RHB Research expects Guan Chong’s Schokinag operations to chalk a record-high performance from lower input costs and higher ASPs.
PETALING JAYA: Guan Chong Bhd
’s strategy of forward selling, strong sales channels and diverse clients will help keep its earnings intact given the near-term uncertainties in the chocolate industry.
Contribution from its Ivory Coast plant and the turnaround at its Schokinag facility in Germany should provide upside too.
The current uncertainties in the chocolate industry with the high price of cocoa beans do provide an entry level exposure to the global consumer footprint at below-mean valuation, said RHB Research.
It said Guan Chong is in no hurry to sell its forward capacity at a lower ratio while the majority of the customers are also delaying purchases.
Effectively managing inventory to a lower quantity is carried out to reduce the carrying costs.
The research house noted Guan Chong’s management is of the view that the bean price volatility should subside once supply and demand reach equilibrium and/or market absorbs the new price level.
All the commodities hedging losses booked earlier would translate into higher revenue and margin going forward.
Cocoa butter products were less affected by the high bean prices as it was well covered by the lower raw material prices secured earlier, RHB Research added.
Slower re-pricing of cocoa powder’s average selling price (ASP) may compress the near-term margin, but the research firm expects Guan Chong’s Ivory Coast plant to support its second half bottomline once exports start to flow and the market stabilises.
RHB Research expects Guan Chong’s Schokinag operations to chalk a record-high performance from lower input costs and higher ASPs.
It revised its target price for Guan Chong to RM3.11 a share to account for the overall uncertainties in the industry.
The research outfit said risks to its call include sharp raw material price fluctuations, weakening cocoa demand, and risks in the company’s expansion plans.
Historic-high cocoa bean prices this year were caused by tight bean supply and the El Nino phenomenon.
