PETALING JAYA: Stronger demand for cocoa products amid a resumption of tourism activities has helped boost margin recovery for Guan Chong Bhd.

       The cocoa product maker saw the earnings before interest, taxes, depreciation, and amortisation (Ebitda) yield recover to RM1,400 per tonne in the fourth quarter ended Dec 31, 2021 (Q4) compared to RM879 in Q3 thanks to a higher sales ratio and lower input costs.

       Additionally, RHB Research noted that the Living Income Differential issue – a premium on the export price of cocoa for the 2020/2021 season introduced by C？te d’Ivoire and Ghana in 2019 – remained manageable.

       “We take comfort from the margins recovery seen in the second half of financial year 2021 (FY21),” the research house said.

       It added that strong demand moving forward will continue to anchor growth for the group.

       According to the International Cocoa Organisation, Q4 grindings data signalled that cocoa demand was strong amid the reopening of the global economy with bean surplus and affordable cocoa beans supporting the increase in cocoa processing activities by chocolate manufacturers.

       With the estimated bean surplus to carry over into 2022, cocoa bean prices should remain affordable, RHB opined.

       “Besides, with more than 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 the second half of the year,” it said.

       The group saw improved earnings in Q4 with net profit rising 9.5% year-on-year to RM51.2mil from RM46.8mil a year earlier.

       Revenue rose 6.4% to RM1.09bil from RM1.02bil previously on competitive input costs and sales volume increases despite the uptrend in cocoa bean prices.

       For the full year, net profit still came in lower at RM156mil compared to RM222.7mil in FY20 due to lower average selling prices in the first half of FY21.

       Nonetheless, revenue grew 6.5% to RM3.9bil in FY21 from RM3.7bil previously.

       RHB expects a better performance into FY22 on pent-up global demand, growing contributions from overseas operations and from the group’s expansion drives.

       It has kept its forecast unchanged and maintained its target price on the counter at RM4.

       At 13 times the FY22 price-earnings ratio, RHB said investors should position into a stable consumer product name like Guan Chong, given its unique global presence and 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.