Guan Chong to raise cocoa production capacity
PETALING JAYA: Robust cocoa demand will continue to drive Guan Chong Bhd ’s financial performance through the remaining quarters of its financial year ending Dec 31, 2024.

The cocoa product and chocolate manufacturer, which had a strong start to the current financial year, is already working at raising its production capacity to support growth.

In its report, RHB Research said Guan Chong’s production growth in both its Ivory Coast (tax-free) and UK plants would serve as medium-term catalysts for the company.

“We remain bullish and see upside risks to our estimates during this super-cycle, bolstered by the historic high combined ratio on sustained cocoa demand coupled with limited grinding and bean-on-offer,” the brokerage said.

It noted that Guan Chong’s stellar financial performance for the first quarter ended March 31, 2024 (1Q24), was in line with its sanguine earnings growth outlook for 2H24 – due to newfound pricing power, as highlighted in its positive post-results briefing session.

RHB Research maintained its “buy” recommendation on Guan Chong at a higher target price of RM5.10, up from its earlier target price of RM4.70.

Guan Chong’s net profit increased almost four-fold to RM92mil in 1Q24 from RM23.8mil in 1Q23. Its 1Q24 revenue grew to RM1.9bil from RM1.1bil in 1Q23.

“Management hinted that production is operating at full capacity, with this year’s capacity well-covered with only some solids still available to meet short-term demand,” RHB Research said.

It noted that 20% of Guan Chong’s butter capacity had been sold for 2025, and the company was targeting to secure more forward sales at the current elevated ratio.

“The historic high combined ratio (butter ratio: more than three times, powder ratio: more than 0.7 times) is anticipated to remain for at least the next three to six months, due to ongoing supply disruptions, until the main crop season resumes in 4Q24,” RHB Research said.

“This elevated combined ratio is expected to result in stronger earnings three to six months later, due the forward selling mechanism.

“There is an upside risk that the butter ratio may stay elevated structurally, even if the supply of beans improves (favourable weather) and prices normalise,” it added.

On its production capacity, Guan Chong recently added 5,000 tonnes at its Ivory Coast plant, and the company was also looking to increase capacity by 20,000 tonnes more in Asia, with additional pressers installed by 2H24.

In the United Kingdom, additional industrial chocolate capacity of 6,000 tonnes will be installed in 2H24, bringing the total capacity to 22,000 tonnes, alongside liquor and butter-melting facilities.

The capital expenditure planned for the extra facilities is estimated at RM120mil.
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Robust cocoa demand will continue to drive Guan Chong Bhd’s financial performance through the remaining quarters of its financial year ending Dec 31, 2024.