Sustained earnings recovery seen for Guan Chong

PETALING JAYA: Guan Chong Bhd is charting steady earnings recovery going by its performance for the first half of 2022 (1H22).

The cocoa manufacturer recorded revenue and net profit of Rm2.19bil and Rm97.9mil, respectively during that period.

RHB Research said a similar performance in the 2H22 is expected, backed by stronger numbers from its Schokinag operations on lower energy costs and sustained robust demand, plus higher production capacity.

The research house said the group’s earnings in 1H22 had met its expectations but missed (analysts’) consensus, with its 39% year-on-year growth aided by higher sales tonnage and stronger margins from lower raw material costs and better margin economies of scale.

“Current valuation is attractive for Asia’s largest cocoa grinder, with its consistent earnings base and diverse clientele,” said RHB Research.

The said phase one of the 60,000 tonne per year Ivory Coast plant expansion is currently under commission. The first production is expected in 4Q22 after some delays in its construction.

In Germany, it said exorbitant energy costs are expected to inch lower in the subsequent quarters, driving profitability of the Schokinag operations.

“The capital expenditure (capex) of €10.5mil

(Rm47.7mil) for facility upgrades are expected to be completed by 4Q22, bringing the total capacity to 100,000 tonnes of industrial chocolate to cater for the strong orders from major confectionery brands,” it added.

Meanwhile in the UK, the research house said Guan Chong has a planned capex of £31mil (Rm167.7mil) to install advanced machinery for 16,000 tonnes of industrial chocolate production by 4Q22.

Guan Chong is trading at an undemanding nine times FY23 forecast price-to-earnings, noted RHB Research. It kept a “buy” call on the stock with a RM4.15 target price.