Compugates' RM43.9m Agarwood deal
Published on: Friday, May 08, 2015
Selangor: IT distributor Compugates Holdings Bhd has sold its Agarwood trees to Westwood Marketing Sdn Bhd for RM43.9mil.The trees were part of a plan the company realised it needed to embark on years ago to turn around Compugates since its business of distributing cameras and printers was seeing low margins.It had committed RM1.5mil to plant the 23,000 Agarwood trees, which has since delivered a fantastic return to Compugates. The use of the Agarwood tree ranges from incense to perfume and ornamental functions.
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On April 24, it announced that Westwood Marketing had decided to buy the Agarwood trees from Compugates, allowing the latter to get into Agarwood cultivation and trading in a bigger way."Because we are listed, we want to unlock value first. We take the money, then enter into a joint venture with either a landowner or a state government and plant more trees," said See Goh.The deal with Westwood Marketing is the second Compugates had entered into with the company. The first inked in September last year was to sell its Agarwood leaves to the Singapore-owned company. The leaves were to be sold as Agarwood tea leaves by Westwood Marketing.The agreement in April will see Westwood Marketing, a member of Westwood Investment Group Pte Ltd, buy the trunk and branches of the 23,000 trees Compugates had planted on its 54 acres in Kuala Kangsar five years ago.
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In its announcement to Bursa Malaysia, Compugates said Westwood Investment took an interest in the Agarwood trees because of high demand for the wood and the oil it would extract from the tree.The oil, which will be processed after the trunks are inoculated, will then be mainly sold to markets in the Middle East where it will be used as a fragrance to make perfume. Agarwood is also in demand in China and Japan as a source of incense.
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In its statement, Compugates said the trade value of Agarwood wood and oil out of Singapore was estimated at US$1.2bil a year."It takes two years for the resins to form in the trees that are inoculated. These resins are what makes the trees valuable," she said.The oil from one tree that is inoculated is worth close to RM20,000.She said at the moment, supply of Agarwood oil could only meet about 20 per cent of demand. Supply of Agarwood is mainly from a few countries in South-East Asia and India. Not all trees are able to deliver the oil extract in the quantities sought. Compugates said its trees were synthetically grafted from 10 different species to give it value and abundance of oil. The cultivation of Agarwood is also carried out by Asia Plantation Capital, based out of Singapore. It has significant Agarwood operations in the region.Compugates also sells Agarwood tea leaves in Malaysia, and according to See Goh, the business is picking up. "We have a distributor now in Hong Kong. We are looking for distributors all around the world," she said.One of the reasons why Compugates decided to sell the trees early was for the return on investment (ROI).It intends to use the money from the sale of its trees to buy more land and plant. It is in discussions with landowners and the Perak Government to source for land to grow its Agarwood trees."If we had waited, we could have made a bigger return but we wanted an ROI, as we had not been making money over the past few years. With this money coming in, we will surely turn around Compugates," she said.The sale of the trees for RM43.9mil will, according to See Goh, see the company posting a profit for its current financial year once it receives money from Westwood Marketing.Coupled with the fact that the company no longer needs to make big write-offs for goodwill from its reverse takeover exercise years ago, the company thinks it can start implementing a dividend policy, whereby it will pay 50 per cent of its net profit to shareholders.The deal with Westwood Marketing will probably see a patchy contribution to earnings for the next few years until it starts to grow its own Agarwood trees on a larger scale.Stay up-to-date by following Daily Express’s Telegram channel.
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