RHB Research said it remains upbeat on the company’s stellar earnings outlook for the fourth quarter ending Dec 31, 2024 onwards.
PETALING JAYA: Cocoa manufacturer Guan Chong Bhd
’s financial performance is expected to remain strong on sustained demand supported by higher prices of cocoa beans.
RHB Research, which has kept a “buy” call on the stock together with a revised target price of RM6.22 a share from RM5.10 earlier, said it remains upbeat on the company’s stellar earnings outlook for the fourth quarter ending Dec 31, 2024 (4Q24) onwards, supported by forward sales at favourable ratios and normalised production volumes.
“Current price-earnings valuation of six to seven times is very compelling for Asia’s largest grinder, supported by robust earnings growth. The recent proposed Transcao Côte d’Ivoire acquisition, with access to additional capacity, could provide further upside,” it added.
Guan Chong announced in October that it was talking exclusively with Transcao’s shareholders for a 25% stake that would see the company have an even bigger presence in Ivory Coast, the world’s largest producer of cocoa beans.
“We expect the high cocoa butter average selling prices (ASPs) to prevail from 4Q24 onwards and into financial year ending Dec 21, 2025 (FY25), given the nine-to 12-month forward selling mechanism,” it said, adding that despite the increases in bean costs and working capital, healthy year-on-year earnings growth were buoyed by increases in sales for cocoa solids and higher ASPs.
“The current robust cocoa market conditions are anticipated to continue in view of the ongoing supply shortage due to adverse weather, swollen shoot virus, and backlog levels – coupled with sustained strong demand – which results in the prolonged elevated combined ratio.”
The research house pointed out that Guan Chong’s revenue over the nine-month period of FY24 of RM7.1bil was a record high, with growth of 99.2% year-on-year although the RM242mil in earnings was slightly below the house’s expectations mainly on higher-than-expected interest costs but within the market’s forecast at 68% of full-year estimates, with expectations of a strong close to 4Q24.
