Firms unfazed by lower log output as price rises

  • Business
  • Thursday, 17 Sep 2015

KUCHING: Sarawak timber companies’ logs production have taken a hit in the first half of this year following tightened measures by the state authorities to clamp down rampant illegal logging activities.

Four public-listed timber firms, Jaya Tiasa Holdings Bhd, Subur Tiasa Holdings Bhd, Ta Ann Holdings Bhd and WTK Holdings Bhd, saw their log outputs fell between 12% and 25% during the period under review.

Despite a drop in export sales, most of the companies earnings from timber have not been negatively impacted – thanks to the steep hike in log prices.

Tropical logs’ prices have soared in view of the prolonged tight supply situation as Sarawak’s annual production volume dwindled in recent years. The weakened ringgit against US dollar has spurred log exports.

Global supply of tropical timber was significantly reduced following the log export ban by Myanmar last year. The supply cut has also pushed up log prices.

Sibu-based Jaya Tiasa, one of Malaysia’s most established timber firms with a concession area of 712,000ha, reported a 25% drop in log production volume to 361,946 cu m or a monthly average of 60,324 cu m in first half from 482,064 cu m or monthly average of 80,344 cu m in the January-June 2014 period, according to the company’s monthly filing with Bursa Malaysia.

This was a drastic drop as Jaya Tiasa harvested around 1.1 million cu m of logs or an average monthly of nearly 917,000 cu m (based on a monthly production quota of 94,500 cu m) in the financial year ended June 30, 2014.

Similarly, Subur Tiasa was badly affected as its log output dropped by about 24% to 177,748 cu m from 233,697 cu m during the period under review. Both Jaya Tiasa and Subur Tiasa are under the stable of diverisified Rimbunan Hijau Group controlled by tycoon Tan Sri Tiong Hiew King.

Ta Ann, another major timber player, reported a 12% decline in harvested logs to 223,728 cu m, down from 254,483 cu m, while the quantity of logs extracted by WTK plummeted to 197,190 cu m from 232,795 cu m or down by 15.3%.

In a statewide operation launched to curb the widespread timber theft a year ago, the state authorities confiscated over 82,300 cu m of timber worth some RM41mil last year.

More illicit logs worth multi- million of ringgit have been seized this year in the on-going raids.

Among the drastic actions that have been taken by the state government was the cancellation of about 50% of the more than 150 Occupation Tickets (OTs) that allow their holders to clear land and extract timber for oil palm plantation projects.

Some errant holders were found to have abused the licences by stealing timber from national parks, mangrove forests and permanent forest reserves.

The Malaysian Anti-Corruption Commission (MACC), in its Ops Gergaji offensive against unauthorised logging and associated corrupt practices, had in May frozen some 520 bank accounts involving nearly RM700mil belonging to timber and related companies as well as individuals.

According to WTK, the implementation of new procedures as part of the Sarawak government’s efforts to enhance corporate transparency and enforcement of further control and regulations to stem off illegal harvesting of logs had adversely affected the company’s log production volume.

However, it said as the disruptions in harvesting activities arising from measures to curb illegal harvesting had now ceased, the logging operation was being normalised.

WTK expects log output to increase in the July-September quarter, which is the normal seasonal dry spell that facilitates harvesting activities.

Robust log prices have helped to sustain the timber earnings of listed companies even though export sales volume have been slashed.

Ta Ann said when releasing its quarterly results that its average selling prices of export logs in the April-June quarter jumped by 29% year-on-year while that of plywood products improved by 7%.

This helped to lift the group’s timber products segment pre-tax profit in the first half by RM13.3mil or 25% to RM66.9mil as compared to RM53.6mil previously although revenue was lower at RM267.6mil against RM283.8mil previously.

Ta Ann said certain frozen bank accounts of the group were lifted last month. The company had said earlier that two of its subsidiaries – Ta Ann Plywood Sdn Bhd and Lik Shen Sawmill Sdn Bhd – were cooperating with the MACC in the latter’s probe into illegal logging activities.

In the second half of this year, Ta Ann expects the performance of its timber business to be sustained in anticipation of continued firm demand for logs and timber products from buyer countries and the exchange rate that favours the export sector.

Jaya Tiasa, meanwhile, said the appreciation in US dollar had enabled the group to achieve a 13% jump in log selling price in the April-June quarter.

This drove the group’s pre-tax profit from log sales by a whopping RM43.7mil to RM107.6mil from RM63.9mil or a surge of nearly 70%, despite a 36% drop in sales volume.

Revenue from log sales improved to RM371mil from RM351.6mil or by about 6%.

For WTK, despite its log production had slumped by about 15% in the April-June quarter as compared to the January-March quarter, the group’s timber division recorded a more than 140% jump in pre-tax profit to RM11.4mil from RM4.7mil on turnover of RM133.4mil and RM128.4mil respectively.

The lower production, it pointed out, was also due to wet weather and longer festive holidays.

On a six-month basis, WTK timber division registered lower income and pre-tax profit of RM261.8mil and RM16.1mil against RM280mil and RM24.3mil respectively year-on-year.

WTK said India which currently consumes about 60% of Sarawak’s log supply, had maintained a stable demand for timber due to the Indian government’s measures to increase spending on infrastructure development and on construction activities.

Due to lower production in the nine months to April 30 this year. Subur Tiasa’s revenue and pre-tax profit from logging declined to RM244.8mil and RM2.2mil from RM281.6mil and RM5.6mil respectively a year ago.

The group recorded a 26% drop in export log sales volume.

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