Nextgreen’s pulp and paper bet

  • Business Premium
  • Saturday, 06 Apr 2019

Nextgreen Global Bhd’s two recent letters of intent (LOI) signed provide an indication of what’s in store for a company which only recently got out of the red.

The LOIs are the first step for Nextgreen to secure two contracts from two Japanese parties, for the group’s pulp and paper products.

Nextgreen’s pulp and paper mill factory will begin commercialisation soon.

The pulp and paper mill factory located within the group’s 410-acre Green Technology Park (GTP) in Pekan, Pahang, will have a production capacity of 10,000 tonnes of wood-free paper and 5,000 tonnes of tissue paper.

The first LOI secured in February was from Japan’s Crown Package Co Ltd.

While the purchase price has yet to be fixed, Crown Package has estimated a purchase amount of 200 tonnes empty fruit bunch paper and 2000 tonnes unglazed bleached kraft paper on an annual basis.

Additionally, the estimated purchase amount may increase by 1.5 to two times if the quality, price and other factors of the paper products exceed Crown Package’s expectation.

Then, on April 2, Nextgreen announced that it had signed an LOI with Tokyo and Nagoya Stock Exchange-listed Marubeni Corp.

The potential transaction shall entail 5,000 tonnes of woodfree paper and 3,000 tonnes of bleached chemical pulp per year, over a two-year period, from September 2019 until August 2021.

The purchase price will be determined upon the execution of the formal contract.

Clearly, the new renewable pulp and paper product business will change Nextgreen’s profile, whose other core business of printing has not been doing well.

The group has reported net losses for the past three financial years 2016, 2017 and 2018.

This was mainly attributed to low printing revenue from the overseas markets, as well as pre-operating expenses incurred for the development of GTP.

For the first half of the financial year ending June 30, 2019, Nextgreen registered a net profit of RM164,000, as compared to a net loss of RM2.97mil in the corresponding period last year.

During the same period, the export market for the group’s printing and publishing segment constituted nearly 60% of total segmental revenue, at RM9.11mil.

In a Bursa Malaysia filing, Nextgreen says it is in the process of streamlining its operations to dispose of non-core businesses and is focusing on its core businesses of printing as well as pulp and paper.

“This is despite the tough market conditions for the printing business and increased activities on the pre-operating businesses.

“The board is of the view that the group will perform satisfactorily in the financial year ending 2019,” it says.

According to Nextgreen investor presentation, the company has managed to increase its local printing market share and improve its overseas print orders despite the challenging printing market condition.

“FY19 is expected to turn a profit on the back of the printing business as well as the commercialisation of GTP,” the presentation states.

To beef up its finances, Nextgreen had proposed for a private placement of up to 10% of its total number of issued shares last December, to raise estimated gross proceeds of up to a total of RM32.83mil.

That money is earmarked for payment for the GTP land, infrastructure costs, working capital and estimated expenses in relation to the private placement.

Two tranches of placement shares have been announced, of 10 million and 11.3 million shares each, fixed at a price of 45 sen per share.

The proposed private placement is expected to be completed by the first half of the year.

The pulp and paper mill factory is the first phase of development in GTP.

This will be followed by a second factory with a production capacity of 100,000 tonnes of box liner paper and 120,000 tonnes of corrugated paper.

Then, the third phase of GTP shall entail a 65,000 tonne capacity tissue paper factory, while the fourth phase of GTP will include a 30,000 tonne feed mill and 50,000 tonne fertiliser plant.

The total development cost of GTP is estimated at RM2bil. As of Thursday, Nextgreen had a market capitalisation of RM222.5mil.

On a year-to-date basis, the stock has risen 10.5% to 47.55 sen.

Nextgreen currently trades at a price to earnings multiple of 115.85 times, according to Bloomberg data.

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