IPOH-BASED Leweko Resources Bhd, one of Peninsular Malaysia's largest forest concessionaires, will venture strongly into downstream activities by increasing the production of higher value-added downstream timber products for export this year.
Managing director Datuk Leong Wei Kong said this was part of the group's effort to develop more new products and new markets and to better utilise the logs extracted from its forest concessions.
Leweko group currently holds the right to extract logs from 7,200 acres of forest in north Perak and has contractual agreements to purchase logs from other concession holders of about 8,000 acres, thus ensuring sustainable supply of logs for the next eight to 10 years. The group also has 998ha oil palm plantations in Perak.
“The timber business will remain the group's mainstay while the palm oil business will act as our earnings stabiliser,” Leong told StarBiz in an interview.
To attain its objective for further downstream integration and sustainable timber business, he said Leweko would be on the lookout this year to acquire timber-based companies and businesses involved in producing specialised downstream timber products like window frames and furniture components.
Leweko, being an integrated timber group with both upstream forest concessions and downstream operations (manufacture of sawn and moulded timber and other timber-related products), has a distinct competitive edge over many other timber-based operators in the peninsula.
“We have the ability to derive higher profit margins as Leweko, being a concession holder, has control over the supply of logs for its downstream activities,” he added.
Leong described the group's shift to embark on more timber downstream activities as the “right move”, as the group wanted to add more value to its wood resources.
Apart from downstream activities being more lucrative, Leong said prices for semi-processed timber products like sawn and moulded timber were generally less volatile than commodities like plywood and logs, which effectively helped to shield the group from wild swings in timber prices.
As export of logs is prohibited in Malaysia, Leweko's logs are sold domestically.
“For a concession of 1,000 acres, Leweko is able to produce up to 20,000 tonnes of logs, of which about 70% are used for downstream operations with the balance sold as timber logs,” Leweko said.
For the group's sawn timber products, about 30%, especially the higher grade ones, are sold locally (for re-export) and overseas, while the remainder is consumed by the group's moulding operations.
Currently, Leweko group carries out the downstream timber activities at its 8.69ha timber complex in Gerik, Perak.
According to Leong, the long-term viability of the timber industry depends on the availability of a consistent and sustainable supply of logs.
“While Leweko's present wood resources at its current operating levels are envisaged to last for the next eight to 10 years, we are always conscious that the present resources will deplete in time to come,” he added.
The Leweko group views the issue of resources renewal from the operational and strategic perspectives.
“On the operational level and as a matter of routine, supply agreements are entered into with other concession holders to purchase logs from their concessions as and when the transactions are economically viable,” Leong said.
In addition, Leweko will, from time to time, make applications to the state authorities for new concessions.
In the long term, the group would be looking at the possibility of venturing into forest plantations, he added.
On the group's oil palm division, Leong said: “We are mainly involved in upstream plantation activities with the sale of fresh fruit bunches (FFB) to palm oil mills in Perak.”
The group was also looking to acquire new land to be developed into palm oil plantations, he said.
Leong said that currently, the oil palms planted, ranging from eight to 12 years in age, were producing an average of about 2,800 tonnes of FFB per month.
“Owing to the fairly young estates, yields are expected to be commendable at about 30 tonnes per ha against the Perak state's average of 21.9 tonnes per ha,” he added.
On Dec 31, 2003, Leweko assumed the listing status of Timbermaster Industries Bhd (a PN4 company under special administration) on the second board of Bursa Malaysia.
For the financial year ending Dec 31, 2004, Leweko expects to meet its projections of RM23.91mil in pre-tax profit and RM17.03mil in net profit.
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