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The Forgotten Treasure– Forestry. Wong Lam Wai , David UID:2008085991. What is Forestry?. Management of forest resources Explore, prioritize and optimize the biological, recreational, aesthetic and economic resources in forests - PowerPoint PPT Presentation
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WONG LAM WAI , DAVIDUID:2008085991
The Forgotten Treasure–Forestry
What is Forestry?
Management of forest resources
Explore, prioritize and optimize the biological, recreational, aesthetic and economic resources in forests
Realize the present value, growth rates, crop rotation and corresponding regulations
Upstream Production Chain
Downstream Production Chain
A big question
Does China need wood and timber ?
China needs wood so much!
China has a net importer of logs since 1993
Wood Demand from China
=>According to the FAO report in 2005, China hasapproximately 197m ha of forests, ranking the fifth in the world after Russia, Brazil, Canada and the United States.
ÞChina’s forest area per capita is approximately 0.2 ha, only about one-third of the global average of 0.6 ha.
ÞChina’s forest area accounts for around 21% of total area,compared to the global average of 30%. Thus, China has been a net importer of logs since 1993.
Forestry Industry Revitalization Plan (2010-2012)
In October 2009, the State Forestry Administration (SFA) of China Published the Forestry industry Revitalization Plan (2010-2012)
Market value of the industry to reach RMB 2,260b in 2012, up from 1,440 billion RMB in 2008, targeting a 12% CAGR in the period.
Emergence of 100 national-level leading enterprises by 2012 throughgovernment support. Total international trade value to reach at least RMB90b by 2012, of whichexport level targeting to recover to 2007 level; to retain the position as thelargest exporter of various products including wood-based panels, flooring and furniture.
Corresponding Policy
Reduce Forest Maintenance Fees: From 20% of forestry sales revenue to below 10%; Forest Maintenance Fees is paid to the government by forest operators based on the forest they own
Enhance credit financing policies for forestry industryThe State Forestry Administration; going forward, Forestry companies could enjoy more lenient bank credit approval as well as preferential interest rates. Explore the establishment of forest insurance scheme include forest insurance to fall under agricultural insurance, incentivize insurance companies and forest operators to participate in forest insurance and increase insured forest area.
David’s Pick
China Forestry (930.HK) Rating : Initiated at OUTPERFORM , TP of A new HK listing, yet the largest in terms of market cap
Straightforward business model with strong cash flow
Robust earnings outlook. We expect China Forestry’sadjusted (recurring) net income to surge from RMB242m in2008 to RMB846m in 2011F,
Biggest Forestry Company Listed
Assessed by Chandler Fraser Keating Limited (CFK), an independent forestry consultancy, fair value of China Forestry’s forest assets amounts to RMB7.9b.Average wood yield (in terms of forest stock volume per ha) of China Forestry’s resources are around 200m3/ha, significantly higher than the national average of 71m3/ha
China catches up with the world
Straight-Forward Business Model
Business segment and business modelOnly engaged in logging activities, with main customers being wood processing factories in China. Most of its products are used in construction, infrastructure and the furniture industries.When the company receives an order, it engages local villages nearby, or some casesprofessional harvesting teams, to provide harvesting services. Then the customer transports the products away to their factories to conduct further processing.Minimal working capital requirementThe company’s business model gives rise to the advantage of minimal working capital.Harvest activities only begin after a customer order, leading to minimal inventory. In addition, as the company only allows customers to retrieve logs upon full payment, accounts receivable is practically zero.Experienced management teamChina Forestry has been operating in the forestry industry in China since 2003, the same year when the Chinese government announced the No. 9 Policy which set out the directive for the private sector to participate in China’s forestry development.