MORNING CALL: 9/10/23

Rakuten Trade expects Guan Chong’s FY24 earnings to improve as the price of cocoa has been on a reversal since mid-September

Transcript

00:00 This morning, it's cocoa manufacturer Guan Chong, which sells its products under the

00:06 Favourites brand.

00:07 Rakuten Trade has a buy recommendation on the counter, with a target price of RM2.81.

00:13 The stock last closed at RM1.87.

00:17 So Guan Chong's business activities primarily comprise the manufacturing of cocoa-derived

00:22 fruit ingredients and a full range of chocolates and couvertures.

00:26 While cocoa prices have been on the rise in the first half of FY23, cocoa butter selling

00:31 prices will also increase, though at a slower rate.

00:35 So Rakuten expects Guan Chong's CoreNet earnings to stay flat at RM127.9 million for FY23.

00:43 But since cocoa prices have seen a reversal since mid-September, the research house sees

00:47 FY24 earnings improving by 43.2% to RM183.1 million.

00:54 Rakuten is cautious on Guan Chong's financial leverage, though, as its net gearing has reached

01:00 almost 0.9 times with interest coverage ratio of 2.1 times.

01:05 According to the company, more than two-thirds of the borrowings are in US dollars or other

01:09 foreign currencies, which act as a natural hedge against US dollar receivables and inventory.

01:15 Rakuten expecting Guan Chong to pay dividends of 2.7 cent for FY23 and 3.9 cent for FY24,

01:23 based on a 25% payout ratio.

01:26 This will translate into yields of 1.2% and 1.8% respectively.

01:31 So what's the consensus?

01:33 According to Bloomberg data, three other research houses cover Guan Chong.

01:37 Overall, we're looking at two buy and two hold calls, with target prices averaging out

01:42 to RM2.68.

01:44 The stock settled at RM1.87 on Friday, so that's a potential upside of about 43%.

01:51 [MUSIC]