IT IS hard to win back investors' confidence after as harrowing an experience as seeing a stock plunge 50 per cent in a span of two hours.

　　That's what happened to United Fiber System on April 18, 2005, when its share price plunged from 51 cents to 23.5 cents. Of course, in the four months leading up to that fateful day, the stock had climbed more than 230 per cent.

　　The climb was fuelled by the promise of its forestry and yet-to-be-built pulp business. And the fall was attributed to some vague rumours of it not being able to get financing to build the pulp mill.

　　Nearly two years have passed and Unifiber is still trading around the same level.

　　Yet on the operations front, some marginal improvements have taken place. But still, it has some way to go before fulfilling the high hopes investors had of it a few years back.

　　First on the improvements. Its legacy construction business, under Poh Lian Construction, is looking up as the development of numerous massive projects as well as private residential projects in Singapore picks up speed. Poh Lian Construction is an A1 class contractor and can tender for public sector

　　projects of unlimited value. Its order book expanded to $220 million from $150 million a year ago, gross profit margin has also fattened to 5-8 per cent from 3-5 per cent last year.

　　Forest concession

　　Also, in the two years since, Unifiber's Acacia Manguim trees in its forest concession in South Kalimantan, Indonesia, has had time to grow a little bigger. As at end 2005, the forest asset had a book value of over US$204 million, based on valuation by international third party consultant Poyry. Meanwhile, its wood chip mill was finally completed at the end of last year at a cost of US$45 million. Production has begun, and according to Unifiber's newly appointed chief executive Jaka Prasetya, the mill will reach 80 to 90 per cent of its capacity in the first 12 months of its operations.

　　At 100 per cent capacity, the mill is expected to rake in earnings before interest, tax, depreciation and amortisation (Ebitda) of US$25 million to US$30 million. How much of this will trickle down to shareholders in the first two years remains to be seen. About US$39 million of the wood mill construction costs was funded by China National Machinery & Equipment Import and Export Corporation (CMEC) and Raiffeisen Zentralbank. Interest for the loan is about 6 or 7 per cent, and repayment has to be made in three years.

　　All along, the big money earner was going to be the pulp mill - one to be built by Unifiber itself, and another through acquisition.

　　Its own pulp mill, able to produce 600,000 tonnes of bleached hardwood kraft pulp (BHKP), was supposed to have started construction end 2004 or early 2005. Now, work is only expected to begin end of this quarter or next. And very optimistically, the mill will only be operational end of 2009. Similarly the development costs of US$863 million will be 80 per cent-financed by the turnkey contractor CMEC.

　　Meanwhile, Unifiber announced in mid-2005 that it was eyeing to buy PT Kiani Kertas, an operationally ready BHKP mill with an annual capacity of 525,000 tonnes, at a price of US$475 million.

　　One and a half years on, the deal is yet to be closed. In the meantime, Unifiber has entered into an operational management arrangement to try and restart the Kiani mill. The mill had its last full commercial run in 2002. To be fully operational again, new investments worth US$40 million to US$50 million, in addition to working capital, have to be made.

　　Business backing

　　All said, there are still many question marks surrounding Unifiber. But it is also true that the 28 cents that it is trading at now has more tangible business backing it than two years ago.

　　In a recent report, DMG & Partners Securities valued the group's forestry concession at 18 cents a share, its wood chip mills 10 cents, and construction 5 cents. Applying a discount of 40 per cent for the many execution disappointments in the past and one gets a value of 20 cents a share. The remaining eight cents can be seen as an option to the new pulp mill and the acquisition of Kiani.

　　Two US funds seem to think Unifiber a worthwhile bet. Last November, Stark Investments and Polygon Global Opportunities Master Fund paid 27 cents apiece for 180 million new Unifiber shares, or a stake of 7.8 per cent.

　　Thus at current level, Unifiber may appeal to some speculative investors. They, however, must hang on until the day the market got over its bitterness with the stock, or until the good news on Kiani comes through, or if Unifiber announces new projects on the construction or property front, or for signs of earnings finally materialising. The last may indeed turn out to be the last to happen.

《Business Times》