GMG

GMG: Could see positive sentiment, after Co announced a proposed acquisition and subscription of 35% of shares in Siat SA for Eur$192.6m or $319.1m. Siat is a Belgium Co. and has investments in Africa namely Cote d’Ivoire, Ghana, Nigeria and Gabon, focusing on upstream planting and production of natural rubber and oil palm.

Siat has total natural rubber concession of approximately 51,500 ha. To date, approximately 15,000ha have been planted and contributes to Siat's production and financial performance. (vs GMG approx. 20,000ha planted) The remaining unutilized concessions present potential opportunities for Siat to increase their production of natural rubber.

Grp is of the view that transaction is in line with strategy, citing recent new investments to existing operations in Cameroon and Cote d'Ivoire. Proposed Transaction will add to portfolio with inclusion of Siat's businesses in Nigeria, Ghana and Gabon and crate an enlarged African platform and further complement Grp's mgt expertise for its African businesses.

We note that transaction could be positive for GMG, whose recent expansions has been focused towards’ lower margin’ downstream processing, leading to a plunge in gross margins for FY11, with plantations contributing a mere 10% to total tonnage sold. Move also brings grp a step closer of being a fully integrated rubber player, while expansion in Africa could result in higher synergy among its African operations, where rubber operations in the continent command much higher gross margin at 20%+ vs Asean at 6-10%.

Overall, financial effects of the acquisition appears positive, which will see grp’s NTA flat at $854.8m, while EPS will increase to 1.89c, +42%, with grp still remaining in a net cash position.