In  a  press  report,  Congo’s agriculture minister was quoted as  saying that  Wah  Seong  plans  to  develop  an  agro-industrial  complex  in  Congo with  an  investment  cost  of  USD744m  over  the  next  10  years.  We understand  that  Wah  Seong  does  not  have  any  plans  to  inject  capital into  its  Congo  operations  in  the  near  term,  but  will  instead  reinvest  all timber sale profits back into the company. Hence, we make no changes to  our  earnings  assumptions.  Maintain  BUY,  with  FV  unchanged  at MYR2.50.

- Let’s take a step back. Recall that Wah Seong acquired a 51% stake in Atama  Resources  back  in  Feb  2012,  which  has  a  30-year  palm  oil plantation concession agreement with the Government of the Republic of Congo  to  operate  its  palm  oil  plantation  business  on  470k  ha  of  federal land in Central Africa.

- Don’t  be  spooked.  In  a  recent  meeting  with  Management,  we understand  that  Wah  Seong  does  not  intend  to  inject  any  fresh  capital into the Congo operations in the near term as it intends to reinvest all its timber  profits  into  the  consortium  for  replanting  efforts.  Unless Management  clarifies  that  it  may  take  on  additional  borrowings  for  its plantation venture – which will depress its financial performance – we are keeping our forecasts unchanged.

-  What  if  capital  injection  is  actually  needed?  Assuming  the  news  is indeed true, we believe that Wah Seong will likely finance its operations in  Congo  via  equity  and  debt  at  the  1:1  ratio,  similar  to  its  current strategy.  As  the  company  owns  a  51%  stake  in  the  consortium,  Wah Seong will need to inject USD189.7m in equity and take on USD189.7m in  debt  over  the  next  10  years,  which  equates  to  a  cash  injection  of MYR56.9m and an additional debt of MYR56.9m per annum.

Source: RHB