Monday, Feb 17, 2003
MARC has assigned long term and short term ratings of A- ID (Single A minus Islamic Debt) and MARC-2 ID respectively on Priceworth Wood Products Berhad’s (PWP) proposed RM60 million Murabahah Multi-Option Notes Issuance Facility. The rating mainly reflects the PWP Group’s high operational integration and expanding activities into palm oil plantations, and the fairly stringent requirements under the issue structure. Positive factors include increasing revenue contribution from the contracting services and diversification towards manufacturing of higher value-added wood-based products. The rating is, however, moderated by the Group’s vulnerability to cyclical developments in the timber/wood-based industry, which could lead to large swings in operating performance and stiff competition provided by other manufacturers as well as increasing threat of product substitution.
Incorporated in 1996, PWP is listed on the second board of the KLSE. The Group’s principal activity is manufacturing and sale of processed wood products (including sawn timber, barecore board, moulded timber and timber flooring) and timber contracting services. Its manufacturing plant is located at an approximately 81 acre site in Kuala Seguntor, about 16 km from Sandakan, Sabah.
The current production of the factory is about 55,000 cubic metre per annum. The annual requirement of logs is currently around 100,000 cubic metres. To ensure a constant and reliable flow of log supply, PWP had entered into a long term agreement with Teras Selasih Sdn Bhd which entails a minimum monthly supply of 10,000 cubic metres or up to 120,000 cubic metres per annum of round logs for seven years, hence mitigating supply risk. The high level of plant integration gives PWP greater flexibility and control over the conversion process from raw material into manufactured end-products. It also benefits from easy access of logs. The factory is situated just up the river mouth of Seguntor river, facilitating movement of its products for export.
With around 183 employees, more than half of its manufactured products are exported to international markets including Japan, China, Hong Kong, Taiwan, South Korea, Singapore, Thailand and the Philippines. To maintain its competitive advantage, the PWP Group emphasizes on quality control procedures and appropriate machinery. It has established its own training programme for its factory workers, enabling its products to conform to the stringent international grading standards.
Refinancing risk under the payment structure is mitigated through the creation of a Sinking Fund, which is built up annually beginning in the third year, based on a fixed schedule. A Commodity Reserve Account mechanism provides an added liquidity buffer, whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be swept into this account, to cover the market risks associated with timber products.
In fiscal 2002, the Group’s revenue improved by 19.7% to RM98.9 million from RM82.6 million previously. Its operating margin surged to 26.1% from 8.3% previously, mainly due to lower operational costs which can be associated with the higher level of integration and the benefit of economies of scale. Other profitability measures are expected to further improve in the near term, in line with the recovery in timber commodity prices. Debt to equity level stood at 0.29 times and is expected to rise to 0.65 times with the issuance of the proposed RM60 Million Murabahah Multi-Option Notes Issuance Facility. Cashflow protection measures appear moderate and, going forward, will be driven mainly by increasing contribution from its timber contracting and expanding activities.
Incorporated in 1996, PWP is listed on the second board of the KLSE. The Group’s principal activity is manufacturing and sale of processed wood products (including sawn timber, barecore board, moulded timber and timber flooring) and timber contracting services. Its manufacturing plant is located at an approximately 81 acre site in Kuala Seguntor, about 16 km from Sandakan, Sabah.
The current production of the factory is about 55,000 cubic metre per annum. The annual requirement of logs is currently around 100,000 cubic metres. To ensure a constant and reliable flow of log supply, PWP had entered into a long term agreement with Teras Selasih Sdn Bhd which entails a minimum monthly supply of 10,000 cubic metres or up to 120,000 cubic metres per annum of round logs for seven years, hence mitigating supply risk. The high level of plant integration gives PWP greater flexibility and control over the conversion process from raw material into manufactured end-products. It also benefits from easy access of logs. The factory is situated just up the river mouth of Seguntor river, facilitating movement of its products for export.
With around 183 employees, more than half of its manufactured products are exported to international markets including Japan, China, Hong Kong, Taiwan, South Korea, Singapore, Thailand and the Philippines. To maintain its competitive advantage, the PWP Group emphasizes on quality control procedures and appropriate machinery. It has established its own training programme for its factory workers, enabling its products to conform to the stringent international grading standards.
Refinancing risk under the payment structure is mitigated through the creation of a Sinking Fund, which is built up annually beginning in the third year, based on a fixed schedule. A Commodity Reserve Account mechanism provides an added liquidity buffer, whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be swept into this account, to cover the market risks associated with timber products.
In fiscal 2002, the Group’s revenue improved by 19.7% to RM98.9 million from RM82.6 million previously. Its operating margin surged to 26.1% from 8.3% previously, mainly due to lower operational costs which can be associated with the higher level of integration and the benefit of economies of scale. Other profitability measures are expected to further improve in the near term, in line with the recovery in timber commodity prices. Debt to equity level stood at 0.29 times and is expected to rise to 0.65 times with the issuance of the proposed RM60 Million Murabahah Multi-Option Notes Issuance Facility. Cashflow protection measures appear moderate and, going forward, will be driven mainly by increasing contribution from its timber contracting and expanding activities.