KUALA LUMPUR: Guan Chong Bhd is expected to see stronger earnings in the second half of 2022 due to maiden earnings contribution from its new Ivory Coast cocoa grinding facility, according to AmInvestment Bank Research.

       The group is involved in the manufacturing of cocoa-derived food ingredients, namely cocoa mass, cocoa butter, cocoa cake and cocoa powder.

       “Guan Chong’s prospect as a recovery play remains intact, in our view. The group will continue to benefit from the further pick-up in international tourism and the reopening of borders while the gradual ease in freight rates will help to restore its product competitiveness.

       “The group has locked in more than 80% of its 2022 tonnage requirements as of end-February,” said the research firm.

       AmInvestment Bank Research is optimistic about Guan Chong’s medium-to-longer term outlook.

       Guan Chong is involved in the manufacturing of cocoa-derived food ingredient

       It said the group’s growth will be underpinned by earnings before interest, taxes, depreciation and amortisation (Ebitda) yield improvement as freight rates gradually ease, recovery in cocoa butter average selling price to be bolstered by demand revival for upmarket chocolates and overseas expansion plan.

       It noted that the stock is trading at an undemanding valuation of 13 times price-earnings (PE) 2022 estimated earnings per share compared to Bursa Malaysia’s Consumer Product Index’s historical average of 19 times PE.

       Key risks include slower-than-expected recovery of the tourism industry, high volatility of cocoa bean price and persistently elevated logistic costs.

       AmInvestment Bank Research pointed out that Guan Chong’s first quarter ended March 31, 2022 (1Q22) core net profit of RM53mil (4% higher quarter-on-quarter, 57% higher year-on-year) was largely in line with its and consensus’ expectations, accounting for 20% of its full-year estimate and 21% of consensus.

       Guan Chong’s Ebitda yield in 1Q22 remained healthy at RM1,377-per-tonne level (4Q21: RM1,290 per tonne), thanks to lower input costs and stronger operating leverage due to higher production volume on recovering demand.