GMG

GMG: In a profit warning, GMG expects to report a loss in 2QFY14 due to the decline in the average selling price of natural rubber. We note that this follows after the group’s recent dismal 1Q14 performance, which saw net profit plunged 80% y/y to $2.6m, depressed by falling revenue, shrinking margins and losses at the associate level. Revenue dipped 3% to $226.5m as average selling price of rubber slumped 23.2% to $2,879/ton, partially mitigated by higher sales tonnage of 78,673 tons (+26.2%). Management had guided then for natural rubber prices to fluctuate near current levels of $2,265/ton in 2Q14, given the prevailing oversupply of the commodity. The group however plans to focus on increasing market share, as well as to manage operating costs and optimize production following the various mergers and acquisitions over the last few years. Amid the challenging operating environment, we note that recent data from the US showed that auto sales in the world’s largest economy rose 1.2% in Jun, clocking its highest level since Jul ’06, which could suggest better demand for the soft commodity ahead and potentially act as a support for falling rubber prices. GMG currently trades at 0.82x P/B versus peer Halcyon Agri’s 3.2x.