Sale of Halcyon Agri (former GMG Global)

In line with my expectation that the market will start to turn bearish, I have sold my shares in Halcyon Agriculture. This is probably the shares I have held the longest - 108 months. However, despite the promise of a big China auto boom, over the 108 months, I have taken a 40.8% loss on the counter.

I am currently left with 4 counters, F&N, Delfi, Colex and Hong Leong Finance. I will look at slowly disposing them.

Gone Girl: GMG Global and Super Group

I finally submitted my acceptance of the Halcyon Agri offer for GMG Global shares. This will result in me having odd lot shares of the enlarged group, with fractional entitlements being rounded down. This leaves me slightly worse off. I do not have a significant investment in GMG Global and I am content to let the share ride into the sunset or sunrise, the latter being preferred.

As for Super Group, the new offer by the Dutch company will only take me to my breakeven point. I have been acquiring the company's shares since 2014. The bonus issue was supposed to bring me joy but alas.

With two more months of the calendar year, I am now tasked to look for suitable stocks to deploy the cash that will be freed up from the Super Group offer.

Financial results out for Colex, GMG Global, Hong Leong Finance, Petra Foods and Super Group

Collected my first dividend worth SGD 210 from F&N in February.

By the end of February, most of the Singapore listed-company's 2014 full-year results were out and I will review two of them quickly below.

Colex Holdings

Revenue for this waste disposal and cleaning services company increased 11.5% to SGD 58.7 million due to rollover effects of existing contracts at a higher value and new contracts secured. As a result, earnings less minority interest increased 56% to SGD 4.3 million. The improvement in net profit margins. 

Working on the recent last done price as well as a year ago, PE ratio remains stable year-on-year at around 8.2-8.3 times. PB increased to 1.4 times from 1.1 times in 2013. Yield has however fallen to 1.9% from about 3.0% a year ago.

The company cited manpower costs as the main challenge going forward. I will need to do more research how the various government incentives will impact the compact. Based on the results and ratios, I will say that the company is priced with almost no further upside unless dividend payout increases. 

What to do with $30,000 free cash?

The portfolio value for measuring 2015’s performance is SGD 115, 736 and this includes an assumed SGD 15,000 cash injection. This will be corrected for any dividends I may have missed out for 2014, once the yearly SGX statement arrives in my mail.

At the end of today’s trading day (8 January), the portfolio is valued at SGD 116,158 and it comprises almost SGD 30,000 in cash, and SGD 86,000 in five stocks – Colex, F&N, GMG Global, Petra Foods, Super Group. Only Colex and Petra are in the money. I am sitting on a 30% loss for Super Group as it claims to be affected by the impasse in Thailand. The feeling is not so super. GMG Global and F&N are slightly less in the red (-24.5% and -10.7% respectively). GMG has rallied in the start of the year, against the trend of falling natural rubber prices and this may imply a possible cash call.

I am going to stick my head out and say that 2015 will be a good year to buy stocks. My gut feel tells me that when the price of crude oil reaches almost bottom, about USD 45 per barrel, it is time to load up. I have provided the link for your reference. http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=10y 

The shrinking of balls

After getting fully vested in stocks on 13 October, the last thing I wanted to see was a stock market meltdown. The American stock market fell steeply this week and this spread globally, with the STI falling 44 points on 16 October. Given that my basket of stocks is mainly defensive,  I did not expect to be hurt badly but I was surprised to see Petra post a one day fall of 35 cents, wiping out SGD 2,500 in my portfolio's value.

That said, the timing of my recent acquisition was premised on this article by Kenneth Fisher, whom I turn to for indicators. It was written in May and argued then that the fourth quarter should see some gains amid volatility. He has been correct on the volatility part. Reading Fisher's piece that reinforced my impulse and convictions, and so I pulled the trigger on the F&N purchase. 

What ever left needed to be convinced about F&N, was in the form of a Motley Fool article. To a large extent, F&N replaces Etika (now Envictus) in my portfolio as the latter has already disposed of its dairy business. I am not convinced that there will be future growth in Envictus' remaining business given that they have been weak traditionally. Management has hinted at the possibility of property development, but I am skeptical of Malaysia property. I am just waiting for an opportunity to offload the stock. 

I've also been reading bad things about Super Group to the extent I am regretting my purchase, which was done pre-bonus. The Super buy was done at relative high average prices and forms the biggest chunk of stocks by original value. The chronic weakness of the stock has left a gut wrenching feel to my stomach. Nevertheless, I will probably sit on this investment for a while more. If the market improves, and the stock does not move in the same manner, I will probably let Super Group go. Two more stocks on the sell list are GMG Global and Envictus but that is for another time. 

GMG Global makes big acquisition

GMG Global recently announced its full year results and a big acquisition. The acquisition of a Belgian company already in Africa, Siat,  is is expected to cost GMG Global SGD 230 million in cash. I will try to provide an extended analysis much later but for the moment, this acquisition represents an exciting development due to its scale. According to the announcement, Siat has total natural rubber concession of approximately 51,500 hectares. Since the takeover by SinoChem, GMG has embarked on mega deals, consolidating its position and adding capacity. But is this sustainable?

GMG Global 1-for-1 Rights Issue

GMG Global announced today a 1-for-1 rights issue, at 9.1 cents per rights share. This is the second time in two years that the company has proposed such a fund raising exercise. The company said that the proceeds may be used for acquisitions or financing purposes. The full document can be read here. I should be subscribing to the rights issue via the ATM.

Update December 31, 2011: I applied for 20,000 rights and 2,000 excess. In the end, I have got only 1,000 excess on top of my entitlement. This brings the total number of GMG shares I currently hold to 41,000 at an average price of SGD 0.094.

GMG Global Post Strong 2Q11 On Lowbase

GMG turnover for 2Q 2011 was $288.4 mil (47,409 tons sold) compared with $80.7mil for 2Q 2010 (19,069 tons sold).

For the six months ended 30 June 2011, turnover was $571.2mil with 92,856 tons sold compared with $288.4mil with 40,273 tons sold in the corresponding six months of 2010.

Increase in tonnage sold was due to (1) maiden contribution from the Group’s new subsidiary, Teck Bee Hang, (2) net increase in external purchases from its factories and (3) increase in trading tonnage.

However in its Hevecam plantation, the prolong heavy rainfalls had impacted production in the first six months ended 30 June 2011.

Gross profit for 2Q 2011 was $31.9 mil (GP margin 11.1%) compared with $17.4mil for 2Q 2010 (GP margin 21.5%).

For the six months ended 30 June 2011, gross profit was $73.9mil (GP margin 12.9%) compared with $39.3mil (GP margin 24.0%) in the corresponding six months of 2010.

The decrease in gross profit percentage was due to the increase in the Group’s tonnage sold from its processing facilities in 1H 2011 compared with 1H 2010. Rubber produced and sold from its plantation operations has a higher gross profit margin compared to rubber purchased from third parties for processing operations. The increase in sales revenue and tonnages sold in 1H 2011 over 1H 2010 was due to the 44,153 tons from its new subsidiariy, Teck Bee Hang, which currently has five processing factories.

GMG posts strong 1Q11

SINGAPORE – 21 April 2011 – GMG Global Limited (“GMG” or “the Group”), Singapore’s listed integrated producer of natural rubber engaged in the planting, growing, tapping, processing, marketing and exporting of natural rubber; recorded outstanding growth for three months ended 31 March 2011 (“1Q11”).

The Group’s revenue increased 241.8% y-o-y to S$282.8 million from S$82.7 million in 1Q10. The strong growth was supported by a 59.5% increase in average selling price of rubber from S$3,902 per ton in 1Q10 to S$6,223 per ton in 1Q11.

Read more here.

Sgxstockpicker says: I believe that GMG's stock price should be lower because of the situation in the Ivory Coast. However, based on what I can see, GMG's stock is heavily supported by the "big boys". This stock is waiting for the next catalyst to go past 30 cents, and I believe that the catalyst will be greater earnings visibility for 2Q11 when, the impact of the closure of Ivory Coast's ports will be accounted for. GMG has said that almost 12% of revenue comes from that part of the world.

What did he really mean by volatile and choppy?

I was reading Today yesterday evening and I saw one of those seminar advertisement.  In the small colored space was a claim that the speaker had correctly predicted the nature of 2010's stock market - volatile and choppy. I pity the fool who believes everything he reads in the newspaper, what more marketing paraphernalia.

Stock Portfolio Review 2010: "Better than I had expected"

The S&P500 index started the year at 1115.10 points and ended at 1257.88 or 12.8 per cent higher. Despite the possibility of a double dip recession, the American stock market managed to chalk up positive gains on the account of more stimulus from the Federal Reserve, notwithstanding the lack of jobs created.

Over in Singapore, the story was much brighter. Not only did the economy surge by double-digits, unemployment rate was also supposedly at its lowest. The Straits Times Index started the year at 2897.62 and added 10.1 percent to close 3190.04.

If you were able to recall, many analysts were very bullish at the start of the year, calling that that 3,200 mark to be easily broken by the middle of the year. The STI only traded in that region for the month of November and has since been weak. I myself was calling 2010 a year that the market will move up a little and this has been accurate to the extent that I did not give specifics.

For 2011, if this is part of a long term secular bull run, I am guessing that the STI will move up 5-8 percent. At the moment I can envision plenty of scenarios that will cause the stock market to trade weaker - China raising interest rates, America raising interest rates (very unlikely), Eurozone meltdown II - but I am a net optimist because there is just too much money avoiding the developed countries. The inflow of capital to Singapore and the region will be the main driver of higher asset prices. That said, I do hope that the MAS increase interest rates to prevent the US dollar from slipping to ridiculous levels against the Singapore dollar. 

How did the portfolio do?

Reflecting on GMG Global and China Animal Healthcare

I'm sorry it's another GMG Global post. Are all political risks the same. Does it really matter.

For those who were young enough to watch the Matrix when it first screened in the cinemas, you will remember that there was one scene where the dialogue goes (you can find the scene here):

Oracle: I'd ask you to sit down, but, you're not going to anyway. And don't worry about the vase.

Neo: What vase?

[Neo turns to look for a vase, and as he does, he knocks over a vase of flowers, which shatters on the floor]

Oracle: That vase.

Neo: I'm sorry...

Oracle: I said don't worry about it. I'll get one of my kids to fix it.

Neo: How did you know?

Oracle: Ohh, what's really going to bake your noodle later on is, would you still have broken it if I hadn't said anything?

Unless you have been stuck in an airport in Europe due to the snow, you will most likely know that shares of GMG Global - China Animal Healthcare to a greater extent - have taken a beating, falling below the $0.30 mark with heavy volumes. The reason has been plastered in the papers, that the political turmoil in the Ivory Coast has affected GMG Global's operations there. This has affected its shipments of rubber out of the African country's ports.

The political strife in the Ivory Coast resulting from the elections was not entirely foreseen. If you read this article, GMG Global Poised For Big Things, written at the start of the year, you would have been informed of the possibility of turmoil buried all the way in the second last paragraph.

White, Grey and Black Swans

But the question is, would it have mattered at all? If you had not bought the stock at the start of the year because you were worried about the risks, you would have lost out on a 2-bagger up till this point in time. But if you did bought the stock only recently due to its proposed acquisition of Tek Bee Hang, you would have ended up losing a small fortune. There are just so many ifs in life.

The lesson learnt (on hindsight?) here for me is that if there are certain risks that are flagged from the beginning, the onus lies on the investor to keep track of the events that will cause downside. Already it was mentioned that the elections would be contentious. On my part, I could have and should have at least find out what are the latest developments with regards to the Ivory Coast elections.

I am sure that GMG Global is not the first and only SGX-listed company to be affected by political events. Banyan Tree Holdings, which runs resorts in the region, comes to my mind. It too had been affected by the political events in the kingdom which has since reach and uneasy stand still. Bangkok has only recently declared the lifting of martial law.

Factoring political risks in the long run

Political events have both upside and downside risks. If you have the appetite and ability to short, political events are golden opportunities for making loads of money. Just ask George Soros or any "special situations" or "event driven" fund manager.

But such events fall into a spectrum in terms of returns and probability and are very lumpy. Political events can be global or regional with the boundaries very blur. 9/11 can be considered a global event while the Ivory Coast election a micro one.

How should we factor these political risks when valuing the attractiveness of a stock? How would value-investors do it? I really have no answers to the question I posed. And to rephrase the Oracle, would you have not bought or sold the stock, even if someone no one told you that there will be conflict in Ivory Coast?

But there are things we can do to protect our portfolios. Diversification is the most common answer. Limit 10 percent of your portfolio in terms of total cost to any one stock, should dampen the downside. And by using percentage of cost to total portfolio cost, it does not force you to re-balance every year, something I find deleterious to performance.

Staying current is a more tiresome alternative. That would mean trawling the news everyday for developments that are linked to the political risks already defined for a particular stock. This is very demanding and further complicates the investing process, as the investor willingly gets bombarded by the noise in the media. Moreover, you can never really tell how an event will play out. Did you know that America would invade Iraq as a consequence of 9/11, even though Iraq had nothing to do with the whole incident?

I am not actively monitoring the happenings in Ivory Coast which are affecting GMKG Global's stock price negatively. I would preliminarily say that there will be another stalemate, since the incumbent which was voted out has refused to vacate the office. The light at the end of the tunnel won't be seen so early and blood will be shed. However, I am confident in the next 3 months that some sort of truce can be ironed out.

Updates On GMG Global and C&O Pharma

GMG Global recently announced that it would acquire slightly more that a majority stake in Thai rubber producer Teck Bee Hang for a nominal fee of USD 909. However, GMG Global will make out significant loans to Teck Bee Hang amounting to at least SGD62 million for the purpose of working capital as well as to finance outstanding debt. GMG Global says the move fits its expansion strategy and intends to turnaround the Thai rubber producer by 2011.

Meanwhile, C&O Pharma Tech announced that Japanese conglomerate Sumitomo Corp will acquire a 29% from Executive Chairman Gao Bin for $96 million. This is about 50 cents per share and will make the Japanese conglomerate the second largest shareholder after the company's Executive Chairman himself. The announcement was made after the company was halted from trading for two days since Tuesday.

SGX Stockpicker Says...

GMG Global : Trading Halt

GMG Global announced early on Monday morning that it would be halted pending an announcement. Given that it had a rights issue last year and that in terms of price movement before trading was halted, there was nothing spectacular, my guess is that the trading halt has got to do with developments in Africa. We will only know probably after the trading day has ended. BB.

Edit

Looks like I got it wrong. GMG intends to acquire a Thai rubber processor, which is in negative equity. GMG intends to turnaround this target by 2011. read more here http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_FC49C640D3F3C192482577EA0015FF36/$file/Announcement_Acquisition_TBH.pdf?openelement

Added (29 November 2010 11.30pm Singapore)

here are some little known facts:

1. the target is part of the Tan Kah Kee group of businesses
2. it once monopolized the Thai rubber market in the very early days till political reforms set in
3. based on 2008 figures, TBH is the 9th largest rubber exporter.

GMG Global: A Brief Analysis

From the website, GMG Global is a Singapore-based plantation group dedicated to long-term investments in Central, West Africa, and Asia.

GMG is an integrated producer of natural rubber engaged in the planting, growing, tapping, processing, marketing and exporting of natural rubber. The Group's emphasis is on producing premium rubber products for Europe, American and Asian markets.

GMG focuses on centrifuged latex and tyre-grade rubber; in addition to two supplementary products: block rubbers of latex and skim; "centrifuged latex grade rubber" used in gloves, condoms and adhesives industry and "tyre grade rubber" used in the manufacture of tyres (for cars, commercial trucks, machineries, etc).

In 2008, there was a shift in the shareholding structure of GMG with Sinochem International Corporation acquiring 51% of the GMG shareholding. Sinochem is publicly listed on the Shanghai Stock Exchange, and comprises a diversified international group specializing in the trading, manufacturing and transportation of chemicals, plastics, and rubber and metallurgy products. In the field of rubber business, Sinochem is placed at the top in the PRC in terms of natural rubber sales.

Besides having its first processing facility in South Kalimantan (P.T. Bumi Jaya), GMG expanded further into Kalimantan with a 75% stake in a joint venture (PT GMG Sentosa) and completed takeover on 15 January 2010 of a processing facility in Pontianak, West Kalimantan, that has an annual production capability of 25,000 metric tons.

Recent Developments

There was a recent leadership change in the management in GMG Global. In July, GMG Global's Chairman Xian Ming, who is also from Sinochem International Corporation, was appointed as CEO, replacing Elson Ng. The latter is part of the GMG Global's original founding members and stays on as an advisor to the company. Taking over the position of Chairman was also another Sinochem International Corporation individual, Zhang Zhengen.

More recently in September, in response to a query to SGX over a sharp spike in trading activity, GMG said that was currently in discussions with certain parties to acquire a foreign company in Southeast Asia which is engaged in rubber production and trading. However, GMG said no agreement has been reached on the Proposed Acquisition, and there was no certainty as to whether such Proposed Acquisition will take place.

GMG also added that it was also in the process of embarking on a new rubber related project in Africa. To that end, it has since setup a JV company in Cameroon specifically for the development of natural rubber plantations.

Financial Results

GMG Global Tops Active List

How long must an investor wait before the stock he buys,carries out what was promised? About a year if GMG Global is to be a case in point. Refer to my earlier post, where I had griped that GMG Global was mostly stagnant in terms of share price, despite promising M&A action after a cash call.

Well, the M&A has finally come, albeit still in the discussion phase and 11 months late. On a cosy Wednesday, GMG Global almost touched $0.30 after news that it was in preliminary talks of an Africa project as well as buying up a SEA rubber producer, seeped into the market. GMG Global also said in response to an SGX query, that the share price spike could have been due to a Bloomberg report that natural rubber prices may surge.

These are very positive developments for the company nonetheless. In my opinion, GMG Global has developed into an extension of the Chinese economy, having access to strategic rubber assets in the world. The move to place Sinochem-linked people at the top position was the writing on the wall.

However, rather than chase a hot stock, there is still a need to look long-term. I believe that while the Group has cautioned that the developments may not happen, it is just a statement placed to indemnify them. That said, it will still take time for GMG Global to materialize such talks and the impact on earnings will not be seen at least till FY11.

GMG Global Annual Report 09/10: CEO's Message Sounds Good

CEO’s Statement

2009 was marked by global financial and economic crisis, and our Company encountered a very difficult year which saw an unprecedented slow down and uncertain market outlook in USA and Europe. Although the Group generated a lower profit compared to FY2008, overall we are confident of our medium to longer term prospects. Besides attending to crisis management, much attention was paid to building the Group’s core competence, integration, team building, identifying and implementing M&A targets and preparing the Company for further growth in the years ahead. At the same time, our Company has built up a significant financial strength via capital injection to support its strategy to expand its output significantly via M&A in South East Asia. We have the desire, ambition and a plan in place to double or even triple output over the next two or three years. Management is making all efforts to pave the way for the Company towards becoming a large sustainable integrated Natural Rubber (“NR”) operator of competitive strengths in the years ahead.

Rubber scenario

The Natural Rubber prices saw high volatility during 2009. It swung from a low US$1050 per ton in January 2009 after falling from a near US$3000 level in 2H 2008, to a high of US$3000 per ton in late 2009. The average 2009 prices were below 2008 average. The auto sector in North America and Europe was adversely affected but fortunately, auto market in China remained robust. China ranked before USA as the biggest auto market in the world with about 13.5 million vehicles sold in 2009. In 2009, China increased its share of the world aggregate rubber consumption (natural & synthetics) to almost 40%. We are very pleased with the timely entrance of GMG into the China market leveraging on Sinochem expertise, market position and wide established distribution network, though both our traditional markets faced a slow down in demand. Generally, the NR producers/processors in the industry during 2009 encountered unprecedented long delayed shipment take-up by major tyre manufacturers under their long-term supply contracts.

Group’s performance

The Group’s annual sales tonnages for 2009 totalled 72,754 metric tons, higher than 62,802 metric tons in 2008, with total sales of S$180,207,232 (2008:S$245,645,055). However, the Group’s profit performance was affected by lower average selling price, stronger Euro/US$ exchange rate which resulted in an increase in operational costs. The foreign exchange impact on the Group’s Euro inter-company payables and the long delayed shipments take-up by major tyre manufacturers (which caused prices differentiation between lower contracted selling prices and higher rubber raw materials procurement prices under an upward price trend) also adversely impacted the Group’s profit performance. The Group has also completed its acquisition of a 30,000 metric tons annual capacity (with 25,000 metric tons capability)processing plant in Pontianak, Indonesia on January 15, 2010 through a 75% owned joint-venture entity PT GMG Sentosa.

Continued Commitment Towards Corporate Social Responsibility

GMG is a firm believer of corporate social responsibility and the commitment to its employees in its Cameroon and Cote d’Ivoire plantations and its Indonesian factories. The Group continues to provide appropriate and applicable social amenities to its employees and family, namely housing, kindergarten, primary & secondary schools, hospital and medical care including John Hopkin’s research, microfinance, economart, funeral assistance as well as providing support to smallholders of natural rubber.

Appreciation

2009 was a challenging year for the rubber industry and I would very sincerely like to express my appreciation to our shareholders, customers and business associates for their trust in us and their unwavering support. In addition, I would like to thank the entire management and staff of GMG for their loyalty, tireless efforts and faith in the Company and to stand united in the face of a challenging and difficult year. We strongly believe that together we can take GMG to new heights and translate our vision and aspiration into reality.

GMG Global: a Wilmar in the making?

Published April 6, 2010

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.

GMG Global: A Hot Stock But Why?

I dont believe in technical analysis but the common sense view is that GMG Global is overbought, with the latest frenzy occurring due to another writeup on the company by BT's Ven Sree. This writeup is more provocative as he goes to label GMG Global as possibly the next - gasp - Wilmar International.

The rest of his piece was stuff he used in an earlier writeup in January on why he thinks GMG Global is poised to capture the Chinese natural market, particularly Sinochem International as its controlling shareholder and the fact that China has limited natural rubber resource.

I am not complaining that GMG Global's shares have risen too fast. However, my mind is conjuring images of buying by funds of large blocks of shares in the company. Call it coincidence, but after the piece was published, GMG Global put up its presentation slides for a Shanghai roadshow. This indicates that the writer is aware of the company's roadshows, probably because GMG Global's corporate communication or public relations has been in contact with him or has invited him for the media cocktail or luncheon.

This is no mean feat, but what takes the cake, was that he managed to slip in a writeup on the same company twice within 3 months! Other than those news pieces, I hardly see a promo piece on a particular company in BT's Hock Lock Siew appearing more than once in a short span of time. More often, rants targeting SGX's market regulator cum operator status gets such airtime. Or some corporate scandal that is really juicy, which almost often involve the beleaguered S-Chips.

For those who like me have been vested in the company since last year, congratulations for the moment. For those wanting in, I am only fearful that GMG Global's excessive valuation will only make life for your portfolio harder.

GMG Global's long term prospects need no regurgitation as Ven Sree's piece says it succinctly. More PRC cars, higher demand for natural rubber, very resourceful and influential controlling shareholder. Short term correction will definitely occur once settlement date approaches and contra trades are settled. Based on my counting, it should be say 5 trading days from yesterday, where again you can see the crazy number of shares change hands.

GMG Global: Is Something Brewing?

The share price of GMG Global touched $0.16 yesterday a level it has not seen for sometime. With the fundamentals of the company relatively unchanged, the huge number of shares changing hands suggests two possibilities.

First, it could be that GMG Global is a beneficiary of the shift in interest to penny stocks given the relative lull in the broader market, with retail investors more interested in property (still) and Jack Neo/Ris Low/Random Incidents@RWS news articles.

Second, it could be that as some of the sensible forum posters have suggested, that people behind the scenes are accumulating shares so that they can be used for a future M&A deal. In this case, shares bought back (but they have to be declared don't they!?) will be used as part of the deal to the target, offsetting some degree of cash consideration.

But first, it is not impossible that GMG Global's recent rally was driven by fundamental reasons, most obvious being the climb in natural rubber prices. The price of natural rubber is affected namely by the automotive industry as more cars mean the need for more tires. And recent evidence suggests that with the return of consumer spending in China, GMG Global will be well poised to capture that geographical market as SinoChem International, a PRC SOE, has a strong network in the country.

What Is Likely