By Poovenraj Kanagaraj
RHB Retail Research said today Guan Chong (GCB) is running at an average utilisation rate of 90 percent during the Movement Control Order (MCO) and there have been only minor disruptions to operations.
“Its Ivory Coast and Europe ventures are key earnings drivers ahead,” said the research house.
The cocoa manufacturer also anticipates overall global chocolate demand to contract 2-3 percent YoY, dragged down by the premium segment, which relies heavily on tourism spending
The research house notes that the demand for mass market chocolates which accounts for 70-80 percent of market demand remains robust during the lockdown.
RHB Retail Research also warns of an unresolved living Income differential (LID) situation. GCB’s FY20 EBITDA margins are likely to be slightly narrower as well, due to lower production tonnage in the first half of the year and pressure from the sharp increase in bean prices since end of last year.
The company is avoiding Ivory Coast and Ghana beans for the time being, unless customers are willing to bear the LID premium
The situation should be more stable in 2021, once there is more clarity on the issue. GCB has, so far, locked in 85-90 percent of its 2020 sales and 20 percent of 2021 sales.
“Maintain BUY with a lower TP of MYR3.35 (from MYR3.45), based on 16x FY21F (from FY20F). Key risks to our call include cocoa bean price volatility and prolonged uncertain over the LID issue.