HK-listed Greenheart buoyed by Chinese demand for NZ logs

Wednesday 2nd April 2014

Hong Kong-listed Greenheart Group, which owns the 13,000 hectare Mangakahia forestry estate in Northland, narrowed its annual loss as the New Zealand unit propped up the forestry group with growing Chinese demand for logs.

The company reported a net loss of HK$60.3 million in calendar 2013 from a loss of HK$144.4 million the year earlier, with a 46 percent gain in revenue to HK$724.6 million. Earnings before interest, tax, depreciation and amortisation soared 595 percent to HK$182.8 million. The New Zealand dollar recently bought 6.7035 Hong Kong dollars.

Greenheart's New Zealand unit contributed a 47 percent gain in revenue to HK$663.8 million, and a 69 percent increase in EBITDA of HK$323.9 million. Greenheart is looking for acquisitions "to enhance and strengthen the sustainability of its long-term production profile in New Zealand," it said.

Earnings from Greenheart's Suriname division weighed on the overall result with an EBITDA loss of HK$90.6 million, including an HK$11.7 million impairment charge from the South American nation's government lifting the annual forest concession license fee.

"The impressive performance of our New Zealand business has helped to partially offset the operating loss incurred in our Suriname divisions and certain one-off losses and expenditure," chairman Wang Tong Sai said in the report. "These increases were a result of both increasing log prices and increased logging volumes, mainly fuelled by strong demand from China underpinned by continued demand based on a favourable construction market."

Chinese demand for raw logs has helped drive New Zealand exports of the commodity 26 percent to $4.02 billion in the year ended Feb. 28, while the seasonally adjusted volume of logs and wood climbed 28 percent to 1.73 million cubic metres in February, according to government figures.

Greenheart aims to lift its New Zealand harvest to 700,000 cubic metres in 2014 from 662,000 cubic metres in 2013, and expects the unit will remain strong for at least the first-half of the financial year as log prices remain high.

The New Zealand unit lifted export sales volumes 27 percent to 582,000 cubic metres in 2013, while the average export selling price rose 17 percent to US$138.4 per cubic metre. The gain in price accounted for about 73 percent of the New Zealand unit's increased sales, with the remainder coming from higher volumes.

Greenheart has embarked on cost-cutting initiatives at the Suriname unit with a goal of making it cash-flow neutral by the end of the year, and bought a lumber company in the South American nation with several foreign concessions and a saw-mill for US$7.8 million.

Wang said the company is watching economic indicators in China carefully, and adjust logging volumes accordingly. China's introduction of the two-child policy and rural land reforms are seen as boosting housing demand, while the US economic recovery and reduced Russian log volumes "could potentially reduce available supply of logs for China and maintain high price levels," he said.

Greenheart derives about 78 percent of sales from China, lifting revenue from the world's second-biggest economy 59 percent to HK$567.7 million.

The strong Chinese demand for New Zealand pine prompted a fair value gain in the plantation forest assets of HK$108.8 million in the year. The local assets were valued at HK$876 million as at Dec. 31.

The company acquired the Mangakahia estate from its former parent Sino-Forest in 2011 for US$73 million in shares and debt. It was among assets transferred from Sino-Forest to Cayman Islands incorporated Emerald Plantation Holdings as part of a Canadian deal with Sino-Forest's creditors in January last year.

Sino-Forest filed for bankruptcy protection in Canada in March 2012. Under a plan agreed by its creditors, its assets were transferred to Emerald, owned by the creditors. The transfer included 66.6 percent of Hong Kong-listed Greenheart Group.

The Toronto Stock Exchange listed shares of Sino Forest tumbled in June 2011 after short-seller Carson Block of Muddy Waters Research alleged the company had been inflating its assets and earnings. The shares were subsequently suspended from trading by the Ontario Securities Commission.

Greenheart's Hong Kong Stock Exchange listed shares were last at 56 Hong Kong cents, valuing the company at HK$442.3 million.

BusinessDesk.co.nz

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