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Background: GMG is an integrated natural rubber company with corporate headquarters in Singapore. It owns upstream plantations in Africa and has mid-stream processing operations globally. In 2008, China-listed Sinochem International acquired a 51% stake in GMG, giving the company a link to China, currently the world’s biggest consumer of natural rubber.
Recent development: Natural rubber price has resumed its upward rally since the plunge in March on fears over Japan nuclear fallout. On a 12-month basis, spot prices in Malaysia for, say, tyre-grade rubber are up 48% to US$4,500/ tonne while GMG’s share price has remained flat.
Key ratios…
12-mth trailing PER: 16.3x
Price-to-book: 2.1x
Dividend per share / yield: 0.3 cts / 1.3%
Net cash position: $8.5m
Source: Company, Bloomberg
Share price S$0.23
Issued shares (m) 3,839
Market cap (S$m) 883
Free float (%) 30.6
Recent fundraising activities Rights issue July 09 – price $0.0055, 9-for-10, raised $100m
Financial YE 31 Dec
Major shareholders Sinochem Int’l – 51%, Gondobintoro family – 18%
YTD change -22%
52-wk price range S$0.205-0.345
Our view:
Higher rubber prices contribute directly to profitability. Although it is a net consumer of natural rubber, with its own supplies contributing about 24% of processing tonnage, GMG still stands to benefit from higher rubber prices. This is because its processing operations are essentially a cost-plus type of business, while prices above its breakeven of US$1,500/tonne contribute directly to its gross profit.
Right side of planting cycle. With a tight supply situation, rubber prices could trend upward further. Unlike many other agricultural commodities, the scenario of a sudden flood of new supply to take advantage of the price boom is unlikely. This is because rubber trees take seven years to gestate and another three years to reach peak production. The situation was exacerbated by the conversion of many rubber plantations to palm oil over the past decade.
Looking like a good year. The average rubber price last year was about US$3,500/tonne. If prices this year continue to be high, profitability would see a significant jump from last year, as this year will also be the first full-year contribution of its newly acquired Thailand subsidiary, Teck Bee Hang.
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