09 November 2006 Page 1 of 47

An investment in UFS gives investor a forestry concession, a soon-to-start wood chip mill, a yet-tobuild

pulp mill, and construction business. We value these businesses at 74 cents per share.

There is also a chance to own a functional pulp mill at a discount which would add 47 to each UFS

share. BUY for a narrowing of discount to fair value and the CHANCE to own Kiani Kertas at a

discount. Our price target is 44 cents should the Kiani Kertas deal fall through, and 72 cents if the

deal is successfully concluded. Implicit in our price target is a 40% discount for excessive market

speculation and unrealistic market expectation in the past. This legacy discount (or problem) may

erode when the mills start operating and the purchase of Kiani Kertas is more definitive. We

initiate coverage with a BUY recommendation and 12-month price target of 44 cents.

(I) These are what you get

? Too much negative publicity and speculative press coverage have clouded investors?

perception. It?s time for a recap. Investment in UFS nets you the following:-

Business Company DMG?s valuation

per UFS share

DMG?s discount

to fair valuation

Forestry concession PT HRB S$0.18 S$0.11

Wood chip mill PT MAL S$0.10 S$0.06

Pulp mill PT MBBM S$0.41 S$0.24

Construction Poh Lian S$0.05 S$0.03

Sum S$0.74 S$0.44

(A) Forest concession ? PT HRB (Hutan Rindang Banua)Too much negative publicity and speculative press coverage have clouded investors?

perception. It?s time for a recap. Investment in UFS nets you the following:-

Business Company DMG?s valuation

per UFS share

DMG?s discount

to fair valuation

Forestry concession PT HRB S$0.18 S$0.11

Wood chip mill PT MAL S$0.10 S$0.06

Pulp mill PT MBBM S$0.41 S$0.24

Construction Poh Lian S$0.05 S$0.03

Sum S$0.74 S$0.44

(A) Forest concession ? PT HRB (Hutan Rindang Banua)

? This concession covers 268,585 hectares in South Kalimantan, Indonesia. Total area

suitable for plantation is 130,000 hectares. Between 1994 and 1998, 76,000 hectares

were planted with fast growing Acacia Mangium. This forest asset is valued at US$204m

(or US 9.6 cents per share) at end 2005.

(B) Wood Chip Mill - PT MAL (Mangium Anugerah Lestari)This concession covers 268,585 hectares in South Kalimantan, Indonesia. Total area

suitable for plantation is 130,000 hectares. Between 1994 and 1998, 76,000 hectares

were planted with fast growing Acacia Mangium. This forest asset is valued at US$204m

(or US 9.6 cents per share) at end 2005.

(B) Wood Chip Mill - PT MAL (Mangium Anugerah Lestari)

? This wood chip mill has an annual capacity for 700,000 tonnes bone-dry wood and is

expected to start production in November 2006. Construction cost of US$45m is fully

financed by loans from China National Machinery & Equipment Import and Export

Corporation (US$18m) and Raiffeisen Zentralbank (US$21m). Output from the mill is

worth US$80m ? US$90m per annum. 80% of the output will be taken up by China

National Machinery & Equipment Import and Export Corporation at prevailing market

price.

(C) Pulp Mill ? PT MBBM (Marga Buana Bumi Mulia)This wood chip mill has an annual capacity for 700,000 tonnes bone-dry wood and is

expected to start production in November 2006. Construction cost of US$45m is fully

financed by loans from China National Machinery & Equipment Import and Export

Corporation (US$18m) and Raiffeisen Zentralbank (US$21m). Output from the mill is

worth US$80m ? US$90m per annum. 80% of the output will be taken up by China

National Machinery & Equipment Import and Export Corporation at prevailing market

price.

(C) Pulp Mill ? PT MBBM (Marga Buana Bumi Mulia)

? This proposed pulp mill has an annual capacity of 600,000 tonnes Bleached Hardwood

Kraft Pulp. Construction is expected to start in 1Q07 with completion in 2009.

Development cost of US$863m is 80% financed (US$690.4m) by the turnkey contractor,

China National Machinery & Equipment Import and Export Corporation. The raw

material, logged wood, will be supplied from United Fiber?s forest concession.This proposed pulp mill has an annual capacity of 600,000 tonnes Bleached Hardwood

Kraft Pulp. Construction is expected to start in 1Q07 with completion in 2009.

Development cost of US$863m is 80% financed (US$690.4m) by the turnkey contractor,

China National Machinery & Equipment Import and Export Corporation. The raw

material, logged wood, will be supplied from United Fiber?s forest concession.

Initial Coverage

UNITED FIBER SYSTEM (UFS: S$0.225) BUY (Initial)

Know what you get 09 November 2006

DMG & PARTNERS SECURITIES PTE LTD

20 Raffles Place #22-01 Ocean Towers Singapore 048620

RCB Reg. No. 198701140E

United Fiber System Limited

09 November 2006 Page 2 of 47

? Annual revenue is estimated at US$310m to US$330m. 90% of the output will be bought

by CellMark at prevailing market price. CellMark has an option for the remaining 10%.

(D) ConstructionAnnual revenue is estimated at US$310m to US$330m. 90% of the output will be bought

by CellMark at prevailing market price. CellMark has an option for the remaining 10%.

(D) Construction

? This legacy business is not to sneer at. Order book in the past 1 year has increased from

S$150m to S$220m while projects are being completed. Poh Lian Construction is an A1

class contractor and can tender for public sector projects of unlimited value.This legacy business is not to sneer at. Order book in the past 1 year has increased from

S$150m to S$220m while projects are being completed. Poh Lian Construction is an A1

class contractor and can tender for public sector projects of unlimited value.

? Net profit margins have recovered from negative territory. Current range of 2% ? 5% is

boosted by private sector projects which typically carry net profit margin of 5% ? 10%.

But interest and valuation will rise with the construction up-cycle, spurred by 2 Integrated

Resorts, the Business and Financial Centre and three mega malls along Orchard Road.

(II) This is what you hope to getNet profit margins have recovered from negative territory. Current range of 2% ? 5% is

boosted by private sector projects which typically carry net profit margin of 5% ? 10%.

But interest and valuation will rise with the construction up-cycle, spurred by 2 Integrated

Resorts, the Business and Financial Centre and three mega malls along Orchard Road.

(II) This is what you hope to get

? Since mid-2005, UFS has been eyeing to buy PT Kiani Kertas. The latter is an

operationally-ready Bleached Hardwood Kraft Pulp mill with an annual capacity of

525,000 tonnes in Mangkajang, Berau, East Kalimantan, Indonesia. This mill has a 126

MW cogeneration power plant, airstrip, deepwater harbour, water treatment plant, an

effluent treatment plant and townsite for 800 workers. Commercial production began in

November 1999 but was subsequently hampered by the lack of operation funds.Since mid-2005, UFS has been eyeing to buy PT Kiani Kertas. The latter is an

operationally-ready Bleached Hardwood Kraft Pulp mill with an annual capacity of

525,000 tonnes in Mangkajang, Berau, East Kalimantan, Indonesia. This mill has a 126

MW cogeneration power plant, airstrip, deepwater harbour, water treatment plant, an

effluent treatment plant and townsite for 800 workers. Commercial production began in

November 1999 but was subsequently hampered by the lack of operation funds.

? In July 2005, UFS entered into an Operation Management Arrangement (OMA) to

manage Kiani Kertas mill. UFS will provide operating capital and take delivery of the

produced pulp in lieu of payment. Production resumed in September on an ad hoc

basis.In July 2005, UFS entered into an Operation Management Arrangement (OMA) to

manage Kiani Kertas mill. UFS will provide operating capital and take delivery of the

produced pulp in lieu of payment. Production resumed in September on an ad hoc

basis.

? In the meantime, UFS began preparatory work to acquire Kiani Kertas, including

appointment of financial adviser and arranger, lawyers, accountants and technical

surveyors. An intermediary entered into preliminary agreement with the vendors of Kiani

Kertas in December 2005.In the meantime, UFS began preparatory work to acquire Kiani Kertas, including

appointment of financial adviser and arranger, lawyers, accountants and technical

surveyors. An intermediary entered into preliminary agreement with the vendors of Kiani

Kertas in December 2005.

? Bank Mandiri has started to push the vendor to close a deal as soon as possible as the

bank is under pressure to resolve its non-performing loans problems. Recent statements

from UFS and Bank Mandiri, which is owed money by Kiani Kertas, suggest that an

agreement is imminent. BUT nothing is heard from the vendor.Bank Mandiri has started to push the vendor to close a deal as soon as possible as the

bank is under pressure to resolve its non-performing loans problems. Recent statements

from UFS and Bank Mandiri, which is owed money by Kiani Kertas, suggest that an

agreement is imminent. BUT nothing is heard from the vendor.

? Investors should note that there had been many false starts. UFS similarly implied that it

was closed to an agreement in June 2006 when it secured the pre-closing financing.

Similarly, UFS announced in February 2006 details of its June 2005 agreement with the

intermediary to buy Kiani Kertas. This was preceded in December 2005 by UFS?

announcement that its intermediary had entered into an exclusive sales and purchase

agreement with Kiani Kertas? shareholders.Investors should note that there had been many false starts. UFS similarly implied that it

was closed to an agreement in June 2006 when it secured the pre-closing financing.

Similarly, UFS announced in February 2006 details of its June 2005 agreement with the

intermediary to buy Kiani Kertas. This was preceded in December 2005 by UFS?

announcement that its intermediary had entered into an exclusive sales and purchase

agreement with Kiani Kertas? shareholders.

? Investors must understand that this could be a case of cultural clashes. The UFS-Kiani

Kertas saga smacks of Indonesian wayang kulit ? shadow dancing ? where the

innuendoes are as important, if not more important, than the story. Singapore investors

have to appreciate Indonesian undertones, evident in the form of an Indonesian major

shareholder, an Indonesian CEO, Indonesian forestry concession, pulp mill, wood chip

mill, and now a potential acquisition of a big-scale Indonesian pulp mill, Kiani Kertas.

(III) This is what you stand to gain (or lose)Investors must understand that this could be a case of cultural clashes. The UFS-Kiani

Kertas saga smacks of Indonesian wayang kulit ? shadow dancing ? where the

innuendoes are as important, if not more important, than the story. Singapore investors

have to appreciate Indonesian undertones, evident in the form of an Indonesian major

shareholder, an Indonesian CEO, Indonesian forestry concession, pulp mill, wood chip

mill, and now a potential acquisition of a big-scale Indonesian pulp mill, Kiani Kertas.

(III) This is what you stand to gain (or lose)

? We believe that investors are getting a 70% discount for the existing businesses of a

forestry concession, wood chip mill, a yet-to-build pulp mill and construction business.We believe that investors are getting a 70% discount for the existing businesses of a

forestry concession, wood chip mill, a yet-to-build pulp mill and construction business.

United Fiber System Limited

09 November 2006 Page 3 of 47

Investors are given a FREE OPTION for the CHANCE to own Kiani Kertas at a discounted

price. A successful purchase could boost UFS fair value by 47 cents per share.

? We initiate coverage of UFS with a BUY recommendation. Our fair valuation of existing

businesses is 74 cents per share. This will rise by 47 cents per share should UFS

succeed in buying Kiani Kertas at its target price.We initiate coverage of UFS with a BUY recommendation. Our fair valuation of existing

businesses is 74 cents per share. This will rise by 47 cents per share should UFS

succeed in buying Kiani Kertas at its target price.

? We are applying a 40% discount to fair valuation for our target pricing. This translates to

S$0.44 without Kiani Kertas and S$0.72 with Kiani Kertas at UFS? pricing. The implicit

40% discount is for excessive market speculation and unrealistic market expectation in

the past. This legacy discount (or problem) may erode when the mills start operating and

the purchase of Kiani Kertas is more definitive.

Year end Dec (S$m) 2003 2004 2005 2006F 2007F 2008F

Revenue 156.0 92.4 94.5 149.1 566.3 573.8

Profit before tax (34.0) 6.6 5.2 12.9 15.3 70.2

Net (loss)/profit (34.9) 0.8 0.8 2.6 3.8 10.5

Loss per share / EPS (cents) (2.04) 0.04 0.04 0.12 0.18 0.49

EPS growth n.m. -102.1% -6.7% 200.6% 47.6% 176.0%

PE at 22.5 cents (x) (11.0) 519.9 557.4 185.5 125.7 45.5

Lynette Tan (65) 6232 3890We are applying a 40% discount to fair valuation for our target pricing. This translates to

S$0.44 without Kiani Kertas and S$0.72 with Kiani Kertas at UFS? pricing. The implicit

40% discount is for excessive market speculation and unrealistic market expectation in

the past. This legacy discount (or problem) may erode when the mills start operating and

the purchase of Kiani Kertas is more definitive.

Year end Dec (S$m) 2003 2004 2005 2006F 2007F 2008F

Revenue 156.0 92.4 94.5 149.1 566.3 573.8

Profit before tax (34.0) 6.6 5.2 12.9 15.3 70.2

Net (loss)/profit (34.9) 0.8 0.8 2.6 3.8 10.5

Loss per share / EPS (cents) (2.04) 0.04 0.04 0.12 0.18 0.49

EPS growth n.m. -102.1% -6.7% 200.6% 47.6% 176.0%

PE at 22.5 cents (x) (11.0) 519.9 557.4 185.5 125.7 45.5

Lynette Tan (65) 6232 3890

Lynette.tan@dmgaps.com.sg

United Fiber System Limited

09 November 2006 Page 4 of 47

Appendix 1: Key Stock Information

Issued Capital (m shares) : 2130.814m

Market Capitalisation : S$479.43m @ 22.5 cents

Major Shareholders :

Tektronix Industries ? 44.22%*

Wisanggeni Lauw ? 13.12%*

Bloomberg Code : UFS SP

Average daily volume (52 week) : 11.152m

52-week high / low : S$0.37 / S$0.195

* direct and deemed interests

Price Chart of United Fiber System

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06

S$

United Fiber System Limited

09 November 2006 Page 5 of 47

Appendix 2: Earnings forecast

Year end Dec (S$m) 2003 2004 2005 2006F 2007F 2008F

Revenue 156.0 92.4 94.5 149.1 566.3 573.8

Cost of sales (145.2) (85.0) (82.0) (133.9) (298.0) (277.3)

Gross profit 10.9 7.5 12.5 15.2 268.3 296.5

Selling and distribution (1.0) (0.3) (4.3) (5.2) (68.0) (57.4)

Administrative (6.7) (5.2) (10.6) (7.5) (93.4) (68.9)

Other operating expenses (8.6) (4.8) (3.5) (5.2) (39.6) (34.4)

Other revenue 6.3 19.3 16.0 22.4 56.6 57.4

EBITDA 0.9 16.5 10.2 19.7 123.9 193.2

Depreciation and

amortisation (9.1) (8.1) (0.5) (1.9) (2.9) (7.2)

Operating profit/loss (8.2) 8.4 9.7 17.8 121.0 186.0

Finance costs (1.2) (1.8) (4.6) (4.9) (105.7) (115.8)

Share of associates 0.0 (0.1) - - - -

Exceptional items (24.6) 0.1 - - - -

Profit before tax (34.0) 6.6 5.2 12.9 15.3 70.2

Tax expenses (1.0) (5.8) (4.4) (10.3) (11.5) (59.7)

Minority interest 0.1 - (0.0) (0.0) (0.0) (0.0)

Net (loss)/profit (34.9) 0.8 0.8 2.6 3.8 10.5

Loss per share / EPS (cents) (2.04) 0.04 0.04 0.12 0.18 0.49

PE at 22.5 cents (x) (11.02) 519.94 557.43 185.46 125.67 45.54

Margins

Gross 7.0% 8.1% 13.2% 10.2% 47.4% 51.7%

EBITDA 0.5% 17.8% 10.8% 13.2% 21.9% 33.7%

Operating -5.3% 9.1% 10.3% 11.9% 21.4% 32.4%

Net -22.4% 0.8% 0.8% 1.7% 0.7% 1.8%

Growth

Revenue -4.9% -40.8% 2.3% 57.8% 279.8% 1.3%

Gross profit -28.2% -31.3% 67.4% 22.1% 1661.1% 10.5%

EBITDA -96.0% 1820.9% -38.2% 93.5% 528.7% 55.9%

Operating profit -167.0% -202.5% 15.7% 83.3% 579.8% 53.7%

Net profit 4805.5% -102.2% -1.2% 239.2% 47.6% 176.0%

EPS 3228.8% -102.1% -6.7% 200.6% 47.6% 176.0%

Revenue by segment

Construction & Property 151.9 92.1 69.0 115.6 97.2 41.9

Forestry and pulp - - 25.3 33.5 469.2 531.9

Others 4.1 0.3 0.2 - - -

Revenue growth by segment

Construction & Property -7.4% -39.4% -25.0% 67.5% -16.0% -56.9%

Forestry and pulp 0.0% 0.0% 100.0% 32.5% 1302.0% 13.4%

Others n.m. -92.8% -25.9% -100.0% 0.0% 0.0%

Revenue by geography

Singapore 145.7 92.1 69.2 115.6 97.2 41.9

Other Asia-Pacific 10.4 0.3 25.3 33.5 469.2 531.9

Revenue growth by

geography

Singapore -2.8% -36.8% -24.9% 67.2% -16.0% -56.9%

Other Asia-Pacific -26.7% -97.4% n.m. 32.0% 1302.0% 13.4%

United Fiber System Limited

09 November 2006 Page 6 of 47

Appendix 3 : Balance Sheet

Year end Dec (S$m) 2003 2004 2005 2006F 2007F 2008F

Forest assets 307.7 316.1 338.9 340.6 342.4 344.2

Goodwill 285.8 278.1 278.1 278.1 278.1 278.1

Fixed assets 20.5 18.5 23.9 29.9 42.0 64.8

Properties under development - - - - - -

Investments 2.4 0.7 0.7 0.7 0.7 0.7

Other investments 0.7 0.5 0.4 0.4 0.4 0.4

Deferred tax assets - - 0.1 0.1 0.1 0.1

Advances to a partnership - - - - - -

Non-current assets 617.0 613.9 642.1 649.9 663.7 688.3

Assets held for sale - - - - - -

Properties under development 6.8 - - - - -

Completed properties held for sale 14.5 7.3 3.3 2.6 - -

Construction work-in-progress - - 1.1 1.1 1.1 1.1

Inventories - - 2.3 - - -

Trade and other receivables 31.7 26.2 74.7 78.5 82.4 84.0

Cash at bank 3.0 11.9 14.4 16.9 19.7 52.2

Current assets 56.1 45.3 95.7 99.1 103.1 137.4

Construction progress bililngs 8.4 7.0 5.2 4.7 4.5 4.4

Trade and other payables 51.8 41.0 33.4 34.1 35.8 32.2

Hire purchase creditors 0.1 0.0 0.0 0.0 0.0 0.0

Provision for taxation 0.3 0.8 0.2 0.7 1.0 60.1

Amounts due to bankers 23.2 36.7 77.8 75.9 77.4 69.7

Current liabilities 83.8 85.5 116.7 115.4 118.8 166.4

Net current assets (27.7) (40.2) (20.9) (16.3) (15.6) (29.0)

Deferred taxation 79.7 82.0 88.0 79.8 90.7 91.2

Non-current payables 26.1 - - - - -

Hire purchase creditors 0.0 0.0 0.1 0.1 0.1 0.1

Long term loans 18.3 3.8 5.4 5.1 4.9 5.0

Non-current liabilities 124.2 85.8 93.5 85.0 95.6 96.2

Net assets 465.1 487.9 527.7 548.6 552.4 563.0

Share capital 171.1 181.1 194.7 213.1 213.1 213.1

Reserves 294.1 306.8 333.0 335.5 339.4 350.0

Shareholders' funds 465.1 487.9 527.7 548.6 552.4 563.0

Minority interest - - 0.0 0.0 0.0 0.0

Equity 465.1 487.9 527.7 548.6 552.4 563.0

Current ratio 0.7 0.5 0.8 0.9 0.9 0.8

Trade receivables turnover (days) 99.2 114.3 194.8 187.5 51.8 52.9

Trade payables turnover (days) 134.5 199.3 165.4 92.0 42.8 44.7

Gross borrowings 41.6 40.6 83.3 81.1 82.4 74.7

Gross gearing (x) 0.1 0.1 0.2 0.1 0.1 0.1

Net borrowings 38.6 28.7 69.0 64.2 62.7 22.5

Net gearing (x) 0.1 0.1 0.1 0.1 0.1 0.0

Return on asset (%) -4.7% 1.0% 0.7% 1.7% 2.0% 8.9%

Return on equity (%) -7.2% 0.2% 0.2% 0.5% 0.7% 1.9%

Return on capital employed (%) -1.5% 1.6% 1.7% 2.9% 19.1% 29.2%

United Fiber System Limited

09 November 2006 Page 7 of 47

Appendix 4 : Cash flow forecast

Year end Dec (S$m) 2003 2004 2005 2006F 2007F 2008F

Profit / (Loss) before tax (34.0) 6.6 5.2 12.9 15.3 70.7

Adjustments for:-

Deprn & amortisation 9.1 8.1 0.5 1.9 2.9 7.2

Exceptional items 24.6 (0.1) - - - -

Gain from increase in fair value (3.0) (19.1) (15.5) - - -

Gain from disposal of interest in JV (0.1) - - - - -

Loss/(gain) on disposal of fixed assets 0.7 0.0 (0.1) - - -

Interest expense 1.2 1.8 4.6 4.9 105.7 115.3

Interest income (0.0) (0.0) (0.3) (0.1) (0.1) (0.1)

Impairment in value of assets 0.8 0.1 0.2 - - -

Reversal of impairment (2.4) - - - - -

Fixed assets written off 0.1 0.2 0.0 - - -

Share of associates (0.0) 0.1 - - - -

Net exchange differences (0.1) 0.3 (0.2) - - -

Operating (loss)/profit before working capital

changes (3.2) (1.9) (5.7) 19.6 123.8 193.1

Decrease in properties under development 44.1 - - - - -

Decrease/(increase) in completed properties (11.8) 14.1 3.9 0.7 2.6 -

Decrease/(increase) in construction WIP 10.3 (0.8) (2.3) (0.5) (0.1) (0.1)

Decreae/(increase) in inventories 0.0 - (2.3) 2.3 - -

(Increase)/decrease in trade and other receivables 0.2 6.9 (40.2) (3.7) (3.9) (1.6)

Increase/(decrease) in trade and other payables (7.2) (8.1) 4.4 0.7 1.7 (3.6)

Cash generated from/(used in) operations 32.5 10.1 (42.2) 19.0 124.1 187.7

Interest paid (1.4) (1.3) (3.4) (4.9) (105.7) (115.3)

Income taxes paid (0.3) (0.0) (0.6) (0.2) (0.7) (1.0)

Net cash generated from/(used in) operating 30.8 8.9 (46.2) 13.9 17.6 71.4

Acquisition of subsidiaries - - - - - -

Addition in cost of forest asset (1.0) (0.9) (1.1) (1.2) (1.3) (1.3)

Down payment for construction of wood chip mill - - (8.3) - - -

Interest received 0.0 0.0 0.3 0.1 0.1 0.1

Proceeds from disposal of fixed assets 1.1 0.2 0.3 - - -

Proceeds from disposal of assets 1.2 - - - - -

Proceeds from disposal of subsidiaries &

associates 3.0 0.5 - - - -

Purchase of other investments (0.0) - - - - -

Purchase of investment properties (2.0) - - - - -

Purchase of fixed assets (0.4) (0.7) (1.9) (8.0) (15.0) (30.0)

Net cash (used in)/generated from investing 1.9 (1.0) (10.8) (9.1) (16.1) (31.2)

(Repayments of)/proceeds from bank borrowings (36.8) 2.3 50.2 (2.2) 1.3 (7.6)

Repayments of HP liabiilities (0.6) (0.1) (0.1) (0.0) (0.0) (0.0)

Expenses incurred on issuance of ordinary shares - - (0.8) - - -

Proceeds from issuance of shares - - 10.0 - - -

Increase of pledge in fixed deposits - - (4.2) - - -

Advances to a partnership (0.1) - - - - -

Net cash used in financing (37.5) 2.3 55.2 (2.2) 1.3 (7.6)

Net increase/(decrease) in cash and cash

equivalents (4.8) 10.1 (1.8) 2.6 2.7 32.6

Cash and cash equivalents at beginning of year 5.6 0.8 11.0 9.2 11.8 14.5

Cash and cash equivalents at end of year 0.8 11.0 9.2 11.8 14.5 47.1

United Fiber System Limited

09 November 2006 Page 8 of 47

Appendix 5 : Corporate Summary

BUSINESS OF UFS

Overview

UFS was originally a construction and property company that diversified into the forestry and

pulp businesses in June 2002. Its operations are currently organised into two core business

divisions: (i) the forestry and pulp division, and (ii) the construction and property division.

UFS holds a forest concession right for an industrial timber estate of 268,585 hectares in South

Kalimantan, Indonesia, through its wholly-owned Indonesian subsidiary PT HRB. The concession

right entitles it to plant, maintain, process and market products extracted from the concession

area for a period of 43 years, which runs from 27 February 1998 until 26 February 2041.

UFS plans to manufacture pulp (which is the basic raw material needed to produce paper)

through the operation of the MBBM Mill to be situated within its forest concession area. The

MBBM Mill is being developed and will operate through PT MBBM, a wholly-owned Indonesian

subsidiary. The MBBM Mill has a planned production capacity of 600,000 tons of BHKP per

annum.

For a total development cost of up to US$45 million, UFS has also begun the development and

construction of a wood chip mill in South Kalimantan, which has a planned annual production

capacity of 700,000 (bone dry) tons of wood chips.

As part of its regional expansion plans, UFS proposes to acquire the entire issued and paid-up

share capital of PT KK. PT KK owns and operates a modern BHKP pulp mill situated on a 3,400

hectare site located in Mangkajang, Berau District, East Kalimantan. The KK Mill and its

supporting infrastructure and facilities are technologically competitive and have a design

capacity of 525,000 tons of BHKP per annum.

(I) UFS? Competitive Strengths

Forest concession right in Indonesia

Subsidiary PT HRB, holds a forest concession right of 268,585 hectares situated in South

Kalimantan, Indonesia, which entitles it to plant, maintain, process and market products

extracted from the concession area up to 26 February 2041. Since 1995, UFS has planted

approximately 76,000 hectares of its concession area with Acacia Mangium, a fast-growing

leguminous species, which can be processed into market pulp of high quality for the production

of tissue and printing and writing grade papers. The average maturity period for an Acacia

Mangium tree is six to eight years. In addition, UFS has identified approximately 50,000 hectares

available for planting within the concession area. The size of its plantation and ongoing

investment in tree planting is expected to ensure a sustainable supply of wood raw material for

MBBM Mill. However, in order to support the development of the local economy, UFS plans to

buy at least 20 per cent. of the wood raw material from forest plantation owners in the vicinity.

The constant and stable supply of raw material will help ensure that MBBM Mill remains at

optimum utilisation.

The forest asset had a book value of over US$204 million at end 2005, based upon a valuation

report prepared by Pöyry, a reputable international third party consultant

Advantageous position in relation to the supply of wood raw material

Wood raw material costs make up the bulk of the cost of production of market pulp, accounting

for approximately 60-70 per cent. of the total manufacturing costs. The remaining components

comprise mainly of labour costs, chemicals for bleaching the pulp and energy costs. Variations in

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09 November 2006 Page 9 of 47

the price of wood will therefore generally have the biggest impact on total manufacturing costs

and profitability. However, as UFS plans to source a large proportion of its wood raw material

from its own forest plantations, its exposure to changes in the price of wood should, to some

extent, be mitigated.

MBBM Mill and Wood Chip Mill sites are strategically located in South Kalimantan. As there are

no other nearby mills, plantation owners in the vicinity are expected to sell their harvested trees to

UFS? mills than to sell them elsewhere. UFS will have a reliable source of raw material from the

surrounding plantations. This strength is complemented by UFS plantation as an alternative

source of wood, providing UFS with significant bargaining power.

Proximity to fast growing Asian import market, in particular China

According to Pöyry, the demand for BHKP is expected to grow by 8.1 per cent. per annum in

China through 2015. However, China?s lack of wood fibre domestically means that it has to

continue to rely on imported pulpwood and pulp to meet this demand. UFS mills will provide a

gateway to Asian pulp and paper demand, with China being a major producer of paper and

paperboard products and expected to remain a major net importer of pulpwood and pulp. UFS

mills will enjoy cost advantages relative to North and South American producers through lower

freight costs, due to their proximity to China and other Asian markets.

UFS will have a cost advantage over competitors in many countries

Indonesia is one of the world?s most cost-competitive countries for the production of pulp. Due to

the lower cost of production in Indonesia, coupled with lower transport costs attributable to

proximity to Asian markets such as China, Taiwan, Japan and Korea, UFS has a distinct

advantage over its non-Indonesian competitors.

Guaranteed revenue streams from offtake agreements

In April 2001, PT MBBM entered into an exclusive offtake agreement with CellMark, under which

CellMark agreed to offtake up to 90 per cent. of the annual BHKP production of the MBBM Mill.

CellMark, headquartered in Sweden, sells pulp, paper, packaging paper and board, and recycled

fibre in more than 90 countries. The offtake agreement is for a period of 10 years from the date of

commencement of commercial production at MBBM Mill.

UFS has a similar offtake agreement with CMEC in which CMEC will offtake 80 per cent. of the

Wood Chip Mill?s annual production for up to three years after commencement of commercial

production.

These agreements will provide UFS with long-term guaranteed revenue streams, optimise

inventory management and generate surplus cash flows after repayment of approximately

US$690 million of supplier?s credit financing for the construction of the MBBM Mill and

approximately US$39 million of financing for the construction of the Wood Chip Mill.

Track record as a construction company

UFS is a major construction company in Singapore. The construction division, Poh Lian

Construction (PLC) has more than 30 years of experience in the construction industry and prides

itself for its quality, reliability, safety as well as its environmental innovation in project

management. PLC is a certified A1 contractor and is able to tender for public sector projects of

unlimited value.

Over the years, PLC has worked on numerous HDB Design and Build projects, institutional

projects, factory projects, upgrading projects as well as prestigious private housing projects.

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(II) UFS? Strategy

UFS aims to maintain its construction business and become a major player in the international

pulp industry, with a focus on quality, cost efficiency, safety, sustainability and environmental

responsibility.

Vertically integrated business model

UFS? strategy in the forestry and pulp businesses is based on a close integration of all production

stages from the tree seeds to the final BHKP product. This will allow UFS to optimise and control

all factors in the production of BHKP, which may influence the quality and overall manufacturing

cost of the pulp.

In conjunction with the existing forest concession and reforestation programme, the construction

of the MBBM Mill and the Wood Chip Mill and the KK Acquisition will complete its vertically

integrated business model.

In December 2002, PT MBBM entered into a turnkey contract with CMEC for the construction of

the MBBM Mill, which is a 600,000 tons per annum BHKP pulp mill for up to US$863 million in

South Kalimantan, Indonesia. BHKP, the sole product of the MBBM Mill, is the basic raw material

used in the production of fine papers, tissue and other related products. BHKP is a commodity

that is freely traded in the international market, and the pricing of BHKP is dictated by the supply

and demand situation globally. Commercial operation of the MBBM Mill is expected in 2009.

On 22 April 2003 and 24 December 2004, PT MAL entered into a turnkey contract with CMEC for

the construction of the greenfield Wood Chip Mill in South Kalimantan, Indonesia, with an annual

production capacity of 700,000 (bone dry) tons of wood chips. The total development cost of the

mill is up to US$45 million. The wood chips will be sold to existing pulp mills as fibre raw material.

Construction of the Wood Chip Mill is completed and production is expected to start in

November 2006.

UFS proposes to acquire the entire issued and paid-up share capital of PT KK. PT KK owns and

operates a modern BHKP mill situated on a 3,400 hectare site located in Mangkajang, Berau

District, East Kalimantan. The KK Mill is self-supporting in relation to energy and key chemicals,

and has existing infrastructure required to support operations including a co-generation power

plant, a deep-water harbour, a road network to the mill and facilities to accommodate its

employees. The KK Mill and its supporting infrastructure and facilities are technologically

competitive and have a design capacity of 525,000 tons of BHKP per annum.

Forest plantation

In order to ensure effective control over wood raw material supply and cost-efficiency in its

forestry business operations, UFS has adopted the following strategies:

? Continue to develop additional pulpwood plantations within its forest concession area. To

date, a total of approximately 76,000 hectares have been planted and an additional approximately

50,000 hectares of suitable land have been identified for plantation. During 2005, UFS restarted

its plantation programme, which was halted during the financial crisis in the late 1990s. During

2006 plantation period, UFS plans to plant some 10,000 hectares. Beginning in 2007, UFS plans

to plant some 20,000 hectares per annum.Continue to develop additional pulpwood plantations within its forest concession area. To

date, a total of approximately 76,000 hectares have been planted and an additional approximately

50,000 hectares of suitable land have been identified for plantation. During 2005, UFS restarted

its plantation programme, which was halted during the financial crisis in the late 1990s. During

2006 plantation period, UFS plans to plant some 10,000 hectares. Beginning in 2007, UFS plans

to plant some 20,000 hectares per annum.

? Continue active promotion of and participation in the People?s Forest Programme. Under this

programme, UFS will assist the farmers in the following:Continue active promotion of and participation in the People?s Forest Programme. Under this

programme, UFS will assist the farmers in the following:

? identifying suitable land areas;identifying suitable land areas;

? preparing and filing land applications;preparing and filing land applications;

? sourcing necessary financing;sourcing necessary financing;

? providing technical assistance in areas for land clearing, nursery development, planting

and harvesting; andproviding technical assistance in areas for land clearing, nursery development, planting

and harvesting; and

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09 November 2006 Page 11 of 47

? offtake of the harvested trees.offtake of the harvested trees.

? Acquire and/or form partnerships/strategic alliances to obtain additional concession areas for

further plantation development proximate to UFS? planned operations in East and South

Kalimantan.Acquire and/or form partnerships/strategic alliances to obtain additional concession areas for

further plantation development proximate to UFS? planned operations in East and South

Kalimantan.

? Increase R&D activities for the following purposes:Increase R&D activities for the following purposes:

? Improvement in the wood yield per hectare of plantation: The R&D team will continue to

perform tests to determine the optimal spacing for trees in order to achieve maximum wood

harvest. Trees have been planted in rows at various intervals to optimise the diameter, volume,

growth and height of the trees from the various sample plots. Pruning is performed on the

Acacia Mangium trees in order to maximise the wood yield from the trees.Improvement in the wood yield per hectare of plantation: The R&D team will continue to

perform tests to determine the optimal spacing for trees in order to achieve maximum wood

harvest. Trees have been planted in rows at various intervals to optimise the diameter, volume,

growth and height of the trees from the various sample plots. Pruning is performed on the

Acacia Mangium trees in order to maximise the wood yield from the trees.

? Improvement of immature Acacia Mangium trees? resistance against diseases: Various

degrees of disease have been simulated in various sample plots. The R&D team will continue

to apply different dosages of various fungicides such as benlate, bavistin, alto, antracol and

vitigran to the different sample plots. The plant within each sample group is then compared

with trees grown under normal conditions to determine the effectiveness of fungicides as well

as the resistance of the plants to the diseases. As mature trees are more resistant to disease,

R&D efforts are focused mainly on the immature Acacia Mangium trees.Improvement of immature Acacia Mangium trees? resistance against diseases: Various

degrees of disease have been simulated in various sample plots. The R&D team will continue

to apply different dosages of various fungicides such as benlate, bavistin, alto, antracol and

vitigran to the different sample plots. The plant within each sample group is then compared

with trees grown under normal conditions to determine the effectiveness of fungicides as well

as the resistance of the plants to the diseases. As mature trees are more resistant to disease,

R&D efforts are focused mainly on the immature Acacia Mangium trees.

? Development of seed stand: develop more high quality seeds and shorten the growth

cycle of the plantation to five to six years compared to provenance planted now, which

requires six to eight years to mature.Development of seed stand: develop more high quality seeds and shorten the growth

cycle of the plantation to five to six years compared to provenance planted now, which

requires six to eight years to mature.

? Improvement in the soil fertility after harvest: introduce a gentle harvesting method,

which should reduce the logging impact, and leaves as much logging residue, mainly

consisting of small branches and leaves as possible in the field. This will help each growth

cycle to improve the soil fertility.Improvement in the soil fertility after harvest: introduce a gentle harvesting method,

which should reduce the logging impact, and leaves as much logging residue, mainly

consisting of small branches and leaves as possible in the field. This will help each growth

cycle to improve the soil fertility.

Environmental and social responsibility

UFS will manage its forest assets and industries in compliance with Indonesian, and to the extent

possible, international environmental standards. As a forestry and pulp company, UFS? long-term

survival depends upon the sustainability of its wood resources and forest operations, as well as

industrial activities, development of the local economy and social environment.

Construction and Property Division

UFS will seek opportunities in high-end condominium construction, where margins tend to be

higher, and HDB work.

UFS has no current plans to acquire land bank for further development projects.

(III) UFS? History

The company was incorporated in December 1995 as Poh Lian Holdings, a private limited

investment holding company. In conjunction with its initial public offering, the company was

converted into a public limited company in May 1997 and changed its name to Poh Lian Holdings

Limited and was listed on the main board of the SGX-ST.

In April 2002, shareholders approved a plan to diversify into the forestry and pulp businesses.

Pursuant to this plan, the company acquired the entire issued and paid-up share capital of Anrof

Singapore Ltd which, through one of its subsidiaries, held a forest concession right in South

Kalimantan, Indonesia. Through this acquisition, the company also acquired a licence to build

and operate a pulp mill in South Kalimantan, Indonesia with an annual production capacity of

600,000 tons of pulp. In 2002, the company name was changed to United Fiber System Ltd to

reflect its new core businesses of forestry and pulp production.

(IV) Principal Products and Services

UFS operations are organised into the following two core business areas:

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? forestry and pulp division; andforestry and pulp division; and

? construction and property division.

Forestry and Pulp Divisionconstruction and property division.

Forestry and Pulp Division

Forestry Business

UFS holds a forest concession right for an industrial timber estate of 268,585 hectares in South

Kalimantan, Indonesia, through wholly-owned Indonesian subsidiary PT HRB. The concession

entitles UFS to plant, maintain, process and market products extracted from the concession area

for a period of 43 years, which runs from 27 February 1998 until 26 February 2041.

The map below shows the locations of the concession area and the sites of Wood Chip Mill and

proposed MBBM Mill.

Within the concession area, UFS has planted approximately 76,000 hectares of Acacia Mangium,

a fast-growing leguminous species, which can be processed into market pulp of excellent quality

for the production of tissue and printing and writing grade papers. The average maturity period

for Acacia Mangium is six to eight years.

UFS has established a reforestation programme for its plantations that involves planting of Acacia

Mangium on available grassland, bush and scrub land. A total of 120,000 to 130,000 hectares of

the forest concession area are suitable for forest plantations, including 76,000 hectares that have

already been planted. As part of reforestation programme, UFS has mapped out plans identifying

the areas to be planted annually to ensure that there are sufficient mature trees available for

harvesting annually to serve as raw material for the planned MBBM Mill. The reforestation

programme will provide a sustainable source of wood raw material for the MBBM Mill.

The forestry assets are valued annually by Pöyry, a reputable international engineering and

consulting group specialising in forestry-based industries. UFS forest asset had a fair value (less

estimated point-of-sale costs) of approximately US$204 million.

In 2005, the forestry and pulp division contributed positive results of S$15.3 million (US$9.2

million) on gain arising from increase in fair value less point-of-sales costs of forest asset.

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UFS Pulp Business

UFS plans to manufacture pulp through the operation of a BHKP mill in South Kalimantan,

Indonesia. The MBBM Mill will be located in Satui, near a plantation site in Kintap within UFS

forest concession area. The MBBM Mill is being developed and will operate through PT MBBM, a

wholly-owned Indonesian subsidiary, established in year 2000 specifically for this purpose. The

MBBM Mill has a planned production capacity of 600,000 tons per annum. UFS has decided to

build the MBBM Mill in this location as it is a suitable mill site with access to process water (the

Satui River) and a recipient for the used (and cleaned) process water (the sea). Also, it is close to

source of wood (UFS? forest plantation) and villages with experienced labour. These factors

should ensure that business operations are cost-efficient.

UFS is in the process of acquiring the land on which the MBBM Mill will be situated, covering a

total gross area of 340 hectares within its concession area. After acquiring the land, UFS will

need to apply for permission to convert the site into industrial use, prior to beginning

construction of the MBBM Mill. The proposed built-up area of the MBBM Mill and adjoining

supporting facilities is approximately 200 hectares. The remaining 140 hectares will be used for a

possible future expansion of the MBBM Mill.

In addition to the production line and a co-generation power plant, the MBBM Mill project

comprises an adjoining chemical plant, a water and wastewater treatment plant, a township and

related infrastructure to be developed. The MBBM Mill will also have its own jetty to allow for the

import and export of goods.

Funding the development of the MBBM Mill project will include the development of these

adjoining facilities. The entire project cost is estimated at approximately US$1.03 billion

(excluding working capital, interest during construction, and infrastructure taxes and duties). It is

expected to be financed by a combination of debt and equity.

Instead of funding the entire development of the project, UFS is seeking third parties to

undertake the development of the adjoining facilities, whilst it focus on the development of the

MBBM Mill (pulp mill production line and co-generation power plant).

The MBBM Mill and the adjoining chemical plant will share the same water and wastewater

treatment plant, resulting in more efficient use of chemicals and power.

The breakdown of the estimated development cost of US$1.03 billion for the MBBM Mill and the

adjoining supporting facilities is as follows:

Items

Estimated

cost

(US$ in

million)

Pulp mill production line and co-generation power plant ..................................... 863

Chemical plant........................................................................................................... 85

Water and wastewater treatment plant.................................................................... 65

Township and related infrastructure........................................................................ 13

1,026

Pulp Offtake Arrangements

In April 2001, PT MBBM entered into an offtake agreement with CellMark (?CellMark Offtake

Agreement?). CellMark has agreed to offtake up to 90 per cent. of the projected annual pulp

production of the MBBM Mill for a period of 10 years from the date of commencement of

commercial production. Under the CellMark Offtake Agreement, the quality of the pulp is

required to comply with internationally accepted environmental standards.

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The price for the pulp, under the terms of the Cellmark Offtake Agreement, will be the current

prevailing market price for Acacia Mangium pulp in US dollars or such other price as agreed by

the parties.

Pulp Mill Turnkey Contract

In December 2002, PT MBBM entered into a turnkey contract with CMEC (the ?Turnkey

Contract?) for the construction of the MBBM Mill with an annual capacity of 600,000 (Air Dry)

tons per annum in South Kalimantan, Indonesia, for a consideration of up to US$863 million.

CMEC is an industrial foreign trade corporation engaged mainly as a contractor of international

engineering projects and in the import and export of machinery and electrical products business.

CMEC has a track record of international projects that includes thermal power stations in

Malaysia and Bangladesh and cement plants in Vietnam and Pakistan.

Under the terms of the Turnkey Contract, CMEC will build and deliver the MBBM Mill to UFS on a

turnkey basis. CMEC is responsible for the MBBM Mill?s design and the supply and installation of

equipment for the MBBM Mill production line and co-generation power plant, as well as for

procuring spare parts and materials, and for providing training, commissioning and technical

support for the commercial operation of the MBBM Mill for one year. UFS target to have the

MBBM Mill commence operations in 2009.

Under the Turnkey Contract, CMEC is responsible for financing 80 per cent. of the development

costs and PT MBBM is