Priceworth signs MoU for container flooring contract
KUALA LUMPUR: Priceworth International Bhd expects to clinch a five-year contract to supply 60,000 cubic metres of container flooring worth 192 million yuan (RM120mil) annually to Chinese manufacturer Foshan Zhengsen Woodworking Co.
Its wholly-owned unit Sinora Sdn Bhd inked a memorandum of understanding in Singapore on Saturday for the intended supply of container flooring to the Guangdongbased Foshan Zhengsen, the wood product maker said in a statement.
The definitive agreement is expected to be signed within six months, it said.
Sinora will construct a new container flooring production line after the supply contract is finalised.
According to Priceworth, a 4 million yuan (RM2.5mil) advance payment from Foshan Zhengsen will go towards funding the new production line.
The balance of the capital expend- iture will be funded by hire-purchase financing of about RM8mil.
“This development represents an exciting opportunity for Priceworth, as we are looking at a five-year contract,” said executive director Richard Koo. “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,” he said.
He said at the agreed price and volume of 60,000 cubic metres a year, the contribution margin is about 20%.
“With a consistent supply of timber from our harvesting operations, the group will be able to fully utilise and increase the production efficiency of its production assets once we finalise this contract,” Koo added.
In the last two months, Priceworth has seen a jump in monthly log production with better harvests mainly due to contribution from operations in the Forest Management Unit 5 (FMU5), Sabah.
In February, it saw the highest production volume since July 2012, up 57% from a year earlier.
“For the last five months, our log production has stayed consistently above 14,000 cubic metres and we expect production to increase further with improvement in our harvesting efficiency,” he said.
Priceworth has been operating in two compartments within FMU5 and was recently given approval to begin harvesting in another two compartments. The group also has several other timber concession areas covering 27,900ha.
Priceworth proposed to acquire FMU5 for RM260mil in October 2016 through its subsidiary, GSR Pte Ltd.
It also plans a Singapore stock exchange-listing for GSR, which will also acquire Priceworth’s plywood manufacturing arm Sinora. — Bernama