Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Wah Seong Corp; Buy; RM2.10
Price target: RM2.50; WSC MK
Venturing into upstream plantation in Congo
Wah Seong announced that it will be acquiring a 51% stake in Atama Resources Inc (ARI) in 2 stages for a total amount of US$25m (~RM75m) from 2 private companies (Silvermark Resources Inc and Giant Dragon Group Limited) registered in the British Virgin Islands.
ARI has been granted an initial 30-year oil palm plantation concession (extendable for as many terms as required by ARI) by the Government of the Republic of Congo to undertake upstream oil palm planting on 470,000 ha of federal land in Congo. Feasibility study has been completed and 180,000 ha has been identified to be developed for oil palm plantation which is estimated to take up 15 years in 10 phases with commencement in 2Q13.
Although a potential M&A to beef up Wah Seong's non-O&G earnings contribution (O&G contributed 92% earnings for 9M11) has been largely anticipated, we are slightly taken aback by this plantation acquisition given the considerable risks including geo-political risk and execution risk. We understand that the FFB yield in Congo is lower than that of Indonesia and Malaysia while CPO production cost could be 10% higher than the average of RM1,000-RM1,300/ MT in Malaysia and Indonesia.
While the estimated price of the massive land appears to be undemanding at US$104/ha relative to Indonesian green-field plantation land of US$300-400/ha, high initial capex requirement may be a concern for investors. Given this latest development, our Buy recommendation and RM2.50 TP is under review, pending an analyst briefing from Wah Seong to clarify its plantation project in Congo. Nevertheless, we remain positive on its O&G business, premised on the increasing capex spending in Malaysia and Australia.
Source: HwangDBS Equity Research: 8 Feb 2011
Company Name: WAH SEONG CORPORATION BHD
| Research House: HWANGDBS | Price Call: BUY | Target Price: 2.50 |
Wah Seong Corp; Buy; RM2.10
Price target: RM2.50; WSC MK
Venturing into upstream plantation in Congo
Wah Seong announced that it will be acquiring a 51% stake in Atama Resources Inc (ARI) in 2 stages for a total amount of US$25m (~RM75m) from 2 private companies (Silvermark Resources Inc and Giant Dragon Group Limited) registered in the British Virgin Islands.
ARI has been granted an initial 30-year oil palm plantation concession (extendable for as many terms as required by ARI) by the Government of the Republic of Congo to undertake upstream oil palm planting on 470,000 ha of federal land in Congo. Feasibility study has been completed and 180,000 ha has been identified to be developed for oil palm plantation which is estimated to take up 15 years in 10 phases with commencement in 2Q13.
Although a potential M&A to beef up Wah Seong's non-O&G earnings contribution (O&G contributed 92% earnings for 9M11) has been largely anticipated, we are slightly taken aback by this plantation acquisition given the considerable risks including geo-political risk and execution risk. We understand that the FFB yield in Congo is lower than that of Indonesia and Malaysia while CPO production cost could be 10% higher than the average of RM1,000-RM1,300/ MT in Malaysia and Indonesia.
While the estimated price of the massive land appears to be undemanding at US$104/ha relative to Indonesian green-field plantation land of US$300-400/ha, high initial capex requirement may be a concern for investors. Given this latest development, our Buy recommendation and RM2.50 TP is under review, pending an analyst briefing from Wah Seong to clarify its plantation project in Congo. Nevertheless, we remain positive on its O&G business, premised on the increasing capex spending in Malaysia and Australia.
Source: HwangDBS Equity Research: 8 Feb 2011
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