lower
borrowing costs.

Associates (0.2) 0.3 0.5 73.8 >100 (0.3) 0.9 >100

PBT (3.4) (0.9) 9.8 >100 >100 (15.4) 8.8 >100 Filtered down from EBITDA,
lower interest expense and
higher share of profit of
associate.
- Timber (3.7) (1.2) 6.5 >100 >100 (15.6) 5.3 >100
- Manufacturing (0.7) 0.3 0.7 >100 >100 (2.0) 1.0 >100
- Trading 1.2 0.3 1.6 >100 34.0 2.3 1.9 (18.0)
- Others (0.1) (0.4) 1.0 >100 >100 (0.2) 0.6 >100
Taxation (2.2) (1.0) (2.7) >100 20.7 (3.0) (3.7) 24.7 Current tax charges were
mainly from profitable
subsidiaries and cannot be set-
off against losses of other
companies within the group.
MI 0.1 0.0 0.0 (25.7) (67.9) 0.3 0.1 (75.9)
Net profit (5.5) (1.9) 7.1 >100 >100 (18.1) 5.1 >100 Filtered down from PBT and
higher tax charges.
EPS (sen) (1.3) (0.5) 1.6 >100 >100 (4.2) 1.2 >100
GDPS (sen) 0.0 0.0 0.0 - - 0.0 0.0 -

EBITDA margin 6.9 5.6 10.5 4.9 3.6 3.7 8.2 4.5
(%)
PBT margin (%) (2.5) (0.5) 5.1 5.6 7.6 (6.3) 2.4 8.7
Net profit margin (4.2) (1.1) 3.7 4.8 7.9 (7.4) 1.4 8.8
(%)
Effective tax rate (66.4) (109.5) 27.6 137.2 94.0 (19.5) 42.4 61.8
(%)
Source: Company, RHBRI

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Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec FY09a FY10F FY11F FY12F FYE Dec FY09F FY10F FY11F
(RMm)
Turnover 555.4 679.7 751.1 810.3 Logs production 530 600 600
(000m3)
Turnover growth (31.6) 22.4 10.5 7.9 Plywood production 248 264 281
(%) (000m3)
Cost of Sales (492.7) (546.5) (584.4) (620.4) Logs price (US$) 165 165 170
Gross Profit 62.7 133.3 166.7 190.0 Plywood price (US$) 514 531 541
RM vs. US$ 3.17 3.10 3.10
EBITDA 35.8 93.5 119.9 138.7
EBITDA margin 6.4 13.8 16.0 17.1
(%)
Depr&Amor (37.1) (37.5) (38.5) (39.5)
Net Interest (10.3) (12.1) (11.1) (10.0)
Associates (0.3) (0.3) (0.3) (0.3)

Pretax Profit (3.7) 51.9 78.3 97.2

Tax 2.4 (13.0) (19.6) (24.3)
MI
0.6 0.8 0.5 1.5
Net Profit (1.3) 39.7 59.2 74.4
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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