WTK sees rough start to financial year with core net loss of RM19.4 mln

KUCHING: WTK Holdings Bhd (WTK) saw a rough start to the beginning of its financial year 2018 (FY18) as it incurred a core net loss of RM19.4 million in its first quarter (1Q18) due to losses from its timber and plantation divisions.

The shortage of quality logs coupled with the increased in costs of production were the main factors for the loss making timber division, said Affin Hwang InvestmentBankBhd(AffinHwang Capital).

The research firm saw that WTK’s 1Q18 revenue declined by 12.5 per cent year on year (y-o-y) to RM183.2 million mainly due to lower revenue from its timber, manufacturing and divisions, but partially offset by higher revenue from its plantation division.

“The timber, manufacturing and trading divisions revenue were down by 17.4, 22.4 and 10.8 per cent y-o-y respectively, to RM149.7 million, RM9.1 million and RM6.7 million,” it said in a report yesterday.

“Meanwhile, the plantation division’s revenue more than doubled y-o-y to RM17.2 million. Profit before tax in 1Q18 surged by more than 100 per cent y-o-y to RM64.3 million, largely due to the gain on deconsolidation of its subsidiary totalling to RM85 million.”

WTK’s timber and plantation division recorded a loss before tax of RM13.7 million and RM7.6 million respectively. After excluding one- off items, WTK recorded a core net loss of RM19.4 million versus a core net loss of RM2.7 million in 1Q17.

“The weak results came in below our expectation and the variance was largely due to the loss making timber division,” it said. “Despite the increase in log volume by 50.9 per cent y-o-y to 194,849 cubic metres, WTK’s revenue from sale of logs declined in 1Q18 as shortages of quality logs has caused a significant pull back of export sales.

“The shortage of quality logs as well as the increased in costs of production due to the hike in hill timber premium rate, effective July 2017, were the main factors for the loss making timber division.”

Thus, AffinHwang Capital cut WTK’s 2019-20E core earnings per share forecasts by 38 to 50 per cent, while projecting a RM30.8 million core net loss for 2018, to account for the weak 1Q18 results.

“Due to our earnings cut, our target price for WTK is now lower at RM0.55. We maintain our sell rating on WTK.”