KUCHING: Sarawak timber companies would likely see their earnings take a hit after state authorities raised the price of a timber tax by more than 6,000% from July 1.
Sarawak timber firms were notified of the hike via a recent circular entitled “New Rate for Hill Timber Premium (Sarawak Foundation Fund)” issued by Sarawak forestry director Sapuan Ahmad that would see the hill timber premium jump to RM50 per cubic metre from 80 sen per cubic metre, a hefty 6,250% increase from July 1, 2017.
According to Sarawak Assistant Minister for Urban Planning, Land Administration and Environment Datuk Len Talif Salleh, the increased timber premium could generate up to RM300mil a year for the state.
The circular stated that Chief Minister Datuk Amar Abang Johari Tun Openg, also Resource Planning and Environment Minister, had approved the increase in the hill timber premium to RM50 per cu m for all species of logs harvested from hill forests and logs of hill species from agri-conversion areas.
The current premium for hill timber is 80 sen per cubic metre, while it is RM3 per cubic metre for logs from agri-conversion areas.
Logs extracted from swamp forests are exempted from the timber premium.
Collection of the premium, which has remained unchanged since 1986, would be channelled to the Sarawak Foundation Fund managed by Sarawak Foundation to finance bright students for tertiary studies, including in top foreign universities.
Defending the hike as justified, Len said the premium had not been reviewed for 30 years. He said the move would also send a message to timber firms on the need to reduce timber harvesting from natural forests, as hill logging might not be sustainable.
To supplement the supply of raw materials to timber processing mills, like plywood and sawn timber, the state government had earmarked one million hectares of the existing timber concession area to be reforested under tree plantations.
The Sarawak Timber Association, which represents all the major timber companies, has appealed against the steep premium hike.
An industry player said the timber premium hike would have a major impact on the earnings of timber firms, several of which are listed on Bursa Malaysia.
“As timber companies need to fork out more to pay for the premium, this would certainly hurt their earnings, going forward,” he told StarBiz.
Sarawak’s six major timber groups – Rimbunan Hijau, Samling Global Ltd, WTK Holdings Bhd, Shin Yang Forestry Sdn Bhd, KTS Forest Plantations Sdn Bhd and Ta Ann Holdings Bhd (better known as the Big Six) – are reported to own some 3.7 million hectares of timber concessions.
Under the Rimbunan Hijau stable are two listed timber outfits – Jaya Tiasa Holdings Bhd and Subur Tiasa Holdings Bhd. For the financial year ended June 30, 2016 (FY16), Jaya Tiasa harvested 785,602 cubic metre of logs, which was sharply lower as compared to 932,621 cubic metre in FY15, according to figures provided in its latest annual report.
In 2016, WTK Holdings’ log production stood at 594,000 cubic metre last year, while Ta Ann’s log output was 359,203 cu m.
As the timber business of Samling, Shin Yang and KTS are not publicly listed, so their log production figures are not available.
Shares of Ta Ann were down seven sen to RM3.55 yesterday, with 2.6 million shares being traded. WTK Holdings shares inched down 0.005 sen to 98 sen on 296,100 shares being done, while Jaya Tiasa and Subur Tiasa shares were unchanged at RM1.16 and RM1.38, respectively.
CIMB in a note estimated that the new tax represented an increase of 14% in the cost of production for logs in Sarawak, and that timber players may not be able to pass on the higher levy to consumers.
“Jaya Tiasa and Ta Ann’s timber earnings contribution will be negatively impacted by the new levy due to their exposure to timber businesses in Sarawak,” it said. It estimated that about 50% of Ta Ann’s timber comes from hill logs and the rest from swamp logs.
Maybank Investment Bank Bhd is keeping its earnings forecast for Ta Ann static at the moment, pending further clarification from the company. “But there is a 4%-6% downside risk to our FY17-FY19 earnings per share forecasts if the revised cess is implemented,” it added.
Len noted the slow progress in planted forest projects, as merely some 300,000ha have been cultivated by both timber licence holders and government agencies. Planted forests, which feature fast-growing commercial tree species, are said to be able to yield up to five times more raw materials than natural forests due to the high density of planted trees over every hectare.
Ta Ann, one of the pioneers in planted forests, harvested over 87,600 cubic metre from its tree plantation last year. The planted logs are processed into plywood.
Another timber player hopes that the government could consider the association’s appeal, as the hike in hill timber premium is “too steep”. Also, an association member said the association’s stand was that any change in government policy should be gradual and not drastic, and in this case, the increase in timber premium should be on a gradual basis and not on an outright six-fold jump.
However, the association’s appeal might face a hurdle, as Johari was reported to have said on Wednesday that “the government would not bow to the demand of timber companies to reconsider its decision (on the increase of the hill timber premium.)”
Johari, who took over as chief minister from the late Tan Sri Adenan Satem more than three months ago, said if the big timber companies refused to pay the premium under the new rate, the authorities might tender out the harvesting of hill timber and hill species from agri-conversion areas for others to undertake.