GMG - Next Wilmar

GMG - Next Wilmar
Why must buy GMG:

GMG Global reported a net profit of S$16.4m in 3Q10, which was a turnaround from the S$371.7k loss suffered in 3Q09.

Bridgestone, Goodyear Face Deepening Rubber Shortage

Sept. 21 (Bloomberg) -- Bridgestone Corp., the largest tiremaker by sales, is raising European prices for the second time this year and Goodyear Tire & Rubber Co. is charging more as rubber gains on prospects for the biggest shortage since 2007.

“Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations,” said Pongsak Kerdvongbundit, managing director
of Phuket, Thailand-based Von Bundit Co., the largest natural-rubber producer and exporter in the world’s biggest supplier. “Global production will lag behind soaring demand for at least another two years.”

Stockpiles of the raw material, also used in gloves and condoms, will drop 12 percent to 67 days of demand next year, the lowest level in at least a decade, according to Goldman Sachs Group Inc. Consumption will outpace supply by 127,000 metric tons, the most since 2007, the bank estimates.
Futures in Singapore may jump 20 percent by March, said Makoto Sugitani, a senior director at Newedge Japan Inc., who correctly predicted the rally
in January. That would mean a record $4.20 a kilogram.

Sales of rubber are increasing the most in six years, helped by what the International Monetary Fund says will be the fastest global economic growth
since 2007. Rain and flooding in Thailand and Indonesia, the top producers, drenched farms and curbed harvesting. Michelin & Cie., the world’s
second-biggest tiremaker, said in July that commodity costs would cut full-year earnings by as much as 650 million euros ($850 million).

Shrinking Stockpiles

Futures may climb as much as 14 percent to $4 a kilogram by March on the Singapore Commodity Exchange, according to the median estimate of nine
brokers and analysts surveyed by Bloomberg. Prices reached a record $4.11 on April 15 and closed at $3.50 on Sept. 20, for an advance of 22 percent this year.

Inventories will drop almost 6 percent to 2.05 million tons next year, for a third annual decline, Yuichiro Isayama and three other analysts at Goldman Sachs in Tokyo said in a report Sept. 3. La Nina, a phenomenon
linked to extreme weather, is likely to intensify at the end of the year, according to the Thai weather office. That may cause higher-than-normal rainfall in the south, which has 68 percent of the country’s plantations.
Global consumption will climb 9.4 percent this year to 10.31 million tons, the fastest increase since 2004, according to the Singapore-based International Rubber Study Group, which says it has 16 countries and the
European Union as contributing members. Demand will exceed output by 60,000 tons, from a surplus of 237,000 tons last year.
Commodity Advance

Bridgestone announced European price increases Aug. 30. Goodyear and Cooper Tire & Rubber Co., the two largest U.S. tiremakers, confirmed Sept. 17 they
would raise U.S. prices from next month to recoup higher raw-material costs. Both companies said they last raised retail prices in June.
World auto sales will increase 8 percent to 68.5 million units this year and 7.2 percent to 73.4 million units next year, according to Ashvin Chotai, London-based managing director at Intelligence Automotive Asia
Ltd.
The economy in China, the biggest auto market, will expand 8.9 percent next year, more than three times the pace of the U.S., according to the median of as many as 60 economists’ estimates compiled by Bloomberg.


Even as governments fret about deflation, or declining consumer prices, extreme weather from drought in Russia and Ukraine to flooding in Pakistan
and Canada is driving commodity costs higher. Wheat as much as doubled since June, while corn rallied to a 23-month high, coffee reached a 13-year
peak and cotton advanced to its most expensive since 1995. A United Nations price-index of 55 foods rose to its highest level since September 2008 last month.

‘Chase a Rally’
“Rubber may chase a rally in grains and soft commodities as investors are searching for better places to put their money,” said Tokyo-based Sugitani
of Newedge.


The U.S. producer price index increased 0.4 percent in August, the most in five months and twice the gain in July, the Labor Department reported Sept. 16.


Growth in demand for rubber may be undermined by a faltering recovery.
Global economic expansion will probably slow in the second half of this year and in the first half of 2011, IMF economists said in a report Sept. 10.

Confidence among U.S. consumers unexpectedly dropped to a one-year low in September. The Thomson Reuters/University of Michigan preliminary index of
consumer sentiment fell to 66.6 from 68.9 in August, the group said Sept.17, while U.S. unemployment is close to a 26-year high.


Cooling Economies

U.S. industrial output increased 0.2 percent in August after a 0.6 percent gain in July, the Federal Reserve said Sept. 15. Manufacturing in the New York region grew this month at the slowest pace in more than a year, said another Fed report.

Auto sales in the U.S. in August were the worst for the month in 28 years, according to Autodata Corp., a researcher in Woodcliff Lake, New Jersey.
Passenger-car deliveries to Chinese dealerships in July gained at the slowest pace in 16 months, the China Association of Automobile Manufacturers reported. Almost 60 percent of the world’s rubber is
consumed by the tire industry, according to the International Rubber Study Group.
The Standard & Poor’s 500 Index dropped 6.3 percent from this year’s high of 1,219.80 on April 26 on concern the recovery is slowing, while the Standard & Poor’s GSCI Index of 24 commodity futures declined 4.5 percent since the gauge reached 555.729 on May 3. Treasuries returned 5.7 percent since then.
Demand from China and India may have peaked as governments seek to cool their economies and deflate property bubbles, said Chaiwat Muenmee, an
analyst at Bangkok-based commodity broker DS Futures Co. Rubber futures declined 9.6 percent since advancing to a 21-month high of 338.5 yen a kilogram on April 16 on the Tokyo Commodity Exchange. They gained as much as 3.2 percent today to the highest level in almost five months.


Bridgestone, Goodyear
Tiremakers are passing on the higher costs. Bridgestone said Aug. 30 that it will raise tire prices in Europe from October by as much as 6 percent.
Increases by Goodyear and Cooper were for as much as 6.5 percent starting next month.


“We don’t do a lot of raw-material hedging” said Keith Price, a spokesman for Akron, Ohio-based Goodyear. Raw-material costs are expected to jump by 30 percent to 35 percent in the third quarter from a year earlier and by about 30 percent in the following quarter, Chief Financial Officer Darren R. Wells said on a conference call July 29.

Top Glove Corp., based in Selangor, Malaysia, and the world’s biggest rubber-glove maker, passes on “the majority” of higher costs, Executive Director Lim Cheong Guan said.

Rising costs are “a headache,” said Sakae Kubota, managing director of Okamoto Industries Inc., Japan’s biggest condom maker. Competition and demand mean the company is absorbing the extra expense, the executive said.

Tumbling Inventories

Prices of $3,370 a ton for so-called Technically Specified Rubber used in tire manufacturing are 53 percent more expensive than alternatives made from oil, data compiled by Bloomberg show.

Goldman Sachs’s Isayama said it’s impossible for tiremakers to substitute immediately synthetic for natural rubber, and even if substitution occurs,
the volume should be limited to several percent of total consumption.
Stockpiles monitored by the Shanghai Futures Exchange and the Tokyo Commodity Exchange have slumped. Shanghai inventories plunged 72 percent in the past year while those reported by Tocom tumbled about 47 percent.

Thailand’s production may drop as much as 5 percent to 3 million tons this year as rain disrupts tapping, according to Pongsak. Output in Indonesia,
the second-largest grower, may total 2.4 million tons, less than an earlier estimate of 2.6 million tons, said Suharto Honggokusumo, executive director
of the country’s rubber association.

“Demand keeps expanding and supplies are at risk,” said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo, who helps manage as much as
35 billion yen and says prices may reach a record by early next year. “The situation may reach a critical point.”

From Share Investment:

By Aw Jie Sheng


GMG Global Poised For Big Things?

Before PetroChina bought over Singapore Petroleum Company and China Investment Corporation took an equity stake in Noble Group, there was Sinochem International, which acquired a 51% controlling stake in GMG Global.

Yet despite having one of China’s 10 largest companies in terms of revenue come on board, GMG Global, an integrated producer of natural rubber, has received nary any analyst coverage.

Maybe it is because there is something unsexy about natural rubber compared to its soft commodity counterpart, crude palm oil. After all, not only do you not eat natural rubber, the only things that are made of it are prophylactics, gloves and automobile tyres.

More likely, it is because GMG Global is one of the smallest listed plantation plays locally and regionally. Its market capitalization of $500m is about one third of First Resources, and even much smaller when compared against giants Wilmar International, Sime Darby and IOI Corporation.

Too Fast, Too Furious

But tyres for cars, commercial trucks and machinery are big business and reason for you to take notice of GMG Global. The tyre industry consumes more than two-thirds of natural rubber produced globally, and China looks set to be the next driver of demand.

Total vehicle sales for 2009 in China totaled around 13.5m units, exceeding that of erstwhile leader USA. This is expected to grow at an annualized rate of 15% over the next 10 years, in turn raising projected natural rubber consumption rate to 10% per annum over the same period. It is estimated that China currently consumes 27% of the natural rubber produced globally, of which almost 80% is imported.

This development augurs well for GMG Global, the only SGX-listed pure natural rubber play, which has access to the lucrative and burgeoning Chinese market through its controlling shareholder. The Shanghai-listed Sinochem International is a state owned enterprise and commands about 10% of China’s natural rubber consumption.

But GMG Global has had a horrible 2009, having witnessed natural rubber prices crash along with other commodities, as a result of the financial turmoil. 9M09 revenue fell 35.3% on-year and the company recorded a loss of $0.3m as a result of lower average selling prices.

The company however had positive operating cash flow and is in net cash position during the latest financial period. Moreover, Thailand, Malaysia and Indonesia – producers of 70% of the world’s natural rubber – are drawing up plans which include open market operations and stockpiling to support prices should they decline to less than US$2,600 per metric ton. Natural rubber contracts are close to 16-month high on the Tokyo Commodity Exchange.

GMG Global will announce full year results for the financial year ending 31 December 2009 in the latter half of February. Do not expect much in terms of dividends 
as the company recently raised $100m from a 9-for-10 rights issue. It has used $19.1m for its Indonesian JV in PT GMG Sentosa, that has 25,000 MT of production capacity a year. And more such M&A activity is expected to follow.

Bears In The Rubber Plantations


Demand-side factors aside, weather plays a very important part in GMG Global’s line of business. What has happened in FY08 was that GMG Global’s Cameroon operations experienced unusually prolonged wet weather affecting tree tapping process activities and collection, crimping production. Ceteris paribus, lower volume means lower turnover, hence lower profits.

Other factors that impact the bottom line of GMG Global will be the price of crude oil and US currency movements. Lower crude oil prices exert downward pressure on natural rubber prices, as it makes synthetic rubber, a substitute made from crude oil derivatives cheaper.

As natural rubber is traded internationally in US dollars, a weakened US dollar against the Euro benefits the group, as Europe remains its largest market, accounting close to 60% of total revenue based on FY08 annual report.

GMG Global faces a unique political risk to its operations, as 9% of its plantation assets and one quarter of total annual processing capacity is located in the West African country of Cote d’Ivoire. The country is scheduled to hold its first election this year since being divided into two parts following a bloody civil war. The highly contested event might reignite violent political strife, with unknown material consequence to GMG Global.

While long-term prospects look optimistic, GMG Global’s technical picture does not look compelling.
There was a pick up in volume from 29 December, with no material announcements, possibly due to end year buying. As of 20 January closing, the stock is hugging closely to the upper Bollinger Band. Both Relative Strength Index and Stochastics 
point towards overbought conditions. Together they suggest an impending downtrend.

GMG Global: a Wilmar in the making?

By VEN SREENIVASAN

A SOFT-COMMODITY giant with exposure to high-growth markets and commanding a premium over its peers because of its deep vertical integration which delivers a higher return on equity (ROE), more stable margins and stronger cash flows.

That is how Morgan Stanley described palm- oil giant Wilmar International in a 45-page report on March 26.

But this could turn out to be an apt description of mainboard-listed GMG Global as well three years down the road, or perhaps sooner.
Listed in 1999, GMG is the only pure natural rubber play on the Singapore Exchange (SGX). It has some 43,000 hectares of rubber plantation land in the African countries of Cameroon and Cote d'Ivoire (Ivory Coast), only half of which is now under cultivation. It has also bought into two processing plants in Kalimantan, Indonesia, with a total capacity of 55,000 tonnes.

In all, GMG produced some 75,000 tonnes of natural rubber last year. This will rise to over 100,000 tonnes this year, or two-thirds of existing capacity.

In October 2008, Chinese state-owned enterprise Sinochem Corp bought a 51 per cent stake in GMG for $265 million averaging 26.5 cents per share. Last year, it picked up its share of a $100 million rights issue, effectively bringing down its price in GMG to 17 cents per share.

Sinochem is a Tier 1 state-owned enterprise (SOE). It is also China's 10th largest company by revenue, a component stock of the Shanghai Stock Exchange index, and a Fortune Global 500 company for 17 years. With assets of more than 20 billion yuan (S$4.1 billion), it is also China's largest rubber player, supplying some 300,000 tonnes last year to 150 end-users, including multinational companies in the country. The company - which also supplied 100,000 tonnes of synthetic rubber to the Chinese domestic market in 2009 - currently controls over 10.5 per cent of the Chinese market for natural rubber (for scale comparison: the second biggest player supplies just 3 per cent). It wants to raise its market share to 15 per cent.

Meanwhile, China's thirst for natural rubber has grown an average of 10 per cent annually. Last year, it consumed 2.9 million tonnes, or almost 30 per cent of global natural rubber output. The only domestic rubber supply is some 500,000 tonnes from Hainan, in southern China. The rest is imported. The price of natural rubber has risen to its highest levels since mid-2008. Not surprisingly, China considers natural rubber a strategic asset.

This places Sinochem in a unique position. It also gives GMG a unique role as Sinochem's global platform for the production, procurement and trading of natural rubber. On its part, GMG has already expressed its ambition to be among the world's largest vertically integrated natural rubber players within the next 3-5 years. But to do so, its production will have to rise five-fold.
Unlisted Lee Rubber, with its long track record, already produces some 500,000 tonnes a year. GMG has to match that.

With over $160 million of cash in the kitty and virtually no debt, the company has the means to scale up. It has already bought into a second processing plant in Kalimantan this year and is on the lookout for more. Also, only half of its 42,000 hectares of plantation land in Africa is currently planted.

But GMG has to move beyond just production and output; it has to execute its vertical integration strategy, a la Wilmar. This means scaling up its rubber trading capabilities.

Fortunately, it has a powerful parent in Sino- chem which can help make all this happen. For comparison, there is no pure listed rubber play against which GMG can be benchmarked. But there are other soft-commodity players in palm oil which have similarities. Wilmar (with a market capitalisation of some $42 billion) has a price-book value of 2.7 times. Indofood Agri ($2.2 billion) is trading at 2.2 times book. GMG ($330 million) is trading at just 1.2 times book.

Back to Morgan Stanley's report.

Just over four years ago, the newly restructured Wilmar was trading at 80 cents per share. Today, the stock is up some nine-fold. Yet Morgan Stanley reckons it is still undervalued, and has a price target of $8.00 on the stock.

GMG is not a Wilmar; at least not yet. But it has the resources, cash, market and parentage to get there. It's a question of execution.

Going to CHIONG soon.... quickly board b4 it is too late hor

Flash floods hit southern Thailand rubber areas
By Ambika Ahuja and Apornrath Phoonphongphiphat
BANGKOK | Tue Nov 2, 2010 1:32pm IST
BANGKOK (Reuters) - Heavy rains drenched the main rubber growing region in Thailand on Tuesday, flooding comercial hub Hat Yai, while 12,000 people were evacuated from bordering regions in Malaysia.
The downpours in the south of Thailand follow the worst flooding in decades in the northeast and centre of the world's biggest rubber exporter, covering a third of the country since early October.
The Department of Disaster Prevention and Mitigation says the national death toll from flooding is 104.
There were no immediate reports of deaths or injuries in the south, but water was reported to be as high as 2 metres (6 ft 7 in) in some areas and 80 percent of Hat Yai, the centre of Thailand's rubber trade, was flooded.
"The city is under water with no water and electricity. We estimate over 100,000 people are stuck in their homes," said Hat Yai's mayor, Prai Patano.
"In several hospitals, patients have been moved to higher floors, but the shortage of electricity, water and food is the main problem."
With telephone lines and electricity cut, rubber trading ground to a halt at the Hat Yai market.
Traders said the disruption to a major supply centre could push up the price of Thailand's benchmark rubber sheet towards the record high of $4.10 per kg it hit in April. It was offered at $4.05 per kg on Tuesday.
"The Hat Yai rubber centre is still open, but no one can bring rubber sheet to be traded there," said Jirakorn Kosaisawee, a senior Agriculture Ministry official.
Thailand's south produces around 90 percent of the country's annual output of about 3 million tonnes.
In neighbouring Malaysia, more than 12,000 people have been evacuated from northern states Perlis and Kedah, and other areas were on alert, state news agency Bernama said on Tuesday.
Traders in Malaysia said deliveries of rubber from Thailand have slowed down, creating some supply tightness for buyers in the rubber glove industry, which is dominated by Top Glove and Supermax.
"The floods have not hit the growing areas in Malaysia but the heavy rains are disrupting tapping activities," said a trader in Kuala Lumpur.
Malaysia is the world's No. 3 rubber producer, behind Thailand and Indonesia.
Output from Thailand routinely falls at this time of year, the rainy season in the south, but the flash floods were likely to make things worse. An industry official said farmers in more than half of the region's rubber areas had stopped tapping completely, which would cut output over the next few weeks.

CHIONG LIOW ARH....  Those who heed my call  HO SAY LIOW....