KUCHING: WTK Holdings Bhd (WTK) saw an increase in its core net profit for the first half of 2014 (1H14) on the back of an increase in its timber division.
Affin Investment Bank Bhd (Affin Research) observed WTK’s core net profit increasing 3.7 per cent year on year (y-o-y) to RM22.6 million despite posting lower revenue of RM350.6 million.
“The manufacturing and trading divisions in 1H14 registered a lower revenue of RM42.8 million and RM23.million respectively, mainly due to a decline in sales volume for foil products.
“In contrast, the timber division revenue increased by two per cent yoy to RM282.9 million, driven by higher sales of logs and its average selling price as a result of the continuous tight log supply condition in Sarawak,” it explained.
Additionally, WTK’s 1H14 earnings before interest, tax, depreciation and amortisation (EBITDA) margins improved to 14.6 per cent from 13.9 per cent in 1H13, primarily due to higher contribution from the timber division. The 1H14 results, which accounts for 38 per cent and 36 per cent of Affin Research and consensus full year FY14 forecasts respectively, is in-line with expectations as WTK’s earnings is expected to be stronger in 2H14.
“This will be driven by stronger logs production coupled with firmer timber prices,” the research house added.
Sequential core net profit declined to RM11.1 million On a sequential basis, WTK’s core net profit declined slightly by 3.1 per cent qoq to RM11.1 million, partly due to a higher effective tax rate of 27.2 per cent this quarter versus 15.1 per cent in 1Q14.
At the pretax level, WTK’s 2Q14 earnings fell by 20.1 per cent qoq to RM15 million despite registering a higher revenue of RM181 million.
“EBITDA margins also weakened to 14.5 per cent from 14.7 per cent in 1Q14, mainly attributed to lower revenue contribution from the premium foil products in the manufacturing division which carried higher profit margin,” it observed.
Thus, Affin Research maintained its buy call on WTK with an unchanged target price at RM1.76, keeping its 2014-2016 estimate earnings forecast unchanged.