Author: AmInvest Publish date: Wed, 11 Dec 2019, 3:03 PM
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Investment Highlights
We initiate coverage on Guan Chong with a BUY call and fair value of RM3.49/share based on an FY21F PE of 13x. Our P/E is at a discount to the group’s international peer’s average forward P/E of 19x. The discount is placed because its peers have a more integrated downstream/upstream operation whereas Guan Chong is a pure upstream player. We believe that the PE of 13x is justified given the group’s strong market position as the 4th largest cocoa grinder in the world as well as its upcoming growth plans.
Guan Chong has flourished in recent years, transforming itself into the world’s 4th largest supplier in the oligopolistic cocoa grinding market with its latest acquisition and expansion, increasing its capacity to 250K MT per annum.
We highlight the following key investment merits: 1) The resilient outlook in the global chocolate confectionery sector underpinned by: (i) rising disposable income; (ii) improved retail distribution; and (iii) changing lifestyles resulting in the emergence of the preference for dark chocolate. This is further buoyed by the recent uptick in demand for cocoa powder in Asia. 2) To capitalize on growth prospects, Guan Chong has put in place an expansion plan in Ivory Coast to benefit from direct sourcing of cocoa beans as well as to tap into the biggest market of consumer chocolate confectionery in Europe. There has been a shift in approach of the world’s top 3 cocoa grinders whereby they are increasingly relying more on external supply of cocoa-food ingredients as the manufacturers focus more on chocolate confectionery manufacturing. This means that Guan Chong’s output can easily be taken up to cater to the chocolate confectionery manufacturers’ requirements.
We expect Guan Chong’s earnings to grow by 4.6% and 22.4% in FY20–21F driven largely by: (1) increasing contribution from its expansion plans; (2) better margins due to improved cocoa powder pricing and raw material hedging; and (3) organic growth in the chocolate confectionery market which will increase the demand for cocoa-derived food ingredients.
Wondering why there isn't much of an interest here from the more well known investors on this forum like Icon and Phillip. Extremely high ROC, earnings growth, revenue growth, Decent EBIT/EV to boot.
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From the look of it...there are always some ppl collecting when it fall...thus the fall may be big intraday but always closed the day marginal drop. Collecting patiently....
Was reading the forum at serba, those mentioned that the free warrant has a set ceiling price. Dun understand. Anyone can shed some lights? Cos GCB frre warrant price has set a base price but went beyond that based on supply and demand.
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kllady_fidah
1,700 posts
Posted by kllady_fidah > 2019-12-09 15:49 | Report Abuse
im back