Investment Highlights

• We maintain our BUY call on Guan Chong (GCB) with an unchanged fair value of RM3.48/share, using an unchanged 15x FY22F EPS. There is no ESG-related price adjustment for our rating of 3 stars.

• We remain positive on the group’s recovery prospects in FY22F as well as the addition of the planned German bean grinder facility to its pre-existing expansion plans.

• Here are some takeaways from GCB’s meeting on last Friday:

1. GCB experienced its lowest quarterly EBITDA yield of RM924.5/MT in 3 years. This is in line with shipping delays, high freight costs, a languishing premium chocolate market and uncertainty surrounding the Living Income Differential (LID) situation. Profit margins are expected to remain similarly depressed in 2QFY21, though surplus-induced lower bean prices may offset some downward pressure.

2. The group is poised for a mild recovery by 2HFY21, underpinned by the improving pandemic situation in Europe driving premium-chocolate sales. Further catalysts include the reopening of borders and the arrival of shipments delayed from 1HY21. However, we note that the upcoming 60% workforce restriction in Malaysia will likely drive down utilisation rates.

3. Cocoa butter bookings for FY22F look promising, with 60% capacity of full-year orders being filled in. In contrast, only 15% of FY21F sales were booked by this time last year.

4. The group’s Schokinag (SHC) facility maintains a steady performance, contributing to 23% of quarterly revenue and 13% of EBITDA in 1QFY21. It boasted a 12% YoY increase in revenue. The utilisation rate was at 75%.

5. In addition to its UK and Ivory Coast facilities, the group is now expending €58mil (RM292mil) for a German development that is set to take advantage of biomass incentives. While planning is still in its initial changes, the development is scheduled to have a production capacity of 25,000 MT of cocoa butter and 30,000 MT bean grinder, as well as melting and pulverizing facilities. The group believes that commission date may be somewhere between late 2022 and mid-2023.

Source: AmInvest Research - 31 May 2021