Priceworth's turnaround plan

AFTER being in the red for over a year, Sabah-based integrated timber player Priceworth International Bhd expects to see a change in its fortunes on the back of rising prices for its products and replanting efforts to boost its own timber supply.

Executive director Richard Koo Jenn Man says the losses it suffered was due mainly to a shortage in raw materials supply for its downstream products such as plywood, sawn timber, veneer and timber mouldings.

He says this shortage, which had grown apparent since the Sabah Forestry Department (SFD) implemented forest protection measures in 2011, had caused its mills to be under-utilised at a mere 30% capacity for almost two years.

“Three years ago, we realised we would face a shortage if we didn’t acquire a new concession area.

“Eventually we did, in the form of Beta Bumi Sdn Bhd, but there was a delay in the approval of the licence,” he tells StarBizWeek, adding that the approval was delayed for over a year.

Priceworth is one of the few fully integrated timber operators in Malaysia, with its logs being Forest Stewardship Council (FSC) certified.

It acquired Beta Bumi in January for RM25mil made up of RM2mil in cash and the rest in Priceworth shares.

Koo says he expects Priceworth to return to the black for its fourth quarter ending June 30, noting that it had managed to slash its third-quarter losses to RM1.56mil from RM20.48mil a year ago.

He says the reduction in losses was mainly due to the gradual increase in plywood prices again to around US$550 per cu m, lower production costs and a more favourable exchange rate.

It recorded revenue of RM36.54mil for its third quarter ended March 31, a slight jump from RM33.98mil a year ago.

“We aim to be more profitable for our next financial year ending June 30, 2015,” he says, adding that its mills are currently operating at around 40% capacity.

With the acquisition of Beta Bumi, which holds a 20,000ha timber concession area in Sabah, Priceworth now has a total of 28,000ha where it will implement a sustainable forest management programme for 50 years.

With this forest replanting tenure firmly in hand until 2063, Koo says much of the worry about raw supplies has been alleviated now that it has a stable source of logs for its manufacturing purposes.

He adds that the company has already replanted trees in around 4,200ha of forest reserves, adding that the remainder of the 28,000ha would be replanted within three to four years.

“We can plant 625 trees in one hectare. So, on average, we fell one tree and plant 30 trees,” he says.

This shift in focus to a sustainability-based operations model happened in 2009, says Koo, when it successfully replanted 1,000ha of forest under the SFD’s sustainable forest management concept.

“It made good business sense. We suffered because of the supply issue and realised this was a way of securing a stable log supply. Additionally, we were also encouraged to become an environmentally-friendly timber player when our efforts saw wildlife, including orang utan, come back into the area,” he says.

With an eight-year harvesting cycle, Koo says Priceworth expects to obtain around 100,000 cu m of timber per month from 2017 onwards.

He says the mills are expected to operate at at least 80% capacity when that happens, with a sizeable jump in revenue expected.

Priceworth is also setting up a tissue culture lab and greenhouse to produce and nurture seedlings for its replanting projects.

Koo expects global timber prices to gradually rise and foresees the Japan Olympics 2020 to boost demand for plywood.

He says challenges include rising fuel costs, labour costs and the impending goods and services tax next year, which could see a 2% increase in costs for spare parts and consumables.

Beyond timber, Priceworth aims to venture into the oil and gas services industry as it wants to provide fabrication work and support for offshore platforms.

Voicing interest in oil fields in Kudat and Tawau, Koo says it is expanding its shipyard in Seguntor to include a dockyard and engineering facility, with the first phase costing RM30mil.

“In the future, the whole facility will eventually span 40.47ha. We also manufacture our own tugboats and barges as well as service external fleets,” he says.