WTK to benefit from diversification into oil palm plantation

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KUCHING: WTK Holdings Bhd (WTK) is poised to benefit from its strategy to diversify its timber business into oil palm plantation to enhance future earnings.

The research arm of Affin Investment Bank Bhd (Affin Research) in a report yesterday said the company’s move into oil palm plantation will enable the company to reap the reward into its future financial performance from 2016 onwards.

In the meantime, Affin Research noted that revenue contribution fromWTK’s plantation segment was still marginal at about 1.7 per cent or RM12 millon to the group’s topline in 2013.

The research firm said as of the fourth quarter of 2013 (4Q13), WTK has planted 56.5 per cent or 11,300 hectares out of its total plantable landbank of 20,000 hectares.

WTK’s oil palm plantation landbank is located across Miri and Limbang.It in 2013, the company has about 6,300 hectares of matured plantation and it will expand to 8,500 hectares in 2014 and 9,700 hectares in 2015 respectively.

At the same time, Affin Research said the group’s palm oil plantation produced 15,742 metric tonnes (MT) of fresh fruit bunches (FFB) in 2013 which doubled its palm oil production of 7,320MT in 2012.

As for the first two months of this year, Affin Research observed that WTK plantation division’s FFB production was 3,071MT.

Additionally, the research firm said the current weighted average age profile of palm oil tree for WTK is still young which is about four to five years old.

WTK is going to build its first palm oil mill in the second half of 2015 which will be completed by the end of 2016.

With the completion of its palm oil mill and higher FFB production, Affin Research is confident that the financial performance of WTK will improve beyond 2016.

On another note, Affin Research said WTK’s timber segment will perform relatively stable as demand for plywood from Japan should remain steady in the near term.

It also observed that the average selling price for timber products should remain strong supported by tight log supply due diminishing natural resources and improving timber product demand.

Affin Research believed that the log production for the company in the first quarter of 2014 (1Q14) should match the quantity produced of 101,163 metre square in 1Q13 due to better weather conditions.

This is because seasonally, the research firm said log production for the month of November to January period has always been lower due to the monsoon season that disrupts logging
activities.

As a whole, Affin Research believed that firmer average selling prices for log and plywood, improving demand for timber products and better contribution from WTK’s plantation division will sustain the company’s earnings for financial year 2014.