KUCHING: WTK Holdings Bhd’s timber business has been severely affected by a double whammy of lower plywood sales to Japan due to competition and a decline in log production. In the second quarter ended June 30, 2019 (Q2-2019), the group’s timber revenue plunged by about RM54.6 million or 32.8 percent to RM111.7 million from RM166.4 million in Q2-2018. According to WTK, plywood sales to Japan in the quarter under review has been affected by price competition from Indonesian plywood exporters and Japanese domestic plywood supply at lower costs. “This was coupled with a decrease in production of logs in the current quarter as a result of dry weather which affected the river transportation of logs from log ponds,” it said when releasing its latest quarterly results.
The lower revenue has negatively impacted the financial performance of the timber segment, which suffered a pretax loss of RM7.42 million in Q22019 from profit of RM7.9 million in Q2-2018. For first half of 2019 (H1-2019), the timber segment recorded a dismal performance as its revenue fell to RM258 million from RM316.1 million in H1-2018 or down by RM58.1 million or 18.4 percent. The segment pre-tax loss was, however, reduced to RM1.24 million from RM5.79 million during the same period.
“The lower revenue was attributed to decreased sales revenue from the plywood segment despite higher sales contribution from the log segment. “Lower sales revenue from plywood to our main market Japan was mainly due to price competition from Indonesian plywood exporters and from Japanese domestic plywood supply at lesser costs despite an upward revision to the selling prices of plywood by 11.6 percent,” said WTK.
The timber segment managed to reduce its losses due to higher logs sales volume and marginal increase in average selling prices. For the plantation business, the group reported revenue of about RM15.8 million in Q2-2019, which was lower by RM7.35 million or 31.8 percent as compared to RM23.1 million in Q2-2018. This has resulted in the segment’s pretax loss to widen to about RM8.1 million from RM6.5 million.
In H1-2019, the plantation revenue dipped to RM30.3 million from RM40.4 million in H1-2018 or down by RM10 million or 25 percent. Its pre-tax loss rose to RM18.2 million from RM14.1 million during the same period. The lower revenue was due to drop in average selling prices of crude palm oil (CPO) and palm kernel. For the manufacturing business, revenue generated in Q2-2019 was RM5.04 million against RM9.66 million in Q22018 or down by 47.8 percent. However, the trading business recorded improvement in its turnover to RM9.85 million from RM7.17 million.
On prospects, WTK said the group maintains a cautious outlook for the log segment as the demand is expected to remain soft as global economic environment has deteriorated due to on-going US-China trade tensions. For the plywood segment, it continues to face competition from Japanese domestic plywood supply as their domestic plywood are able to substitute the generalpurpose plywood at lower costs.
“Additionally, plywood imported into Japanese market is experiencing downward pressure on the selling price and reduced volume due to price competition from Indonesia plywood exporters. “Nevertheless, the group will enhance the competitiveness of the timber products through continuous processes improvement, cost rationalisation and operations alignment with best practice initiatives i.e. Sarawak timber legality verification system and forest management certification.”
On outlook for the plantation sector, WTK said the group is anticipated to delivered better result as more crops are moving into mature period. “Furthermore, CPO prices are expected to improve in second half of 2019 with the anticipation of global palm oil inventory to gradually decline with higher exports and higher consumption of palm oil products from 2019 onwards following reports that the drier-than-expected weather in major planting countries will crimp supply of the world’s edible oils.”
On the group’s manufacturing and trading business, WTK said it is expected to remain challenging given the current global economy downturn. “The group is cautiously optimistic that the overall demand for adhesive and gummed tapes remain intact and sustained, and will continue to focus on market developments, product innovations and enhancing production efficiencies to deliver a positive result.” In Q2-2019, WTK reported weak results with group net loss of about RM15.9 million from profit of RM1.21 million in Q2-2018 as revenue fell steeply to RM142.7 million from RM206.8 million. Loss per share was 3.33 sen from earning per share of 0.25 sen previously. In H1-2019, the group incurred net loss of RM19.7 million, a reversal from profit of RM65.2 million as revenue fell to RM322 million from RM390 million.
