Avarga Limited · SGX:X5N
Avarga — Investor Presentation (April 2018)
51 slides from Avarga's investor presentation, Apr 27, 2018
Slide 1: Corporate Presentation
(formerly known as UPP Holdings Ltd) Corporate Presentation 27 April 2018 The material presented is for your general information only. No representation, warranty or recommendation whatsoever as to the merits of investing in any company is to be read or inferred from any material presented herein. P
Slide 2: Group structure
Group structure 100% 100% 49% / 64.8%* UPP Pulp & Paper UPP Power Taiga Building Others (M) Sdn Bhd (Myanmar) Ltd Products Ltd Pulp & paper mill in 50MW power plant in Wholesale distribution of building Tuas industrial property Ijok, Selangor, Malaysia Yangon, Myanmar materials in Canada & USA in Si
Slide 3: Where we are
Where we are 3 Core Businesses 5 Countries 30 location sites > 800 employees 1 Vision ‐ creating value
Slide 4: Stock information
Stock information • Listing: Main Board of Singapore Exchange • Formerly known as UPP Holdings Ltd • Share price: S$0.24 • 52 week low/high: S$0.23/S$0.30 • Shares issued: 876,667,121 (existing); 950,106,121 (post Kublai) • Warrants issued: 836,667,121 (ex price S$0.37, expiry 12 Feb 2020) • Market
Slide 5: Share price
AVARGA MITED Share price UPP Holdings Limited (U09.SI) x Add to watchlist ‘SES - SES Delayed Price. Currency in SGD 0.24 0.00 (0.00%) As of 9:39AM SGT. Market open. @ Indicators +@ Comparison Ei Daterange 1D 5D 1M 3M 6M YTD 1Y 2Y SY Max OY interval Wy wW Liney & Draw | vos. 0.1500 x 0.1500 ] lll - i
Slide 6: Key milestones
Key milestones • 1967: Established in Singapore as United Paper Products Ltd • 1971: Paper mill started operations in Singapore • 1980: Listed on Singapore Stock Exchange • 1998‐2000: Paper mill operations relocated to Malaysia • 2012: Tong Kooi Ong acquired substantial stake, new strategic directio
Slide 7: Financial performance
Financial performance FY Dec (SGD'000) 2017 2016 2015 2014 2013 2012 2011 Revenue 1,455,163 63,347 61,103 116,901 48,087 49,996 51,125 Pre‐tax profit 25,148 13,144 13,255 9,694 1,489 2,423 (398) Net profit after MI 16,340 12,563 12,785 8,978 946 1,994 (612) Total assets 505,146 190,104 188,970 189,0
Slide 8: Financial performance
Financial performance Revenue 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2010 2011 2012 2013 2014 2015 2016 2017 Revenue
Slide 9: Financial performance
Financial performance Pre‐tax and net profit 30,000 25,000 20,000 15,000 10,000 5,000 0 2010 2011 2012 2013 2014 2015 2016 2017 ‐5,000 Pre‐tax profit Net profit after MI
Slide 10: Segmental breakdown - revenue
Segmental breakdown ‐ revenue Segmental revenue FY Dec (SGD'000) 2017 2016 2015 2014 2013 2012 Paper mill (Malaysia) 54,257 50,048 49,157 47,847 46,797 48,723 Power plant (Myanmar) 11,732 13,299 11,946 68,327 ‐ ‐ Taiga (Canada) 1,389,174 Others ‐ ‐ ‐ 727 1,290 1,273 Total revenue 1,455,163 63,347 61
Slide 11: Segmental breakdown – pre-tax profit
Segmental breakdown – pre‐tax profit Segmental pre‐tax profit FY Dec (SGD'000) 2017 2016 2015 2014 2013 2012 Paper mill (Malaysia) 8,338 7,880 6,371 4,915 3,765 3,767 Power plant (Myanmar) 6,887 8,141 7,834 6,292 ‐ ‐ Taiga (Canada) 18,497 Others (8,574) (2,708) (950) (1,513) (2,276) (1,344) Total pr
Slide 12: Segmental breakdown
Segmental breakdown Revenue 2017 2016 2015 2014 Paper mill (Malaysia) 3.7% 79.0% 80.4% 40.9% Power plant (Myanmar) 0.8% 21.0% 19.6% 58.4% Taiga (Canada) 95.5% 0.0% 0.0% 0.0% Others 0.0% 0.0% 0.0% 0.6% Total 100.0% 100.0% 100.0% 100.0% Pre‐tax profit 2017 2016 2015 2014 Paper mill (Malaysia) 33.2% 59
Slide 13: Dividends
Dividends 2017 2016 2015 2014 2013 2012 2011 Dividend per share (cents) 1.00 1.00 1.00 0.50 0.15 0.15 0.10 “We will endeavour to pay a final dividend of 1 cent per share annually for each of the next three financial years ending 31 Dec 2016, 2017 and 2018” – Chairman and CEO’s statement, Annual Repo
Slide 14: Our 3 Core businesses
AVARGA | T E Our 3 Core businesses
Slide 15: Market positioning
Market positioning • Our 3 core businesses have significant market positioning : – Taiga Building Products is Canada’s largest wholesale distributor of building material products with annual sales of over C$1.3b – UPP Pulp & Paper (M) is one of Malaysia’s top 5 paper mills and produces almost 10% of
Slide 16: Pulp & Paper Mill - Malaysia
Pulp & Paper Mill ‐ Malaysia
Slide 17: Pulp & Paper Mill
Pulp & Paper Mill • Located in Ijok, Selangor, Malaysia • Total land area: 32.6 acres, built‐up area: 11.4 acres • Manufacturing of industrial brown paper products • Uses recycling process of used waste paper products – saves trees, environmentally friendly and lower costs • Main products: Test line
Slide 18: Production process
Production process Scrap waste paper Scrap waste paper is Pulp sorted, de‐inked, bleached & pulped Pulp is reconstituted Used boxes and other and manufactured waste paper products are into brown paper collected by collection with the addition of centres and scrap dealers, bonding agents & and recycl
Slide 19: Outlook
Outlook • Malaysia faces a shortage of domestically produced brown paper with 20% of domestic demand imported. Annual imports are over 300,000 tonnes • Recycling technology ensures consistent supply of local raw materials; environmentally friendly & significant savings against virgin wood pulp paper
Slide 20: Paper Mill financial performance
Paper Mill financial performance UPP Pulp & Paper (M) Sdn Bhd Yr end Dec (RM mill) 2011 2012 2013 2014 2015 2016 2017 Revenue 121.2 119.4 117.9 123.1 139.6 149.9 168.5 EBITDA 10.9 16.6 17.1 20.1 25.3 31.0 30.0 Pre‐tax profit 3.0 9.2 9.5 12.9 18.2 23.7 26.0 Net profit 3.1 9.2 9.5 12.8 18.2 23.6 22.8
Slide 21: Paper Mill revenue
Paper Mill revenue Revenue 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 ‐ 2011 2012 2013 2014 2015 2016 2017 Revenue (RM million)
Slide 22: Paper Mill net profit
Paper Mill net profit Net profit 25.00 20.00 15.00 10.00 5.00 ‐ 2011 2012 2013 2014 2015 2016 2017 Net profit (RM million)
Slide 23: Paper Mill margins
Paper Mill margins Margins 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 EBITDA margin (%) Net profit margin (%)
Slide 24: Valuation of global paper companies
Valuation of global paper companies Valuation comparison of paper companies Country Mkt cap Net P/E (x) EV/EBITDA (x) Price/ book (x) 1‐yr share price (USD'mill) performance (%) Muda Holdings Malaysia 168 18.7 9.2 0.7 37.7% Nine Dragons Paper Holdings Hong Kong 7,173 6.6 5.5 1.4 47.4% Lee & Man Pape
Slide 25: Power Generation - Myanmar
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Slide 26: Myanmar Power Plant
Myanmar Power Plant • 50 MW gas‐fired plant • Located in Insein township, 25km northeast of Yangon, Myanmar • First fully foreign owned IPP under Myanmar’s Foreign Investment Law • 30 year PPA with Electricity Power Generation Enterprise (EPGE), Ministry of Electricity & Energy, expiring Feb 2044 •
Slide 27: Electricity Generation
Electricity Generation Electricity generation 390.0 380.0 370.0 360.0 350.0 340.0 330.0 320.0 310.0 300.0 2014 2015 2016 2017 Production (mill kwh) Commercial Operation year 2014 2015 2016 2017 Production (mill kwh) 354.8 370.5 381.7 358.8
Slide 28: Power Plant financial performance
Power Plant financial performance UPP Power (Myanmar) Ltd 12 mths to Dec (SGD'000) 2014 2015 2016 2017 As per INT FRS 112 standards Revenue 68,327 11,946 13,299 11,732 Pre‐tax profit 6,292 7,834 8,141 6,887
Slide 29: Outlook
Outlook • 30 year PPA provides relatively steady income stream until 2044 • Tariffs and income are denominated in USD • Gas provided without charge by EPGE • Major overhauls required every 5‐6 years • 5 year tax exemption under Myanmar’s FIL until Feb 2019 • Strong demand for electricity, Myanmar ha
Slide 30: Building Materials Distribution - Canada
Building Materials Distribution ‐ Canada
Slide 31: Taiga Building Products
Taiga Building Products • Canada’s largest wholesale distributor of building material products with annual sales of over C$1.3b • Established since 1973 and listed on Toronto Stock Exchange • Wide footprint in Canada and growing network in the USA: – 15 distribution centres across Canada – 3 wood pr
Slide 32: Taiga's distribution process
Taiga’s distribution process Taiga’s Treated Wood products (3 plants) Exports Mills Taiga – Canada Manufacturers distribution Taiga – USA Suppliers distribution Imports 15 distribution centres in Canada 2 distribution centres in California, 6 reload stations in Eastern USA Big box players Lumber yar
Slide 33: Taiga's customers
Taiga’s customers Sales: US$95b No of Stores: 2000+ Sales: US$65b No of Stores: 1800+ Sales: C$4b No of Stores: 500+ Sales: Not disclosed No of Stores: 1100+
Slide 34: Taiga's financial performance
Taiga’s financial performance Jan‐ Dec FY 31 March FY 31 March FY 31 March FY 31 March FY 31 March FY 31 March (C$'000) 2017 2017 2016 2015 2014 2013 2012 Sales 1,392,263 1,223,978 1,364,322 1,348,718 1,194,259 1,132,743 971,625 Gross Margin 123,020 107,267 117,015 114,998 96,810 102,815 95,811 EBIT
Slide 35: Impact of Taiga's notes restructuring
Impact of Taiga’s notes restructuring • Taiga’s notes restructuring exercise was completed in Nov 2017, with C$101.3m of the 14% notes converted into new shares, and C$12.5m of notes exchanged to new 7%, 5‐year senior notes. The remaining notes of C$15m were fully redeemed in Dec 2017. • Interest sa
Slide 36: Taiga's Network
Taiga’s Network CANADA: 15 distribution centres 3 wood preservation plants USA: 2 distribution centres in California 6 reload stations in Eastern USA
Slide 37: Understanding Taiga
Understanding Taiga Sales ($000) Sales vs Lumber Price Lumber Price C$ 1,600,000 900 1,400,000 800 700 1,200,000 600 1,000,000 500 800,000 400 600,000 300 400,000 200 200,000 100 ‐ 0 Sales ($000's)
Slide 38: Understanding Taiga
Understanding Taiga • Lumber is a major product component of Taiga’s business, but more importantly, lumber prices are reflective of North America’s housing market • While Taiga’s annual sales is positively correlated to lumber prices or housing market strength, it is less volatile, fairly stable an
Slide 39: Understanding Taiga
Understanding Taiga Y‐Y growth % of Sales and Lumber price 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017 CY ‐10.00% ‐20.00% ‐30.00% Y‐Y growth sales Y‐Y growth lumber prices
Slide 40: Understanding Taiga
Understanding Taiga EBITDA, GM% and Operating Cost per Dollar of sales EBITDA ('000) 60,000 12.00% 50,000 10.00% 40,000 8.00% 30,000 6.00% 20,000 4.00% 10,000 2.00% Note : 2017 CY EBITDA adjusted for extraordinary items ‐ 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20
Slide 41: Understanding Taiga
Understanding Taiga • Since 2004, gross margin has consistently ranged from 8.5% to 10% even during the period when lumber prices fell sharply • How has Taiga managed to achieve stable gross margins? – Size and depth of distribution in terms of product range, quantity and quality – Strength of its l
Slide 42: Total compensation including bonus
Understanding Taiga Total compensation vs No of employees No of employees 60,000 1000 900 Total compensation including bonus 50,000 800 700 40,000 600 30,000 500 400 20,000 300 200 10,000 100 ‐ 0 Total Compensation including Bonus ($000's) Number of employees as of March 31 Even as sales grew strong
Slide 43: Understanding Taiga
Understanding Taiga Inventory Turnover vs AR Turnover Inventory turnover AR Turnover 12.0 18.00 16.00 10.0 14.00 8.0 12.00 10.00 6.0 8.00 4.0 6.00 4.00 2.0 2.00 ‐ 0.00 Inventory turnover AR Turnover Turnover for inventory and accounts receivable stable despite rise in sales and cyclical lumber price
Slide 44: Understanding Taiga – ABL Facility
Understanding Taiga – ABL Facility ABL Loan Balance (C$) 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 ‐
Slide 45: Taiga's ABL facility
Taiga’s ABL facility • Taiga’s Asset Backed Lending (ABL) facility is used to bridge its trade and maximise ROE as sales are large and net margins are small • ABL facility balance fluctuates throughout the year in a repetitive cycle • In Dec and Jan, loan drawdown will be at a low of C$20 million. I
Slide 46: Taiga 20 year review
Taiga 20 year review Revenue (CAU'=iltions) ‘Taiga Building Products Ltd 20 years Revenue & Ebitds 1600 - 2004- 200 2006 - 2017 Pre 2008 “Absent landlord” aman a | Alignment of interest: Staff + Shareholders Rising sales Rewards based on sales Duce eecrnret: Sta#t: PAP structure, based on profit 140
Slide 47: Taiga share price
AVARGA Taiga share price Taiga Building Products Ltd. (TBL.TO) yy Add to watchlist ‘Toronto - Toronto Delayed Price. Currency in CAD 1.36 -0.01 (-0.73%) Al close: 3:35PM EDT @ Indicators @ Comparison 6 Daterange 1D 5D 1M 3M 6M YTD 1Y 2¥ SY Max CW) Interval Wy ww Liney & Draw TBL.TO 1.4500 X 1.5000 1
Slide 48: Relative valuation vs peers – Canada
Relative valuation vs peers – Canada Taiga Building Products Ltd – Market Capitalization C$160m (23 Apr 2018) – Enterprise Value C$174m (31 Dec 2017, excluding RC of C$54m) – Sales C$1,392m (Y/E 31 Dec 2017) – EBITDA C$48m (Y/E 31 Dec 2017, excl settlement of debt and assuming notes restructured by
Slide 49: Relative valuation vs peers – USA
Relative valuation vs peers – USA Taiga Building Products Ltd – Market Capitalization C$160m (23 Apr 2018) – Enterprise Value C$174m (31 Dec 2017, excluding RC of C$54m) – Sales C$1,392m (Y/E 31 Dec 2017) – EBITDA C$48m (Y/E 31 Dec 2017, excl settlement of debt and assuming notes restructured by 1 J
Slide 50: Other assets
Other assets Tuas property, Singapore 35 Tuas View Crescent, Singapore Industrial property 15,999 sq m land with 16,538 sq m built‐up factory Currently vacant Land tenure: 30 + 30 years from 1 Dec 1999 Book cost: S$7.7m
Slide 51: Thank you
Thank you Avarga Ltd 1 Kim Seng Promenade #13‐10 Great World City West Tower Singapore 237994 Tel : (65) 6836 5522, Fax: (65) 6836 5500 www.avarga.com.sg