KUALA LUMPUR: RHB Research expects Guan Chong Bhd to record similar performance in the second half (2H) of the year, backed by stronger numbers from its Schokinag operations on lower energy costs, sustained robust demand globally, and higher production capacity.
The company recorded revenue and net profit of RM2.19 billion and RM97.9 million, respectively, for H1, while earnings margin inched higher year-on-year (YoY) with a higher cocoa powder ratio and cheaper cocoa bean prices cushioning the lower cocoa butter ratio.
The bank-backed research firm noted that Guan Chong's H1 earnings met its expectations but missed consensus', with its 39 per cent YoY growth aided by higher sales tonnage and stronger margins from lower raw material costs and better margin economies of scale.
"We expect a similar performance in H2, with potentially stronger numbers from its Schokinag operations on lower energy costs, sustained robust demand globally, and higher production capacity.
"Current valuation is attractive for Asia's largest cocoa grinder, with its consistent earnings base and diverse clientele," said its analyst Lee Meng Horng in a report.
Guan Chong's earnings before interest, taxes, depreciation and amortisation (EBITDA) yield recovered to an average of RM1,271.3 per tonne thanks to better powder ratio, lower raw material prices, and economies of scale on higher production volumes.
The research firm said management guided for a continued uptrend in cocoa powder ratio and an inflexion point for cocoa butter ratio in the forward sales amid lower inventory levels in Asia, normalised freight costs, and more robust demand across the market for chocolate products – as evidenced by its secured forward sales activities of more than 95 per cent and 60 per cent for the financial years 2022 (FY22) and FY23.
"We understand that Phase 1 of the 60,000 tonnes per annum Ivory Coast plant expansion is currently under commissioning, with the first production expected in Q4 2022 after several delays in its construction.
"In Germany, exorbitant energy costs are expected to inch lower in the subsequent quarters, driving the profitability of the Schokinag operations.
"Capital expenditure (capex) of 10.5 million euros for facility upgrades is expected to be completed by Q4 2022, bringing the total capacity to 100,000 tonnes of industrial chocolate, to cater for strong orders from major confectionery brands," it said.
Meanwhile, in the UK, RHB Research said Guan Chong has a planned capex of 31 million pounds to install advanced machinery for 16,000 tonnes of industrial chocolate production by Q4.
RHB Research maintained a 'Buy' call on the stock for a potential earnings breakout in 2023, with an unchanged target price of RM4.15.