We recently had a meeting with GCB’s CEO, Mr. Brandon Tay and discussed key updates and outlook of the company. The discussion involves long-term vision for GCB and opportunities and challenges of being a Malaysian company competing with large and established companies from the US and Europe. The company has a sizeable market cap of RM3bn and a component of FBM70 Index and was included as constituent of MSCI Malaysia.

• Synergistic with “SCHOKINAG” acquisition. GCB is now the 4 th largest cocoa producer in the world. Strategically, it isimplementing a pivotal move to establish its footprint in largest chocolate consumption countries as it moves up the value chain from cocoa producer/grinder to chocolate manufacturer, in our view. In tandem with its plan at Cote D’ Ivoire, management intends to supply 50% Cote D’ Ivoire’s cocoa products to Schokinag. Schokinag is an industrial chocolate manufacturer and is well-positioned in Germany, offering a strategic geographical presence for GCB for the European market. Schokinag is able to produce full range of industrial chocolate with an industrial production capacity of 90,000 MT/year. Based on 1Q20 result, GCB revenue has increased 43% partly due to contribution from Schokinag.
• Expansion mode, prospects remain intact. In FY19, GCB had begun the construction of new grinding facility at Cote D’ Ivoire with estimated capex of EUR50-60m. The expansion comprises 4 phases, including a 60,000 MT/year cocoa grinding facility expected to fully commence in June/July 2021 based on Phase 1 plan. This brings the combined total GCB annual production capacity to 310,000 MT/year. Interestingly, once phase 4 completed, the new annual production capacity will rise to 440,000 MT/year.
• Operations, demand and supply amidst Covid-19 pandemic. GCB products constitute 90% exports in FY19. During MCO, the company is allowed only 50% workforce partly due to its status as essential services. Meanwhile, demand was effected due to virus outbreak especially in key markets (Europe, US and Asia). The demand from high-end and tourist market (airport & malls area) was impacted severely. On supply side, GCB’s cocoa beans stocks level was kept sufficiently to avoid any disruption in supply. Cocoa producers countries; Cote D’Ivoire and Ghana is not an epicentres, thus there is no issue with beans supply. For FY20, GCB has committed and sold forward its output, but FY21’s sales will be dependent on demand recovery.
• Financial Review. GCB’s revenue and PAT respectively has grown at 2- year CAGR of 17% and 55% over FY17–19. This was mostly contributed from i) increased sales of cocoa ingredients, ii) increased in ASP of cocoa ingredients and iii) higher sales volume due to increased grinding capacity from new factory, GCB Cocoa Malaysia. A 1st interim DPS of 1 sen was declared which is lower than 1Q19 DPS of 1.5 sen, translating to 14% dividend payout and low dividend yield of 0.3%. Nonetheless, the company has consistently declared dividends and even without dividend policy in the past years. In FY19, the payout ratio of 15.8% was at the highest level since 2017.

Source: BIMB Securities Research - 29 Jul 2020