Rubber: DBSV has comprehensive sector report. Note that Natural rubber asset prices are driven up on scarcity and recommends to take positions in upstream and processors. Add that Motorisation, rising hygiene standards in emerging markets, mining, logistics, travel are driving demand but supply response is slow due to conversions to oil palm, long gestation period and erratic weather….
House top picks are KL Kepong, Goodpack and Hartalega. Also like JA Wattie and Sri Trang. Believe huge gap between rubber (US$46b annual value) and palm oil (US$56b annual value) listed counters reveals tendency for more M&A activities going forward. Recommend investors position themselves in upstream planters and processors as scarce value of rubber assets are driven higher up the value chain.
GMG: DBSV Initiate Coverage with Hold Rating and $0.22 TP. Note that GMG’s acquisition of Teck Bee Hang) has the potential to boost GMG’s profit level, and GMG could achieve significant earnings accretion if the grp can return TBH back to profitability with comparable margins to industry peers…..
Add that GMG’s Sinochem parentage should provide grp with financial backing to acquire smaller players strapped by significant working capital requirements. House view that stock is fairly valued at current level, as it has priced in favourable view of both NR prices and processing margins. Any potential upside should come from a turnaround in TBH, with 1Q11 results having shown promising development.
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