Priceworth in MoU to supply container flooring to China's Foshan Zhengsen

PETALING JAYA: Priceworth International Bhd has signed a memorandum of understanding (MoU) to supply on a yearly basis 60,000 cubic metres of container flooring worth RMB192 million (RM120 million) to Chinese manufacturer Foshan Zhengsen Woodworking Co.
The company’s share price was down 1.5 sen or 7.5% to 18.5 sen with some 11.1 million shares changing hands. Its share value was fallen almost 23% in the last one year.
The deal which is expected to be finalised in six months, will see the construction of a RM10.5 million new container flooring production line that will be funded through a RMB4 million advance payment from Foshan Zhengsen and hire purchase financing of RM8 million.
Priceworth’s subsidiary Sinora Sdn Bhd signed the MoU on April 21 for the intended supply of container flooring to Foshan Zhengsen, a pioneer and manufacturer in the Chinese container flooring market based in Foshan City, Guangdong.
“This development represents an exciting opportunity for Priceworth, as we are looking at a five-year contract,” said executive director Richard Koo after signing the MoU in Singapore. “This new product opens up a huge market to Priceworth. With China’s One Belt One Road Initiative, we expect demand for container flooring to grow significantly.”
“At the agreed price and volume of 60,000 cubic meters a year, the contribution margin is about 20%. With a consistent supply of timber from our harvesting operations, the Priceworth group will be able to fully utilise and increase the production efficiency of its production assets once we finalise this contract,” Koo added.
Priceworth in the last two months has seen a jump in monthly log production with better harvests mainly from operations in Forest Management Unit 5 (FMU5), Sabah. In February, it saw the highest production volume since July 2012, up 57% from a year ago.
“For the last five months, our log production has stayed consistently above 14,000 cubic metres, and we expect our (log) production to further increase with improvement in our harvesting efficiency,” said Koo.
Priceworth has been operating in two compartments within FMU5, which it proposed to acquire in 2016, and was recently given approval to begin harvesting in another two compartments. Priceworth also has several other timber concession areas covering 27,900ha.
The group proposed to acquire FMU5 for RM260 million in October 2016, through subsidiary GSR Pte Ltd. It is also planning a Singapore Exchange-listing for GSR, which will also acquire sister company Sinora, which is Priceworth’s plywood manufacturing arm.