Priceworth International Bhd says Forest Management Unit 5 (FMU5) has been valued at RM433.8 million, significantly more than the RM260 million price it is paying for its proposed acquisition of the FMU 5 Timber Concession comprising a net concession area of 88,920 hectares.
The timber and sustainable forestry group also holds a cash option that could further reduce the acquisition price to RM235 million if exercised, it said today in a circular to shareholders.
“Moving forward, our Company estimates that the harvest from FMU5 will contribute not less than 70 percent of the annual log supply for its downstream timber manufacturing business for the next ten years from commencement of the logging activities,” it said.
Based on FMU5’s harvestable yield, the total yield for the next ten years is an estimated 6.6 million cbm cumulatively from the Industrial Tree Plantation (ITP) and Natural Forest Management (NFM) areas, it said.
Priceworth is seeking shareholders’ approval to acquire FMU5, which is among Sabah’s top 10 largest forest management areas, and has 79 years remaining on the 100-year licence to manage, extract and sell timber from the area. The extraordinary general meeting will be held on 22nd May 2018.
It is also proposing a renounceable two-for-one rights issue with bonus shares to raise proceeds of about RM102.37 million, which will go towards repayment of bank borrowings and working capital. The rights issue, at an issue price of 5 sen each, will come with one bonus share for every two rights shares subscribed.
The proposed acquisition of FMU5 will cement Priceworth’s position as the leading integrated timber player in Sabah, with an entire value chain comprising upstream and downstream assets complemented by its in-house expertise, knowhow and market knowledge.
“With the proposed transformative acquisition of FMU5, we are bullish on the future outlook of the Company and the Group. We envisage that FMU5 will be able to provide a sustainable supply of logs for the foreseeable future,” it said.
“Thus, the principal business segment of logs trading, sawmill operations and plywood manufacturing will be further enhanced with our contributions and margins improving beyond the breakeven level which we have been experiencing for the past few years.”
As at 28 February, Priceworth had harvested roughly 705 ha of the ITP area which yielded salvage timber of about 22,485.75 cbm. Priceworth began harvests in two Compartments in late 2017 and recently obtained approval to begin harvesting in another two.
Last month, Priceworth saw its highest production volume since 2011, when Sabah adopted a new forestry policy on Sustainable Forest Management in 2010. Its log production in March was almost 25,000 cbm, 71 percent higher than a year ago.
The timber group also signed a Memorandum of Understanding (MOU) to supply Container Flooring totaling RM600 million over a five year period averaging RM120 million per annum to Chinese manufacturer Foshan Zhengsen Woodworking Co which has been made possible due to the supply of timber from FMU 5.