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Hi fellow members:
This counter is purely for tikam-tikam players only.
Don't read too much into good news on Indo counters. It will take ages to get approval for any business connected with the HAZE such as forest concessions, pulp mills, etc..
Especially with reports (ST Nov6 and Nov9) on friction between the country's No.1 and No.2, no minister is going to issue any permits for forest concessions yet.
Happy punting folks and good luck.
As you can see, you can practically take all day trying to digest all this information (hope you don't get indigestion :).
This is what they call FA, ie. analyzing the stock's fundamentals.
By the way, you mentioned news' and rumours... but I feel you really should not rely too much on these things.
Good luck.
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United Fiber System Limited
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)
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)
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)
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.
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) Construction
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.
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 get
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.
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.
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.
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 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.
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)
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.
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.
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 3890
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
United Fiber System Limited
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.
United Fiber System Limited
09 November 2006 Page 10 of 47
(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.
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:
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; and
and harvesting; and
United Fiber System Limited
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.
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.
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.
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.
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.
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:
United Fiber System Limited
09 November 2006 Page 12 of 47
? forestry and pulp division; and
forestry and pulp division; and? construction and property division.
Forestry and Pulp 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.
United Fiber System Limited
09 November 2006 Page 13 of 47
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.
United Fiber System Limited
09 November 2006 Page 14 of 47
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
What causes the jump is immaterial...
my gut feel is it's likely to go up more very soon. :) You dare to take a punt? Well, this is what 'punting' is all about ! :)
-------------
Resistance
1519 [Dow Jones] United Fiber Systems (P30.SG) up 2.4% at 21 Singapore
cents; among 10 most active stocks on SGX after announcing appointment of
Jaka Prasetya as it's new CEO. Trader says stock rising on hopes the
appointment will bring some new direction or business strategy. Shares have
may have bottomed out after falling 26% in last 3 months. Further upside
possibly capped at 21.5 cents, with 3.3 million offers at that price.
Prasetya was Director of Global Corporate Finance, Investment Banking of
Deutsche Bank, Indonesia before joining Unifiber.(JEM)
It tapped an Indonesian banker for CEO role. New CEO to seek early closure on Kiani bid. It announced that it has appointed Jaka Prasetya, the former Head of Country Banking for Deutsche Bank Indonesia, as its new CEO.
Former CEO Mr Edstrom said that over the past few years UFS has been successful inassembling the pieces for it to become an integrated forestry and pulp manufacturer to realize its vision of being a global player in the industry.
"UFS now has in Kalimantan forestry plantations, a chip mill that will begin production next month and a new pulp mill that is close to being constructed," he said.
"We now have someone young and energetic to lead the company in making sure that these strategic pieces come on stream as planned and fit together to propel the company's growth as we move forward," he said. "And we won't be able to do better than Mr Prasetya who has a proven track record of getting things done efficiently and quickly."
Mr Prasetya, 35, is an Indonesian citizen and holds an MBA from the prestigious MIT Sloan School of Management and has worked as an investment banker in Hong Kong and Singapore since 1998. He has worked for companies such as UBS and Merrill Lynch and his last posting with Deutsche Bank was Head of Country Banking for Indonesia.
I also think so. It still better than borrow from the bank since now the intersets rate at all time high.
I just waiting for Kiani Keratas deals to close then this stock will start to 'shoot' up.At least 0.50cts I think.
That what happen when Heshe confirmed the takeover deal with Citiraya debtors.
On top of that, Unifiber is currently running the Kiani Keratas operation plants. They have a first hand due diligence from the insider out .It make every sence for Bank Mandiri to accept Unifiber offers.
Let wait and see how ? I know Bank Mandiri is currently under pressure by Indo govt to clear off those bad loans by this year. They will have to make quick decision soon.
It has issued 61.49m new shares at $0.10 each in order to return shares it borrowed from Tektronix Industries to repay a loan note of $50m with Cornell Capital Partners Offshore, LP.
The newly issued shares, which represent 2.89% of its enlarged share capital, will be listed and quoted with effect from tomorrow.
Some funds have been accumulating this counter @0.23cts for the past 2 days.
Something is brewing ?
It said its unit Poh Lian Construction Pte Ltd has won a contract worth $47.38m from M/s HKCL Investments Pte Ltd to build the proposed Newton One condominium housing development at Newton Road.
The project consists of a 29-storey residential building with 91 units and 2 basement carparks, swimming pool and communal facilities. Construction will commence by end-Sep and is scheduled for completion by end-Jan 2009.
"The project is expected to contribute positively to the group's result in financial year 2007 and 2008," UFS said in a statement.
The contract brings UFS' order book to about $215m.