TH Group's half-billion-dollar ambition in the wood industry

Besides owning the largest dairy farm in Southeast Asia in Nghe An province, TH Group has also invested heavily in a wood processing plant project in this area, which is Nghe An Wood Processing Plant.

Nghe An Wood Processing Plant owned by May Forestry Joint Stock Company (May Forestry) had its groundbreaking in February 2013 with a total investment of $500 million, including a Sawmill plant which has $150 million investment and a capacity of 12,000 cubic metres per year and a medium-density fibreboard (MDF) plant which has $350 million investment and a capacity of 400,000 cubic metres per year.

May Forestry under TH Group, established in January 11, 2010, supplies wood products such as finger joint board, sawn board and MDF board for imports and exports.

In particular, phase 1 of the wood processing plant includes the construction of two lines, which are wood bar processing with a capacity of 12,000 cubic metres per year and MDF processing with a capacity of 130,000 cubic metres per year.

Accordingly, in the first phase May Forestry mainly buys wood from the forests planted in the 12 districts of Nghe An province with the total area of 16,000 hectares.

In phase 2, the company will expand its processing capacity to 400,000 cubic metres per year for the production of MDF pressed wood and 70,000 cubic metrers per year for the production of finger joint board.

As planned, the forest was planted in 2014 and will start to be exploited from 2021. 

According to this plan, May Forestry expects to rent about 11,589 hectares of land and develop 33,422 hectares more through joint ventures. The company has co-operated with TH Group to form two enterprises to develop the raw material area including Nguyen Lieu Dong Bac JSC and Nguyen Lieu Phu Quy JSC. 

Once Nghe An Wood Processing Plant is put into operation, May Forestry expects to have an annual turnover from $30 million to $50 million and profit from wood processing plants from $7 million to $8 million.

May Forestry planned that 60 per cent to 70 per cent of finished wood products will be exported to the most demanding markets in the world such as the United States (US), Europe and Japan. These areas are three out of four regions that import the most wood from Vietnam.

Despite the modest turnover of May Forestry compared to the total wood export turnover in Vietnam, the company is anticipated to become a major player in the wood processing industry once the investment is finished and the operation is at full capacity.

After a year of operation, May Forestry has made some significant changes, particularly, the position of General Director and the legal representative of the company have been transferred from Vietnamese to foreigners.

In spite of not giving out any details on the presence of new shareholders, TH's representative mentioned that May Forestry's operation is still stabilizing and at present the company has no plan for an IPO.

Being greatly supported, May Forestry is still facing great challenges in the wood export industry.

For a long time, wood exports have contributed enormously to the export turnover of Vietnam. By the end of January 2018, the turnover of wood processing export industry, particularly export turnover of wood products (wood, bamboo, sedge) reached nearly $8 billion.

According to Association of Vietnam Timber and Forest Product (AVTFP), the industry will continue to develop and will reach $10 billion by 2020, thanks to strong demand for furniture worldwide. 

Specifically, in spite of the tremendous increase in wood imports from Vietnam over the years, large markets in the world are gradually tightening their import policies, mainly from US policy.

Currently, President Donald Trump is moving towards reducing trade deficits, increasing trade protectionism and encouraging domestic production.

Vietnam is currently on the list of six countries with the largest deficit for the US with the annual amount of export from Vietnam to the US worth $32 billion and especially, for wood products, the trade surplus of Vietnam from the US reached over $2 billion.

Based on AVTFP, with this surplus and the flow of investment from China into Vietnam's wood processing industry, it would be possible to create special concerns from the US regulatory authorities, leading to the decision to restrain original export originated in Vietnam.

In other major markets such as Korea and Japan, these governments have also promulgated a law on clean wood to develop sustainable timber. The implementation of these laws indicates tighter controls on wood import products, including Vietnamese wood into these markets.