As the index is hovering near the 1,500 level ... this does not cause excitement but rather trepidation as the main movers, construction and GLCs may be in overbought situation. If we were to follow the recovery in commodities and soft commodities, the next sector to come on should be timber.
That's mainly why I like WTK. Their 2009 turnover was RM555.4m which saw them recorded a loss of RM1.3m. Thats a given due to the global financial crisis contraction in the real economy. Their revenue improved markedly in 2010, and looks set to reach RM685m. This should translate into a net profit of RM39.7m or an EPS of 9 sen.
Rising revenues may mask a more important thing. Commodities run on margins. In bad days, you still have to sell but you margins are shitty. Log and plywood average selling prices rising gradually over the past few months to about US$165/m3 and US$575/m3 in mid-Aug (from US$160/m3 and US$545 in 1HFY10). Better margins are a lot better than higher revenues alone.
But nobody is rating a stock based on its current earnings alone. For 2011, it is projected that revenue will be bumped up further to RM750m which should translate to a net profit of RM75 or a net EPS of 14 sen.
Timber stocks are way due for a rerating. On the back of steady demand from Japan, it is going to surprise on the upside. July 2010 Japanese housing starts of 68,785 units (+4.3% YoY, +0.1% MoM) were better than expected.
Utilisation rate has picked up, and this will result in lower average unit cost of production for WTK plywood division. In a worst case scenario where demand for plywood turns weak, WTK will still have the flexibility to export up to 50% of its logs production, given the strong demand from India. Currently, it is exporting less than 35% of its logs production. WTK’s logging operations are expected to provide support, with continued demand from India and Sarawak’s 1-year extension of export log quota to 50% from 40%.
I think WTK is not just a seasonal play but for those who believe that the next 10 years will be a resource and commodities boom, of which I am a firm believer, then just buy and hold WTK. You are not going to go much wrong as it now trades at just 0.5 x P/BV. That valuation matrix will be adjusted upwards quickly once plywood and log prices continue with their uptrend. Its safe as net gearing is at 14%.
They have maintained a remarkable 3 sen dividend over the past 4 years, through thick and thin. This shows a commitment not to sell shares by the owners and to live via dividends as they probably do not see deep value to sell anytime now.
Looking at their 12 month High-Low of RM1.50-1.03, it looks like the move up has barely just started.
Major Shareholders:
Datuk Wong Kie Nai & family 36%
AIG Goldflow Ltd 6.9%
Tiedemann Global Emerging Markets 6%
Pheim Asset Mgmt 3.2%
*Stock deemed Shariah compliant by the Securities Commission
Paid up: 434.7m shares
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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