KUCHING: WTK Holdings Bhd (WTK), a timber player with the biggest exposure to Japan, is set to record its strongest growth amid escalating plywood demand from Japan.
Unlike most of its peers which had significant contributions from the palm oil sector, WTK stood out as a pure timber player and was reported to export 90 per cent of its plywood to Japan, stated a research report by HwangDBS Vickers Research Sdn Bhd (HwangDBS Research).
The report stated, “We project WTK to achieve 70 per cent financial years 2010 to 2012 (FY10-12) forecasted earnings compounded annual growth rate mainly on the back of a 10 to15 per cent increase in plywood prices and a two to seven per cent rise in sales driven by improved demand from Japan.
“Near term demand should remain firm as temporary homes are being built post-quake and subsequently permanent homes, which will see further growth in plywood demand from Japan next year,” the research firm opined.
Despite the strong forecast for the group being set to record the strongest earnings growth, WTK still traded at nine times CY12 forecasted earnings per share (EPS) and 0.6 times FY12 forecasted book value (BV), representing 11 per cent and 42 per cent discounts to its peers respectively.
WTK had a solid track record since it had been in the timber industry since the 1940’s and was backed by long term log concessions in Sarawak, currently having 390,000 hectares with an annual harvesting capacity of 600,000 cubic metres.
With a healthy balance sheet, it had a large exposure to Japan’s plywood market to which it exported 90 per cent of its plywood supply as stated previously.
The group was expected to benefit from a recovery in plywood demand from Japan following the multiple disasters in Japan which had left 200,000 buildings destroyed and adversely affected the country’s internal plywood industry.
The research house listed the possible threats to WTK’s current outlook, namely rising oil prices, weakening US dollar against the ringgit, rising log prices, change in government logging quota policies and severe wet weather conditions which would affect log harvest output and quality.
HwangDBS further elaborated, “We believe timber prices will be well supported by a continued shortage of logs despite improving weather conditions.
“Rising demand for logs from China and India should continue to support timber prices.
“In fact, log supply is likely to remain tight and this should push up prices as China and India compete with increasing plywood demand from Japan.”
Noting that valuation was still lower than the stock’s historical mean of 1.3 times BV and peers’ 1.3x FY12 forecasted BV, HwangDBS Research derived a target price of RM2.90 per share for WTK, based on a one time FY12 forecasted BV.