KUALA LUMPUR (April 23): Priceworth International Bhd is close to clinching a RMB192 million (RM120 million) deal to supply 60,000 cu m per year of container flooring to Guangdong-based manufacturer Foshan Zhengsen Woodworking Co.

In a statement today, Priceworth said its subsidiary Sinora Sdn Bhd had signed a memorandum of understanding (MoU) with Foshan Zhengsen on April 21, for the intended supply of container flooring.

"To cater for this supply contract once finalised, Sinora will be constructing a new container flooring production line, which will complement Sinora’s existing production lines and capabilities," the statement added.

A RMB4 million (RM2.5 million) advance payment from Foshan Zhengsen will go towards funding this new production line. The balance of the capital expenditure will be funded by hire purchase financing of about RM8 million.

Priceworth said it and Foshan expect to sign a definitive five-year supply agreement within six months.

“This development represents an exciting opportunity for Priceworth, as we are looking at a five-year contract,” said Priceworth executive director Richard Koo.

“This new product opens up a huge market to Priceworth. With China’s One Belt One Road Initiative, we expect demand for container flooring to grow significantly,” he added.

Koo estimates the contribution margin to be about 20% at the agreed price and volume of 60,000 cu m a year .

"With a consistent supply of timber from our harvesting operations, the Priceworth group will be able to fully utilise and increase the production efficiency of its production assets, once we finalise this contract,” he noted.

"For the last five months, our log production has stayed consistently above 14,000 cu m, and we expect our log production to further increase with improvement in our harvesting efficiency," Koo added.

Priceworth has been operating in two compartments within the Forest Management Unit 5 (FMU5) in Sabah, which it proposed to acquire in 2016, and was recently given approval to begin harvesting in another two compartments. Priceworth also has several other timber concession areas, covering 27,900ha.

The group proposed to acquire FMU5 for RM260 million in October 2016, through its subsidiary GSR Pte Ltd. It is also planning a Singapore Exchange-listing for GSR, which will also acquire sister company Sinora, which is Priceworth's plywood manufacturing arm.

Priceworth shares closed down 1.5 sen or 7.5% at 18.5 sen today, with 11.16 million shares done, giving it a market capitalisation of RM189.39 million.