Poplar should also work well. Not the softest wood, but soft enough, easy to work, easy to get hold of, and not likely to split.
What I suggest is, make the wood sheath first, two slabs hollowed out to fit the blade and fastened together at the edges. (Instead of actually carving out a hollow, it's easier to glue wood spacers around the edges to create an opening for the blade.) If you use a good quality wood this can be a fine sheath even without the leather wrapping, but you can add that afterward. (Some of the fancier khukuris by HI and others come with nicely carved all-wood sheaths.) As I recall, there's a tutorial on this in some forum posting or at the HI web site, but I can't find it. Maybe someone else can do better. Perhaps our resident search and retrieve expert, Steve Tall?
The trickiest part is matching the sheath to the knife so that it holds snugly but not too tight. You have to make the opening wider than the knife itself to allow room for the curved blade when sheathing and unsheathing. I suggest making a cardboard model first so you can fit the actual knife to the model, before making the permanent wood sheath. If you are going to add a leather wrap later, make the throat wide enough to fold the edge of the leather around without it pinching the blade. (Ideally the sheath should grip the blade along the spine, which is the thickest part. In many cases the sheath grips the blade at the throat where the bolster inserts, but this is less than ideal.)
There are some important details to consider, like any wood/leather project. How to fasten the edges of the two wood slabs, for example. In the traditional khukuri scabbard I believe it is just the leather wrap that holds them in place, which allows for some expansion and contraction due to heat and humidity. I would definitely give the wood slabs a good coat of waterproof sealant inside and out to minimize all that, and to prevent the wood from absorbing moisture that might tend to rust the blade over time.