SINGAPORE (May 28): Timber company Jawala is set for a listing on the Catalist board of the Singapore Exchange on June 1. Jema Khan, executive director and CEO of Jawala, sees a Singapore listing as a way for the company to gain access to the international market for growth. “We are a small company, but growing fast,” he says. “We feel SGX is a platform to raise funds and move forward at a faster pace than if we remained private. Catalist was the easier option [than Malaysia]. You can take growth companies [to be listed] quite quickly here.”
The company is offering 17.6 million new shares via a placement to institutional investors, and 400,000 new shares to the public. Altogether, these represent 15.2% of the company’s issued share capital of 118.5 million shares. At 25 cents a share, the IPO is valued at more than 40 times FY2017 earnings. The company’s IPO is expected to raise net proceeds of $3.15 million, which will go towards the development of its existing plantation.
Jawala was incorporated last August as a holding company. It owns 70% of forest management and timber company Jawala Plantation Industries. The remaining 30% stake in JPI is owned by Jawala Corp, a sawn timber company controlled by Khan and his father, Abdul Majid Khan, executive chairman of Jaycorp, a rubber wood and furniture company listed on Bursa Malaysia.
Jawala holds a licence to manage a commercial forest reserve, which spans an area of 27,288 acres in the Sapulut Forest Reserve. The company obtained the licence after signing a sustainable forest management licence agreement with the Sabah state government on Aug 12, 2015. The agreement is valid from that date until Dec 31, 2115. Upon expiry, the agreement can be extended for another 100 years at the discretion of the Sabah chief minister.
The licensed area is located about 220km from Tawau, the third-largest city in Sabah. Jawala is permitted to plant and implement silvicultural treatments of natural and plantation forests. The company is also allowed to fell, cut, collect, remove and convert the trees into forest produce such as logs and timbers. It is authorised to process, convert, sell and export processed or converted timbers or merchantable timber to local and foreign purchasers.
The company outsources about two-thirds of the labour-intensive operations, such as planting, harvesting and logging, to third-party contractors. The company says this allows it to focus on higher-value operations such as forestry survey, concession bordering and infrastructure planning. For the quarter ended Oct 31, 2017, Jawala’s extraction costs surged 55.1% y-o-y to RM2 million, comprising 55.1% of its cost of sales.
JPI is currently carrying out salvage logging in the licensed area, consisting mainly of round logs with diameter at breast height (dbh) of 35cm and above. The main species of round logs harvested are mixed Seraya, mixed timber, Kapur, Keruing and some Selangan Batu. These logs are sold mainly to domestic customers that produce sawn timber, veneer and plywood, which are eventually turned into furniture, among other things. The price range is typically RM175 to RM850 per cu m, depending on dbh and species.
In three years’ time, however, Jawala expects to be left with smaller logs to harvest from its licensed area. This would result in a “material reduction” in revenue contribution from the sale of such residual logs, the company says. To mitigate this issue, it plans to spend RM56.6 million ($19 million) to develop an industrial tree plantation (ITP) in the licensed area from 2018 to 2026. These newly planted trees can be harvested from 2026.
Khan says Jawala plans to acquire other ITPs to generate cash flow or cultivate an existing plantation to maturity, and it will retain at least 75% of JPI’s earnings after tax as strategic reserves for acquiring such plantations.
Jawala executive director Rahman Khan is optimistic of timber demand, driven by expanding economies and population growth — especially in emerging markets. The company plans to export logs to regional customers from countries such as China, South Korea, Japan and Taiwan. Last year, it obtained approval from the Sabah Forestry Department to export up to about 40,000 cu m of logs.
For 1QFY2018 ended Oct 31, the company recorded earnings of RM2.9 million, a surge of more than six times the RM440,000 recorded in the same period a year ago. Revenue soared more than five times to RM10.5 million, from RM1.8 million last year. The company says it sold more logs at higher prices during the period.
For FY2017, the company recorded earnings of RM1.7 million on the back of revenue of RM12 million. As at Oct 31, the company has cash and bank balances of RM6.4 million.
Subscription to the IPO shares opens on May 24 and closes at noon on May 30.
