KUALA LUMPUR: RHB Research is optimistic over Guan Chong Bhd 's prospects as its recent financial result showed improvements in both its topline and margin.
"We expect a better performance into FY22 on pent-up global demand, growing contributions from overseas operations, and expansion drives.
"The current below-peer valuation provides a buying opportunity to a valued and stable consumer name like Guan Chong with an increasing global footprint," it said in a report.
In 4Q21, the cocoa manufacturer's revenue and core earnings stood at RM1.09bil and MYR51.2mil, indicating significant quarter-on-quarter and year-on-year improvements on competitive input costs and sales volume increases despite up-trending
cocoa bean prices.
The research firm kept a positive outlook on demand after noting that 4Q21 grindings data from the International Cocoa Organisation signaled that cocoa demand was strong amid the reopening of the global economy.
It said bean surplus and affordable cocoa beans were supporting the increased cocoa processing activities by chocolate manufacturers.
"With the estimated bean surplus to carry over into 2022, cocoa bean prices should remain affordable.
"Besides, with >90% of FY22 forward sales already covered and improved demand seen for its industrial chocolates in Germany, we can expect FY22 to resume the growth path on top of maiden contributions from Guan Chong’s Ivory Coast plant in 2H," it said.
RHB maintained its "buy" call and RM4 target price based on an unchanged price-earnings ratio, which is on a par with the consumer product index.
"At an attractive 13x FY22F P/E, we believe investors should position into a stable consumer product name like GUAN, given its unique global presence and growth angle from international expansions, building on its current earnings base secured by its forward selling mechanism.
"Key downside risks include sharp raw material price fluctuations and weakening cocoa demand," it said.