Priceworth gets lift from Innoprise
Sabah state-owned company to buy 30% of struggling firm
WITH Sabah’s biggest timber concessionaire set to emerge as its single largest shareholder, loss-making Priceworth International Bhd seems to have found a renewed lease of life.
Innoprise Corp Sdn Bhd will be acquiring a 30% stake in Priceworth - a penny stock worth five sen but has RHB Bank founder Tan Sri Rashid Hussain (pic) and his wife among the top shareholders.
The fact that Innoprise Corp is the investment vehicle of state-owned Sabah Foundation makes Priceworth’s turnaround story even more compelling.
A soon-to-be-expected management revamp and resumption of operations, following the emergence of Innoprise Corp, could help to manoeuvre Priceworth out of its current financial difficulties.
On Oct 7, Priceworth signed an agreement with Rakyat Berjaya Sdn Bhd (RBSB), a wholly-owned subsidiary of Innoprise Corp, to buy the extracted timber logs from existing Sabah Foundation’s timber concession areas.
For context, RBSB manages Sabah Foundation’s concession area.
“While this agreement would not have any material effect on the company for this financial year ending 2020, we expect this agreement to contribute positively to Priceworth’s bottom line as soon as the next financial year,” said Priceworth executive director Richard Koo in a statement.
The agreement comes following an earlier memorandum of understanding (MOU) between Priceworth and Innoprise Corp on Oct 3.
Priceworth will pay for the logs by issuing new shares in the company, equivalent to 30% of the paid up capital, to Innoprise Corp.
This will effectively make Innoprise Corp as the new single largest shareholder of Priceworth.
Now, why is the deal important to Priceworth? There are two pertinent reasons.
Firstly, according to Priceworth, it will be able to resume logging activities in the Sabah Foundation’s timber concession areas. Its plywood and sawn timber factories will now also have access to a constant and sustainable supply of logs, considering that the company’s own logging operations have been interrupted.
In addition, the supply of logs will allow the company to manufacture new container flooring products in its new plants to be built mainly for export to China.
In April 2018, Priceworth’s wholly-owned unit Sinora Sdn Bhd had inked an MOU to supply 60,000 cubic metres of container flooring to China-based Foshan Zhengsen Woodworking Co over a five-year period.
The deal was expected to generate Rm120mil sales annually for Priceworth, amounting to Rm600mil over the five-year period.
Tentatively, a definitive agreement was supposed to be signed within six months from the MOU. However, no further announcement on the deal has been made thus far.
Secondly, the emergence of state-owned Innoprise Corp in Priceworth could be the much-needed catalyst for the company to regain its footing.
Upon the issuance of new shares in Priceworth, Innoprise Corp shall be entitled to appoint two directors to the board and appoint a chief executive officer. This hints at a top management revamp and potentially a new business direction for Priceworth, moving forward.
Not only that, both Priceworth and Innoprise Corp have agreed to “use their best endeavors to obtain the relevant governmental approvals needed” for Priceworth to resume its log harvesting operations.
It is unclear on when Priceworth expects to see a turnaround in earnings. The company did not respond to Starbizweek’s queries as at press time.
Logging interruption
Priceworth fell into the red in the financial year of 2019 (FY19) ended June 30 with a total net loss of Rm144mil, marking its worst performance since its listing in 2001.
The company, while had posted stronger top line and bottom line in FY17-18, was hit adversely in recent quarters after its operations have been interrupted by more than a year.
To be sure, the timber company was forced to stop logging since August 2018 and this has eventually also affected its plywood and sawn timber manufacturing business.
This unfortunate twist of fate was caused after the change in Sabah state government post-14th general election in May last year.
Soon after taking office, the new Warisanled state government enacted a ban on the export of round logs from Sabah which commenced in June 2018. Subsequently in July, the authorities - led by the Special Task Force set up by the Sabah Chief Minister Department - also began verifications on major timber players in the state.
These measures, while were aimed at ensuring a sustainable forestry practices in Sabah, have taken a toll on Priceworth.
Fast forward a year later, Priceworth has yet to resume its logging operations.
However, in its FY19 results filing on Sept 5, Priceworth has stated that “no major issues found from the verifications” by authorities.
“The authorities are in consultation with various government agencies, including the Attorney-general Sabah before finalising the reports of their findings.
The group is liaising with the relevant authorities and has requested for the resumption of log harvesting operations,” it said.
Subsequent to resuming its operations, Priceworth has to pay attention to its balance sheet.
As at June 30, the company is in a net debt position of RM34.28, with cash and cash equivalents worth Rm6.08mil against total borrowings of Rm40.36mil.
Over 63.1% or Rm25.45mil of its total borrowings are short-term in nature or must be repaid in a year period.
For perspective, almost 93% of the shortterm debts are term finance, which is secured “by way of a debenture over all fixed and floating assets of the group, and of a third party”.
Meanwhile, Priceworth’s total payables amounted to over Rm70mil against total receivables of Rm30.83mil as at end-june this year
It is worth noting that the key shareholders of Priceworth have been paring down their equity interest.
Rashid Hussain and his wife, Puan Sri Emilahani Yang Mohd Yatim, have ceased being substantial shareholders from Sept 6.
Rashid owns a direct stake of 4.45% in Priceworth currently, with a 0.62% indirect stake through his spouse.
In comparison, Rashid owned 6.27% directly and 2.65% indirectly in Priceworth on Dec 8, 2017.
Meanwhile, Maha Gayabina Sdn Bhd, which emerged as Priceworth’s largest shareholder in June 2017 with a 15% stake, only own a 6.33% stake currently.
For perspective, the Bumiputera-owned company has been actively reducing its stake in Priceworth since October 2018, from a stake of 12.61% according to Bursa Malaysia.
Maha Gayabina’s shareholders are Mohd Shahrizuan Nordin, Tengku Badrul Hisham Tengku Mohd Salim and Sukmah Bidu.
Meanwhile, Priceworth’s founder and managing director Lim Nyuk Foh has cut his stake in the company over the last several months to 7.68% currently, compared to 8.26% in August 2018.
The Priceworth stock has fallen by over 16% year-to-date, giving the company a market capitalisation size of Rm204.7mil as of Oct 11.