Investment Highlights

• We reiterate our BUY call on Guan Chong with a same fair value of RM3.15, based on FY23F PE of 15x – 0.5 standard deviation above its 2-year mean of 12x. This reflects an unchanged neutral ESG rating of 3 stars.

• Pending an analyst briefing on Friday, we maintain our FY22FFY23F earnings which already account for the commencement of new grinding capacity of the group’s Ivory Coast plant. The plant has started commissioning lately and is expected to contribute positively to FY23F profit.

• Guan Chong’s 9MFY22 core net profit (CNP) of RM129mil was generally in line with expectations at 62% of our FY22F net profit and 60% of the street’s. In comparison, 9M accounted for more than 65% of FY20-21 full-year CNP.

• The group did not declare any interim dividend for the quarter under review, as expected.

• YoY, the group’s 9MFY22 revenue rose by 16% on the back of higher selling price of cocoa solids and sales volume of cocoa butter. Accordingly, 9MFY22 CNP was also up by 23%. The group’s 9-month sales tonnage increased by 12%.

• 3QFY22 CNP of RM31mil dropped by 11% YoY, dragged by: i) currency translation loss due to weakening of MYR against USD, ii) heightened finance charges as a result of higher interest rate, and iii) increased energy costs in its Germany plant.

• QoQ, 3QFY22 bottomline declined by 31% as revenue declined by 8% on similar grounds.

• We are positive on Guan Chong’s near-to-medium term outlook, underpinned by its new plant in the Ivory Coast which is expected to add 60,000 MT (+22%) of annual grinding capacity to its existing 270,000 MT per annum.

• 3QFY22 EBITDA yield slid 10% YoY to US$1,028/MT due to rising production costs although butter ratio continued to remain flattish during the reviewing quarter, partly cushioned by a higher powder ratio.

• The group currently trades at an undemanding FY23F PE of 10x, 17% lower than its 2-year average of 12x.

Source: AmInvest Research - 23 Nov 2022