Since Guan Chong is on the manufacturing (downstream) side, do you guys think the margins will be affected by rising cocoa input prices? Or do you think the cost can be easily pass down to the consumers?
The game changer comes when their processing facility at Ivory Coast commence operation in end 2Q or early 3Q. They would become more vertically integrated, able to drive better cost efficiencies and minimise supply chain risk as they able to source the beans from the origins and have better control of the supply chain. And via SCHOKINAG and establishment of subisi in UK, they would be able to supply directly to UK and Europe.
KUALA LUMPUR: Guan Chong Bhd (GCB) is cautiously optimistic with the company’s near-term prospects as beyond short-term shocks, the year 2022 has shown signs of being an international year of recovery, spurred by loosening pandemic restrictions and newly reopened borders.
Chairman Tan Ah Lai said the group faced another challenging year in financial year 2021 (FY2021) as the protracted COVID-19 pandemic and geopolitical tensions contributed to global inflation and supply chain disruptions.
"We are operating within an undeniably turbulent macroeconomic environment where existing imbalances caused by the COVID-19 pandemic have been exacerbated by the ongoing Russia-Ukraine conflict, creating a knock-on effect on consumer demand, business confidence and the global supply chain.
"Despite the sluggish global economy and logistical challenges, customers’ demand for cocoa-derived ingredients remained strong in 2021, resulting in a good increase in our production capacity and turnover compared to 2020. However, due to the fall in cocoa butter prices, we have recorded lower profitability in 2021,” he said in the FY2021 annual report.
He shared that numerous major events have impacted the cocoa grinding industry since its inception in the 1980s, however, the company had surmounted its previous challenges to rise to the ranks of becoming a leading global cocoa grinder.
Moving forward, Tan said that with chocolate consumption already on an upward trend, the resumption of global travel is likely to drive increased chocolate consumption.
To seize the opportunity of the economic recovery, the group had strengthened its position as a prominent global player in the cocoa supply chain, which saw many of its ongoing initiatives now reaching fruition.
Among them, he said the group’s Ivory Coast phase one factory is approaching completion while the planned construction of a new chocolate producing facility in the United Kingdom is set to conclude in FY2022, and GCB had also successfully enhanced the profitability, operational efficiency and improved utilisation of capacity for its German subsidiary SCHOKINAG.
"Our recent expansion into Europe, known for its high levels of chocolate consumption has placed us in a prime position to capitalise on the strong demand. At the same time, the commencement of cocoa grinding operations at our facility in Ivory Coast will also see us begin to reap the fruits of our ‘close to source’ and ‘close to market’ expansion policies.
"Our newfound ability to source cocoa beans directly will provide us with a shorter bean-to-ingredient cycle compared to our other facilities, mitigate future supply chain risks, and provide us greater control over our production and logistic operations,” he said.
To boost efforts in widening our European footprint, he said the group planned to allocate RM50 million in capital expenditure to upgrade SCHOKINAG’s existing chocolate production lines and set up additional machineries to increase production capacity at the SCHOKINAG plant during 2022.
"With these expansion plans coinciding fortuitously with the expected uptick in global economic growth during FY2022, we remained optimistic in significantly furthering the GCB brand as a key multinational player in the global cocoa and chocolate supply chain in the coming year,” he noted.
Tan said the group's past progressive expansion had now put GCB as the world’s fourth-largest cocoa grinding company, with a total of 277,000 tonnes in annual bean grinding capacity which provides them with both the scale to mitigate against any supply-side shocks and the financial clout to overcome any dips in global demand.
On Europe as a hub for growth in the mid-to-long term, he said the group will continue to expand its presence in Germany and the United Kingdom, while constantly monitoring its investment to adapt to the market trends.
He said that with the planned RM50 million to be invested in upgrading SCHOKINAG’s existing chocolate production lines, its annual industrial chocolate production capacity will increase by 10,000 tonnes.
"Our global expansion strategy, which was planned in the years prior to the pandemic and is coming to fruition, set the stage for a resurgent performance as the world enters the ‘new normal’, securing our place as a key multinational player in the global chocolate supply chain.
"These expansion plans are targeted to be completed by the end of 2022, with the benefits expected to be realised from 2023,” he added. - Bernama
B1. Review of performance The Group’s revenue of RM990.5 million for the current quarter ended 31 March 2022 is higher than the revenue in the previous corresponding quarter ended 31 March 2021 of RM960.1 million. The increase of 3.17% in turnover is mainly due to increase in selling price and volume of cocoa solids. B2. Comment on material change in profit before tax The Group made a profit before tax for the quarter 31 March 2022 of RM64.6 million as compared with the profit before tax of RM40.9 million in the preceding year corresponding quarter ended 31 March 2021. This is mainly due to improved margin, and also contributed by lower production cost achieved through higher production volume during current quarter ended 31 March 2022. B3. Commentary of prospects With international borders reopened for travel and the pandemic behind us, we expect the demand for cocoa ingredients to grow in tandem with the improved chocolate consumption in developed markets of US and Europe. However, the ongoing Russia-Ukraine conflict is disrupting the supply of oil and natural gas into Europe, resulting in high energy cost in Europe and worldwide. On top of this, recent inflationary pressures and interest rate spikes may also create uncertainty to the economy and affect our business performance. The container shortage issue has slightly eased off in the second quarter this year as we see reduction in freight cost lately. This will improve our products’ competitiveness and reduce the impact to our business in the near future. We are confident in our long term prospects. The Group will continue to place strong focus on exploring new markets, especially in the European region for its wide range of cocoa ingredients as well as industrial chocolate, and optimizing production according to the market conditions.
I am able to read the 2 analyst reports below, the annual report and also the latest QR report.
Here is the summary: We remain optimistic on Guan Chong’s medium-to-longer term outlook with its future growth underpinned by: i) EBITDA yield improvement as freight rates gradually ease; ii) recovery in cocoa butter ASP to be bolstered by demand revival for upmarket chocolates; and iii) overseas expansion plan.
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