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Company Update - WTK (BUY,
maintain)
- 1H14 log and FFB production increases We maintain our BUY recommendation on WTK as we believe the Group would benefit from a favourable rise in timber prices as its bottom-line still is largely driven by its timber operations. We value WTK based on an unchanged SOP-derived target price of RM1.76, based on a 10x PER target on 2015E timber division’s earnings, book value for its forest and palm oil plantation. WTK’s 1H14 log production came in at 232,795m3, 11.5% higher than 1H13. The average monthly log production YTD is also higher at 38,799m3 as compared to 34,802m3 in 1H13. Given the high demand for round log and favourable log average selling prices, we believe WTK will try to continue to maximize their log production in 2H14. For its palm oil plantation division, WTK has planted 11,300 ha as at end-December 2013 (accounting for 56.5% of its total plantable area) and the Group plans to plant another 1,500 ha this year. In 1H14, WTK’s FFB production increased by 88% yoy to 9,734 MT. We believe FFB production will continue to grow strongly given: 1) the rising maturity of its palm oil plantations; and 2) young average age profile of 4-5 year old palm oil trees.
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