• Company profile. Guan Chong Berhad (GCB) is involved in the manufacturing and trading of cocoa-derived food ingredients and cocoa related products. The Group’s products include cocoa liquor, cocoa butter, cocoa cake and cocoa powder.

• Lower input cost amid falling raw material cocoa prices (FIG1) may trigger re-rating for GCB. Cocoa prices corrected more than 40% from its peak of US$3,422/mt in 2015. YTD basis, prices continued to plunge nearly 8%. Given the lower coca price of below 2,000 mark today, we can expect positive impact towards GCB’s bottomline. QoQ basis, slightly stronger ringgit of RM4.20-4.30 vs RM4.40-4.50 in CY1Q17 is positive for GCB as raw material is priced in US Dollar.

• Technical outlook. GCB is currently hovering above the SMA200 and has recent experienced a breakout above the RM1.07 level, accompanied by higher volumes. Also, the MACD Histogram has turned green, in tandem with the MACD Line, which is trending positively above zero. The RSI has just crossed above 50; indicating short term momentum is positive. Should there be a breakout above RM1.09 (downward trendline), we may anticipate that the price will surge towards the RM1.18-1.24 levels, followed by a long term target of RM1.30. Meanwhile, the support will be pegged around RM1.02-1.04, with a cut loss point set around RM1.00.

Source: Hong Leong Investment Bank Research - 20 Jun 2017