The rating affirmation reflects Priceworth Wood Products Berhad (Priceworth) Group’s improving financials underpinned by growing timber extraction activity/contracting services coupled with high operational integration pertaining to its manufacturing activities. The Group’s vulnerability to cyclical developments affecting the timber/wood-based industry remains a moderating factor to the rating.

Incorporated in 1996, Priceworth 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 around 55,000 cubic metres per annum. The annual requirement of logs is currently around 100,000 cubic metres. To mitigate supply risk and ensure constant and reliable flow of log supply, Priceworth had entered into a long term agreement with its existing supplier, Teras Selasih Sdn Bhd. The high level of plant integration gives Priceworth 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 180 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.

Refinancing risk under the payment structure is mitigated through the creation of a Sinking Fund, which is built up annually based on a fixed schedule, commencing from the third year from the first drawdown date of the Murabahah Multi-Option Notes Issuance Facility. A Commodity Reserve Account mechanism has been incorporated under the issue structure to provide an added liquidity buffer when prices of wood-based products are higher; whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be swept into this account. It is designed to address the market risks associated with timber products.

Priceworth’s revenue rose by 27% to RM125.7 million in fiscal 2002 from RM98.9 million previously. Despite this, its operating profit margin declined from 26% to 14%, mainly due to substantially higher depreciation charges and lower average market price of its timber products. Debt leverage remains manageable at 0.49 times, aided by strengthening profit retention over the past several years. Cashflow protection measures have correspondingly improved and are comparable with its other rated peers and, going forward, will be driven mainly by increasing contribution from its timber contracting activities.