• We maintain our BUY call and forecasts with an unchanged fair value of RM4.36/share. Our valuation is based on a PE of 15x FY22F EPS.
   
• Guan Chong announced that through GCB Cocoa UK Limited, it has entered into a sale and purchase agreement with Philips Electronics UK Limited for the acquisition of the freehold property at Philips Avent Factory for a total consideration of £8.25mil (roughly RM44.3mil).

• The group intends to convert the property into a melting facility where cocoa butter will be melted into liquid form as a value-added service. This is in order to target more UK customers. The new melting plant is targeted to be completed in 2021.

• The rationale behind the acquisition is that it is a part of the group’s global expansion strategy. The proposed acquisition provides a great opportunity for Guan Chong to access the market in the UK.

• The acquisition will increase its net debt and gearing of RM655.9mil and 0.58x as at end-June 2020 to RM700.2mil and 0.62x respectively which we think is manageable.

• We continue to like Guan Chong for: 1) its growth potential from expansion plans; 2) its position as the 4th largest cocoa bean grinder; and 3) its stable earnings trajectory supported by an experienced management. The group’s first line in Ivory Coast is expected to be commissioned by 2H2021.

Source: AmInvest Research - 29 Sept 2020