KUALA LUMPUR: Guan Chong Bhd, one of the top cocoa processors in the world, may see a 30% to 50% increase in revenue for FY12 ending Dec 31, say fund managers with guidance from the management. Its second production line at Batam, Indonesia commences operations in March or April this year.
The second line at Batam will increase Guan Chong’s annual cocoa grinding capacity, in Malaysia and Indonesia combined, by over 40% to 200,000 tonnes.
For FY11, the consensus is for Guan Chong’s revenue to come in at around RM1.3 billion, compared with RM1.17 billion in FY10. A 30% to 50% increase in FY12 will lead to revenue of RM1.69 billion to RM1.95 billion.
“Margin per tonne may be lower [in FY12] but overall group performance will be sustained [due to higher revenue],” its managing director and CEO Brandon Tay Hoe Lian told The Edge Financial Daily in a recent phone interview.
For the nine months to Sept 30, 2011, Guan Chong posted a net profit of RM90.47 million on a revenue of RM990.36 million, an increase of 58.4%, and 18.4% from a net profit of RM57.11 million and revenue of RM836.30 million in the same nine-month period in 2010. For the full FY10, net profit was RM101.15 million on the back of RM1.16 billion in revenue.
Guan Chong is principally involved in manufacturing cocoa-derived food ingredients — cocoa butter, cocoa powder, cocoa cake, and cocoa liquor (cocoa mass). These products are mainly used to produce chocolates, dairy products, bakery products, instant drinks, confectionery and chocolate drinks.
In a statement to Bursa Malaysia recently, Guan Chong said its second production line at Batam is expected to start commercial production in March or April this year. The line will increase Guan Chong’s total annual cocoa grinding capacity to 200,000 tonnes from 140,000 tonnes currently.
Guan Chong’s first production line at Batam has an annual production capacity of 60,000 tonnes, while its plant in Pasir Gudang, Johor, has a capacity of 80,000 tonnes.
Tay expects the additional capacity in Batam to be absorbed by orders from new multinational corporations and existing customers, which include global chocolate manufacturers like MARS, Hershey’s and South Korea’s Lotte Confectionery.
Tay said the recent rebound of cocoa prices will not significantly affect Guan Chong’s margins as most price changes are passed on to its customers.
Cocoa prices surged in recent weeks due to concerns that the nationwide strike in Nigeria (the world’s fourth largest producer) would disrupt supplies, Bloom-berg reported.
For instance, cocoa futures for March delivery were up by as much as 15.9% from US$2,028 (RM6,165.12) per tonne on Jan 9 to US$2,350 per tonne on Jan 12. However, prices are still low compared with a peak of US$3,593 per tonne in March 2011.
“We sell forward as far as a year [into next year] and stock up more than two months of our needs of raw materials,” Tay said.
He added that higher cocoa future prices had actually encouraged more cocoa bean production in countries such as Indonesia, where Guan Chong’s Batam plant sources its cocoa from. And as the company sources cocoa internally in Indonesia it avoids paying taxes, giving it a better cost advantage. This is the main reason Guan Chong is expanding its capacity in Indonesia, the third largest cocoa producer in the world.
On the industry outlook, Tay said demand for cocoa products will remain relatively steady or slightly better than 2011.
Guan Chong’s short-term plan is to ensure that its enlarged operation (with the second production line at Batam) runs smoothly, he said.
“We have been increasing our capacity from 80,000 tonnes in 2010 to 200,000 tonnes in 2012 in just a three-year time frame. We need to digest the increased capacity and fine-tune our overall performance to the top,” he said.
On its long-term plans, Tay said: “We will continue to seek opportunities to expand Guan Chong’s downstream business and synergy to invest in related industries.”
Guan Chong, with total issued shares of 319.74 million, had a market capitalisation of RM745 million at its close of RM2.33 on Tuesday. It had a book value of 78.4 sen as at end-September 2011.
Its share price has gained around 6% over the past 52 weeks and has traded between a 52-week high of RM3.10 and a low of RM1.69.
Since its listing in 2005 until 2010, Guan Chong has chalked up compound annual growth rates of about 30% for revenue and 43% for net profit.
In FY10, Guan Chong paid total dividends of 10.625 sen per share representing a payout ratio of 27.5% of its profit for the year. For FY11, it has declared dividends amounting to 9.25 sen per share to date, pending the release of its 4QFY11 results. In 2010, Guan Chong set a dividend policy of 25% which will take effect from FY11.
According to Bloomberg data, Guan Chong is trading at a forward price-earnings ratio of 6.3 times, a wide valuation compared with its Singapore-listed peer Petra Foods Ltd, with a forward PER of about 15 times.
This article appeared in The Edge Financial Daily, February 2, 2012.
The second line at Batam will increase Guan Chong’s annual cocoa grinding capacity, in Malaysia and Indonesia combined, by over 40% to 200,000 tonnes.
For FY11, the consensus is for Guan Chong’s revenue to come in at around RM1.3 billion, compared with RM1.17 billion in FY10. A 30% to 50% increase in FY12 will lead to revenue of RM1.69 billion to RM1.95 billion.
“Margin per tonne may be lower [in FY12] but overall group performance will be sustained [due to higher revenue],” its managing director and CEO Brandon Tay Hoe Lian told The Edge Financial Daily in a recent phone interview.
For the nine months to Sept 30, 2011, Guan Chong posted a net profit of RM90.47 million on a revenue of RM990.36 million, an increase of 58.4%, and 18.4% from a net profit of RM57.11 million and revenue of RM836.30 million in the same nine-month period in 2010. For the full FY10, net profit was RM101.15 million on the back of RM1.16 billion in revenue.
Guan Chong is principally involved in manufacturing cocoa-derived food ingredients — cocoa butter, cocoa powder, cocoa cake, and cocoa liquor (cocoa mass). These products are mainly used to produce chocolates, dairy products, bakery products, instant drinks, confectionery and chocolate drinks.
In a statement to Bursa Malaysia recently, Guan Chong said its second production line at Batam is expected to start commercial production in March or April this year. The line will increase Guan Chong’s total annual cocoa grinding capacity to 200,000 tonnes from 140,000 tonnes currently.
Guan Chong’s first production line at Batam has an annual production capacity of 60,000 tonnes, while its plant in Pasir Gudang, Johor, has a capacity of 80,000 tonnes.
Tay expects the additional capacity in Batam to be absorbed by orders from new multinational corporations and existing customers, which include global chocolate manufacturers like MARS, Hershey’s and South Korea’s Lotte Confectionery.
Tay said the recent rebound of cocoa prices will not significantly affect Guan Chong’s margins as most price changes are passed on to its customers.
Cocoa prices surged in recent weeks due to concerns that the nationwide strike in Nigeria (the world’s fourth largest producer) would disrupt supplies, Bloom-berg reported.
For instance, cocoa futures for March delivery were up by as much as 15.9% from US$2,028 (RM6,165.12) per tonne on Jan 9 to US$2,350 per tonne on Jan 12. However, prices are still low compared with a peak of US$3,593 per tonne in March 2011.
“We sell forward as far as a year [into next year] and stock up more than two months of our needs of raw materials,” Tay said.
He added that higher cocoa future prices had actually encouraged more cocoa bean production in countries such as Indonesia, where Guan Chong’s Batam plant sources its cocoa from. And as the company sources cocoa internally in Indonesia it avoids paying taxes, giving it a better cost advantage. This is the main reason Guan Chong is expanding its capacity in Indonesia, the third largest cocoa producer in the world.
On the industry outlook, Tay said demand for cocoa products will remain relatively steady or slightly better than 2011.
Guan Chong’s short-term plan is to ensure that its enlarged operation (with the second production line at Batam) runs smoothly, he said.
“We have been increasing our capacity from 80,000 tonnes in 2010 to 200,000 tonnes in 2012 in just a three-year time frame. We need to digest the increased capacity and fine-tune our overall performance to the top,” he said.
On its long-term plans, Tay said: “We will continue to seek opportunities to expand Guan Chong’s downstream business and synergy to invest in related industries.”
Guan Chong, with total issued shares of 319.74 million, had a market capitalisation of RM745 million at its close of RM2.33 on Tuesday. It had a book value of 78.4 sen as at end-September 2011.
Its share price has gained around 6% over the past 52 weeks and has traded between a 52-week high of RM3.10 and a low of RM1.69.
Since its listing in 2005 until 2010, Guan Chong has chalked up compound annual growth rates of about 30% for revenue and 43% for net profit.
In FY10, Guan Chong paid total dividends of 10.625 sen per share representing a payout ratio of 27.5% of its profit for the year. For FY11, it has declared dividends amounting to 9.25 sen per share to date, pending the release of its 4QFY11 results. In 2010, Guan Chong set a dividend policy of 25% which will take effect from FY11.
According to Bloomberg data, Guan Chong is trading at a forward price-earnings ratio of 6.3 times, a wide valuation compared with its Singapore-listed peer Petra Foods Ltd, with a forward PER of about 15 times.
This article appeared in The Edge Financial Daily, February 2, 2012.
