Tue Apr 06, 2010

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

Monday April 26, 2010

Rubber prices reach new highs

By HANIM ADNAN
nem@thestar.com.my

Rise in global demand, tight supply among factors

PETALING JAYA: Rubber is one of the hottest commodities traded so far this year with price rallies seen in most international rubber exchanges.

Tyre-grade Standard Malaysian Rubber (SMR 20) has also been hitting new highs particularly in the past three months and currently trading above the RM10,600 per tonne level.

According to Association of Natural Rubber Producing Countries (ANRPC) director-general Prof Djoko Said Damardjati, tightness in rubber supply would remain an issue amid an upsurge in demand from China and India for their booming auto and tyre manufacturing industries.

“Severe drought, the current wintering season as well as active replanting activities in most major producing countries could affect rubber output.

“Even the preliminary estimates from members of ANRPC indicate that the global rubber supply is unlikely to rise above 6% this year,” he told StarBiz recently.

ANRPC had earlier estimate that global rubber production could reach 9.5 milllion tonnes this year, up by about 6.3% from last year’s 8.9 million tonnes.

Djoko also expected rubber supply to remain tight until 2011. A large extent of existing yielding trees in major producing countries were planted in 1980s.

“Most of the trees planted have reached declining yield phase, thus the age composition of the existing yielding area is unfavourable for yield improvement,” he added.

Djoko noted that Indonesia and Malaysia had undertaken active replanting activities since 2005.

“I believe rubber prices will remain firm for quite some time until supply recovers, possibly by early 2012.”

Apart from the buoyant demand and drought-ridden supply, he said other factors influencing the rubber market included the weakening US dollar, volatility in yen and the increasing crude oil prices.

Members of the ANRPC countries account for about 94% of the total world natural rubber production.

Interestingly, more than 45% of global consumption of natural rubber is in China, India and Malaysia, which are the major consuming countries in the ANRPC.

ANRPC in its latest report said imports from China during January to February surged 63% for natural rubber and 118% for compound rubber compared with the same period last year.

During the same period, India posted a 17% increase in natural rubber consumption, given the large-scale capacity in its auto tyre manufacturing operation.

Meanwhile, Hwang DBS Vickers Research has also raised its 2010-2012 forecast rubber prices by 39% to 44% as its previous forecasts had not taken into account the price recovery on the back of stronger crude oil prices.

The brokerage said: “We believe strong demand recovery for the automotive sector in China and supply constraint due to ongoing conversions to oil palm and the wintering season between February and April would contribute to the jump in rubber prices.Our assumptions are factoring in 29% lower prices in the second half of 2010 compared with the first half.”

One analyst with a local stockbroking firm said the recent automobile industry statistics unveiled that the pick-up in the auto sector in China and the United States had been strong.

The automobile industry is the single biggest user of latex, easily consuming about 70% of the world latex production.

While some might argue that the price upsurge could be short-term given the traditional low supply wintering season, however, many feel that the current price hike was a reflection of strong demand.

“Even with a possible price reduction down the line, natural rubber prices are unlikely to ease to the low levels of December 2008 and January 2009,” he added.

Wednesday April 14, 2010

Tips on how to file your income tax and claim exemptions

By Dr Choong Kwan Fatt

EVERY employee when filing the tax return (Form BE) for year of assessment (YA) 2009 on April 30 has to understand the concept of income exemption, deduction and relief in order to maximise the tax benefits available under the Income Tax Act 1967 prior to paying the legally required amount of income tax.

Income Exemption: Generally, any amount paid by the employer to the employee in relation to having or exercising an employment will be taxed. This refers to employment income such as salary, bonus, gratuity, commission, allowance, director fees and many other forms of remunerations as stated in section 13(1) of the Act.

The Government, however, would from time to time legislate through the Act or gazette order (PU(A) Orders) on the category of income paid by the employer where tax exemption will be granted. This means that such income will be excluded from the income tax computation.

In short, the phrase “income exemption” refers to employment income that is excluded from taxability.

Deduction: Employee can only deduct expenses incurred in carrying out the employee’s duties provided allowance has been received from the employer. This generally refers to travelling allowance, entertainment allowance and meal allowance.

Income tax only imposes tax on net income, ie. after deduction of the required expenses incurred in discharging the performance of the employee’s duties. The amount to be taxed is mathematically computed as follows:

With effect from YA 2008, payments by the employer to the employee in the form of child care allowance, payment of traditional medicine and maternity expenses constitute tax exempt income to the employee. The amount paid in relation to these expenses by the employer is tax deductible against his business income and yet not taxable in the hands of employees.

The relationship between the employer and the employee is illustrated in the above table.

If the employee incurred on his/her own child care, medical expenses on traditional medicine or maternity expenses, these expenses are not deductible from the employment income due to the followings:

● no allowance has been received from the employer on these items;

● it is not related to the carrying on of the employee’s work;

● it represents personal expenses which are not permissible under the Act.

The Act only permits the deduction of expenses provided it is incurred “wholly and exclusively” (the sole objective test) in discharging the performance of employees duties as stated in section 33 of the Act.

Tax Planning: Since the expenses are tax deductible to employer, it would be tax efficient for the employee to forgo their bonus in exchange for these benefits as child care allowance, medical expenses on traditional medicine and maternity expenses that are given by the employer to the employee are tax exempt on the employee’s hand.

Alternatively, employer may consider providing these benefits to the employee at the additional cost to the business but it gives employee loyalty to the firm in long run.

Tax relief: The Act provides a list of items deductible from any income earned by a resident individual in order to relief him/her from tax burden. These expenses are essential to provide welfare to an individual and are given to any resident individual irrespective whether he/she is earning business income, employment income or investment income. The resident individual refers to an individual who has been staying in Malaysia for at least six months.

Click
here for the complete article by tax consultant Dr Choong Kwai Fatt from the Faculty of Business, Universiti Malaya, as he takes you through the basic issues on how to file your tax returns before the April 30 deadline.

http://biz.thestar.com.my/news/story.asp?file=/2010/4/14/business/6027384&sec=business

By Michael Tan | Mar 29, 2010

How to squeeze your housing loans to maximize your returns?

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First things first, decide. Are you planning to make money or save money in properties? If you answered “Saving money from properties”, this article may not be suitable for you. I’m here to share with you how you can use your property loan to make money for yourself. In fact, I know some people who have such proficiency at earning via this method, that they have retired within 5 years of starting!

With the information I am about to share with you, doubtless some will disagree. And to take all potential variables into consideration would be an endless task, however, should you use this method with care, you should be able to maximize your returns from your loans and make tons of money from your property while still keeping it!

To understand how this works, let’s go through a couple of basics. In general, does a property appreciate or depreciate in price? Now, how about a property loan? The answers are quite obvious; a property should, one hopes, appreciate in value whilst your regular monthly payments will reduce the amount outstanding on the loan secured against it.

So looking at the diagram above, how can you make money from your loan? As your property appreciates in price, and your loan reduces, the amount of equity (in other words, cash) in your property increases. In this situation, there is an easy way to access that tied-up capital: refinancing. The banks will also be aware if your property has increased in value, and the majority will be more than happy to increase the loan amount on it for you, assuming that you can demonstrate you can afford the increased loan, and there is sufficient equity in the property. This way, you still own the property and are able to cash out some money from it. Ideally, it would be best not to increase the loan tenure whilst refinancing, even if the new monthly payments are a little higher, as this will end up costing you more in the long run.

Here’s an example of how this works. Let’s take a property worth RM300K, with a loan of RM270K. We assume that the property does NOT appreciate with time. The illustration below is with a fix loan of 6% p.a.

Looking at the table below, you can easily take out RM20,000 every 5 years. However, you should only do this for your investment properties which are bringing you good rental yields. If you are able to rent your property out for 7% and above, you can be rest assured that your tenants will be paying for your profits while you are cashing out on your property at least every 5 years.

However, there is never a guarantee that property prices will ALWAYS go up, so it is never wise to overextend yourself completely. The clever investor will always keep a rainy day fund to ride out dips in the markets.

With that in mind, Happy Investing!

Property Details 0 yrs 5 yrs 10yrs 15yrs 20yrs 25yrs 30yrs A. Property Value 300,000 300,000 300,000 300,000 300,000 300,000 300,000 B. Down Payment (10%) 30,000 30,000 30,000 30,000 30,000 30,000 30,000 C. Balance (A – B) 270,000 270,000 270,000 270,000 270,000 270,000 270,000 Financing Details D. 25yrs Loan 270,000 243,000 206,000 157,000 90,000 0 - Unrealized Capital (C – D) 0 27,000 64,000 113,000 180,000 270,000 - E. 30yrs Loan 270,000 251,000 226,000 192,000 146,000 84,000