New facility to lift Guan Chong 4Q performance

Higher average selling prices to help drive earnings

“The declining trend of energy costs and higher average selling prices are expected to drive better profitability.” RHB Research

PETALING JAYA: Guan Chong Bhd had a weak third quarter of the financial year 2022 (3Q22), but its final quarter will come in better thanks to the contribution from the group’s new cocoa grinding facility in Ivory Coast.

RHB Research understands the Ivory Coast plant has commenced operations and is slated to ramp up output to optimal capacity by December, with the expectation of a full contribution in financial year 2023 (FY23).

“In addition, the declining trend of energy costs and higher average selling prices are expected to drive better profitability for its Schokinag operations in Germany moving forward, along with the capacity expansion for industrial chocolate,” the research firm said in a report.

The cocoa grinder’s net profit for 3Q22 was down 10.74% year-on-year (y-o-y) to Rm30.76mil due to rising interest rates and a weaker ringgit.

For the nine-month period (9M22), profitability was lower by 22.8% y-o-y to Rm129mil, which made up 61% and 60% of the research firm’s and consensus’ full-year estimates.

However, the research found that a higher cocoa powder ratio and lower cocoa bean prices improved year-to-date earnings before interest, taxes, depreciation, and amortisation (Ebitda), offsetting the lower cocoa butter ratio and higher freight costs.

“The 9M22 Ebitda yield recovered to an average of RM1,235 per tonne, versus RM1,080 per tonne in the same period in FY21.”

According to RHB Research, more than 60% of the overall capacity (including Ivory Coast) in FY23 has been sold with an uptick in the butter ratio, while the cocoa powder ratio continues to be on an uptrend amid lower inventory levels in Asia, normalised freight costs and sustained demand across the market for chocolate products.

“We cut our FY22 forecast earnings by 14.8% but keep our FY23-FY24 forecast earnings relatively unchanged after factoring in higher interest expenses and a lower contribution from Schokinag,” said RHB, which maintained a “buy” call on Guan Chong with a RM4 per share target price.