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 announced on 25 November the results for its third quarter ended 30 September 2010. For the full results, you can get it here . Just briefly, on a year-to-date basis, revenue for the first 9  months more than doubled on-year, with GMG recording a profit of $32m, compared to a net loss of $0.3m in 9M09.

Tonnage sold increased by 29% and average selling prices increased by 78% in line with the increase in turnover of 130%. For the nine months to 30 September 2010, GMG Global's Pontianiak subsidiary, PT GMG Sentosa contributed 14,274 tons for the first time to the Group’s total sales tonnages.


Historical Performance

I pulled the financial results from its annual reports. Please note that the right most bar is the annualized 9M10 results. EPS peaked in 2006, with the trough being 2009. If everything goes on smoothly, based wholly on the above chart, EPS for FY10 should be about 2007, which was $0.0109.

It is also interesting to note that during the last bull-run, GMG Global's EPS has fluctuated wildly. This is most likely due to the fact that GMG Global is affected too by harvest conditions. While commodity prices have overall surged, GMG Global's financial performance will also depend on the tonnage it can produce.There are other factors which affects GMG Global's performance and they can be found in its financial statements.

Price and PE Ratios

This chart took sometime to produce. Trailing PE refers to the Price divided previous full year's EPS. For example, last friday's closing price would be divided over FY09 earnings per share. For forward PE, I am working on the assumption that we know what GMG's EPS will be for the coming year. In this case, based on last friday's closing price, the forward PE will be calculated by dividing it over the annualized FY10 EPS. Do note that the price chart has been adjusted for a recent rights issue.

The most obvious observation is that GMG Global has been trading at PE ratios under 20 until 2009. I can only guess that with Sinochem's entry into the company with a strategic stake, it has in some sense, increased valuations.

Ignoring FY09, it can be seen that forward PE for FY10 (yet to be concluded) of 25 times, is close to the historical peak in FY04. I have yet to draw a conclusion, but readers can study the chart more to draw your won. To be updated.