Jawala Inc. - DBS Research 2018-05-28: IPO Factsheet

Jawala Inc. - DBS Vickers 2018-05-28: Ipo Factsheet JAWALA INC. SGX: 1J7

Jawala Inc. (SGX:1J7) - IPO Factsheet


Issue Statistics 

  • Offer Price : S$0.25 
  • Share Offer :  17.6mil placement shares; 0.4m offer shares 
  • Market Cap :  S$29.6mil 
  • Close Date : 30 May 2018 at 12.00 noon 
  • Share Trading : 1 Jun 2018 at 9.00 a.m. 
  • Sponsor, Issue Manager and Placement Agents :  UOB Kay Hian Private Limited 


Business 

  • Jawala Inc. is a forest resource company based in Malaysia with a focus on industrial tree plantations situated in Sabah. 
  • The group currently manages a Licensed Area of approximately 11,043 hectares in the Sapulut Forest Reserve, Sabah, for 100 years which may be further extended for another 100 years. 
  • The logs produced from salvage logging are sold to customers for the production of sawn-timber, veneer and plywood, etc. 


Competitive Strengths 


Focus on cultivating industrial tree plantations 

  • Jawala focuses on managing and developing industrial tree plantations using sustainable forest management practices which enable the company to produce more uniform timber, reduce wastage and harvest more efficiently. 

Understanding of the dynamics of timber products and the timber industry in Malaysia 

  • Understanding of the timber practices and cultures within Sabah has enabled Jawala to maintain favourable relations with the indigenous people near the Licensed Area. 

Forest resources are strategically located 

  • The Licensed Area is located within the Sapulut Forest Reserve within Sabah which offers favourable climate and soil conditions for Laran, Laran Merah, Binuang, Batai and Eucalyptus. It is also close to the manufacturing and processing facilities of customers. 

Implemented well-developed infrastructure and logistics support systems 

  • Forest resources are relatively accessible and the stumping yard is well located, enabling the company to transport the logs to customers more efficiently. 


Business Strategies and Outlook 


Developing the plantation site within the Licensed Area 

  • Jawala will implement its planting programme from 2018-2025 and continually source for seeds of potential tree species for planting. 

Increasing log production 

  • Jawala intends to increase log production by acquiring new industrial tree plantations within forest management units to increase sales and sustainable woodflow. 

Strengthening reputation as a trusted and ethical supplier of sustainable timber 

  • Jawala intends to continue building marketing alliance with domestic buyers, and to establish sales support offices in key markets regionally. Jawala also intends to engage a consultant to expedite the process of obtaining the internationally recognised certification for its forest management units. 

Investment in research 

  • Jawala intends to continue investing in research efforts to improve yields, wood quality and sustainability practices. 

Business expansion 

  • Jawala intends to expand business through potential acquisitions, joint ventures or strategic alliances. 


Prospects 

  • The timber industry is a major contributor to Malaysia’s export earnings. Timber and timber products accounted for 17.92% of the total export earnings by the commodity sector and 2.78% of Malaysia’s total export earnings in 2016. 
  • Malaysia is Asia’s largest tropical logs exporter and fourth globally, with Japan, United States and China being among the top buyers. 


Key Risks 


Subject to regulatory, political, economic and social conditions in Malaysia 

  • Jawala does not have a diversified source of income. The company’s rights to manage and harvest the forest resources are subject to regulations. Business operations could be adversely affected by political, economic and social conditions in Malaysia, particularly in Sabah. 

Dependence on License Agreement 

  • Jawala is solely dependent on the operations in the plantation area under the Sustainable Forest Management License Agreement. 
  • Short operating history 
  • Having only commenced operations in 2015, Jawala does not have a long operating history and track record upon which it may be evaluated. 

Revenue fluctuations 

  • Revenue is derived from salvage logging or harvesting of newly planted trees. The rate of extraction is also subject to factors out of Jawala’s control, such as weather and rate of maturity of the trees. 

Requires substantial initial capital expenditures 

  • Ability to develop operations within the Licensed Area requires substantial initial capital expenditures that may not be recoverable in the short term. 


Dividend Policy 

  • The group intends to distribute a dividend of not less than 20% of net profit to its shareholders for FY2018 and FY2019. 


Use of Proceeds

  • Development of plantation site : S$ 1.90 mil (42.2%) 
  • General working capital : S$1.25 mil (27.8%) 
  • Listing expenses : S$1.35 mil (30.0%) 




SWOT Analysis


Strengths

  • Focus on cultivating industrial tree plantations. 
  • Understanding of the dynamics of timber products and the timber industry in Malaysia. 
  • Forest resources are strategically located. 
  • Implemented well-developed infrastructure and logistics support systems. 

Weakness

  • Short operating history. 
  • Revenue fluctuations. 
  • Requires substantial initial capital expenditures. 

Opportunities

  • Develop the plantation site within the Licensed Area. 
  • Increase log production via acquisitions. 
  • Strengthen reputation as a trusted and ethical supplier of sustainable timber. 
  • Timber industry is a major contributor to Malaysia’s export earnings. 
  • Malaysia is Asia’s largest tropical log exporter. 

Threats

  • Subject to regulatory, political, economic and social conditions in Malaysia. 
  • Dependence on License Agreement. 





Singapore Research DBS Vickers | https://www.dbsvickers.com/ 2018-05-28
SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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