RHB Investment Bank has maintained a “Buy” recommendation for Guan Chong Bhd with a trading price of RM4.00, based on an unchanged 18x P/E – on par with the Consumer Product Index as well as the neutral impact from the ESG overlay as the score of 3.0 is in line with our country median.
It said that at an attractive 11x FY22F P/E, we believe investors should appreciate GUAN as an international cocoa grinder with a growing global footprint and multiple growth catalysts adding that the key downside risks are sharp fluctuation in raw material prices and weakening demand.
RHB said that it expects performance to further improve on stable input costs and pent-up global demand. The current below-peer valuation provides attractive entry to a global F&B supply chain player with a significant earnings base and diverse multi-national corporation clientele
The investment bank does not expect GUAN to incur extra tax payable in FY22F from Cukai Makmur, as profits generated from its Malaysian subsidiaries are well below the MYR100m mark.
It said that it expects a stellar 4Q21, in line with the recovery seen in global cocoa demand from the performances of major grinders. Cocoa bean prices should remain relatively stable, with an estimated bean surplus to carry over into 2021-2022, according to the International Cocoa Organisation.
“Besides, >80% of FY22 forward sales have been covered, with improved demand seen for its industrial chocolate in Germany – Guan Chong intends to add another 10,000 tonnes to its 90,000-tonne capacity, while its Ivory Coast plant’s readiness to contribute in 2H22 all points to a better FY22, “ the Investment Bank said