GMG Global

GMG Global: Merrill Lynch Initiate at Buy with $0.50 TP.based on SOTP, with an implied FY11E PE of 15.5x, and offering a 75% potential upsiside. 2011 and 2012 rubber price assumptions are US$5.5/kg and US$6.5/kg. Note that Rubber is the ‘new black’ and sector is facing a severe supply shortfall post many years of underinvestment….

Note that with the rising demand driven by China and India auto, expect the rubber price rally to last till 2012, especially as we enter the winter season for rubber in 1H11. GMG (51% owned by Sinochem) is one of the world’s only few listed rubber play which has a presence from plantation, processing to distribution…..

Highlight that although GMG is blessed with supply security, it is still diligently seeking growth, both upstream and midstream. Its recent acquisition of Teck Bee Hang (Thai processor) has doubled its processing capacity. Coupled by the rising rubber price, FY11E profit is poised to grow by 127% YoY…..

Tip every 1% change in rubber price (ORA Comdty) to lift earnings by 4.1%, while solid parentage offers direct access to China market. Sinochem is China’s biggest rubber trader and China consumes a third of the world’s rubber production. Thus GMG has secured distribution into one of the most dynamic rubber markets. The relationship will also lower GMG’s distribution costs as third party marketing contracts cease.