KUALA LUMPUR, Aug 10 — RHB Investment Bank Bhd has maintained its buy call on cocoa manufacturer Guan Chong Bhd (GCB) with a higher target price (TP) of RM4.30 from RM3.50 previously.
The bank in a research note today said the company’s production should improve further in the second half of 2020 as operations normalise while demand for mass market chocolate remains robust despite Covid-19.
“We believe its resilient earnings base in the current environment of sustained industry demand deserves a rerating, aside from multiple growth catalysts,” it said.
RHB bank said it expects the company’s second quarter 2020 earnings to remain robust, sustaining at between RM68 million and RM72 million despite the implementation of the movement control order (MCO), thanks to forward sales and relatively stable combined ratio.
“While the MCO affected many other manufacturers’ supply and demand dynamics, Guan Chong has managed to maintain its utilisation rate at an optimal level of 95 per cent and demand for mass market chocolate remains healthy as the stay-at-home theme plays out globally,” it said.
The bank said the Covid-19 pandemic has disrupted sales of the upmarket chocolate segment, which relies heavily on the tourism and hotelier industries, although his has been offset by stronger demand for mass market chocolate as lockdowns are driving consumers’ desire for comfort food.
It noted de-commoditising cocoa powder is also serving Guan Chong well during this challenging time, as it was able to offset any weakness in the sale of cocoa butter, which relies on the premium chocolate market.
Given the value-add customisation and wider usage of cocoa powder today, Guan Chong’s cocoa powder selling price is less susceptible to the external environment, it said.
“We expect it to continue to register positive growth despite the pandemic affecting the global economy.
“Demand for cocoa products remains healthy as consumers turn to comfort food during this period,” it added.
At 10.46am, Guan Chong slid nine sen to RM3.26, with 1.36 million shares changing hands. — Bernama
