(March 23): As the Easter holidays approach, higher cocoa prices mean shoppers are paying far more for their chocolate eggs and bunnies. But that’s just the tip of the iceberg.
Higher prices in stores now reflect increases in cocoa in 2023. Since then, the rally has gone into overdrive, and cocoa has more than doubled in price already this year, making it the world’s hottest commodity.
In just the last three weeks, wholesale beans in New York have jumped more than 47%, exceeding US$8,900 (RM42,164) a ton — a level that once seemed unthinkable

*GCB at RM1.84*

- While broad market remains volatile amid year-end holiday, profit-taking activities persists. This is again dampened by FED’s recent unexpected hawkish statement that they might not rule out further rate hikes, reiterating “higher for longer” and allaying earlier expectations of swift rate cut through 2024.

- Amidst market uncertainty, *GCB at RM1.84* came under my radar. Share price have been retracing steeply to year-lows, despite recent Q results shown commendable earnings recovery.

- In my opinion, this reflects concerns on higher cocoa prices which have surged >60% ytd to c.US$4100 on Africa’s supply restrictions, higher fertiliser costs and challenging weather.

- *Current valuations* have fallen to attractive 16x PE (annualising recent Q’s earnings), with record high revenue of RM1.3b surging >70% from pre-pandemic’s base. That said, with margins starting to recover qoq, direct flow to bottomline could be tremendous in 2024F. While much downside have been priced in following the selldown, there might be capital upside opportunities at this juncture.

- *Furthermore, GCB’s new plant in UK have recently commenced operations,* which will further boost the group’s annual industrial chocolate capacity by 16% or 16,000 tonnes to 116,000 tonnes. This will further elevate earnings moving forward. To note, UK is the top 5 largest inporter of chocolate confectionaries, with consumption of c. £2.2b in 2022, +28.1% yoy.

- *On fund analysis,* the stock has limited liquidity with >80% controlled by major shareholders and institutional funds. It was also noted that few directors and EPF have been accumulating c.20m shares since Sept (not a common trend in past).

- *Disclaimer:* This is not a BUY/SELL call, above contents are just my personal view.