Guan Chong maintains high utilisation rate amid restrictions

TheStar Wed, Apr 22, 2020 09:08am - 3 years View Original


KUALA LUMPUR: Guan Chong is capitalising on high automation capabilities at its facilities to minimise disruptions to its business, even as other cocoa grinders in the region face operating difficulties.

RHB research, which has a buy rating on Guan Chong, said in a note that the cocoa processor is weathering the movement control order (MCO) well as it continues to run at an average utilisation rate of 90%, with minor disruptions to operations. This is despite a 50% decrease in operating workforce during this period.

Over in Germany, the group's Schokinag plant is running as per normal as Germany considers chocolate manufacturing an essential business.

Meanwhile, other cocoa grinders in the region are currently facing disruptions to their operations, leading to a drop in supply that will partially offset the softer demand for cocoa products during the ongoing pandemic, said RHB.

"The disruption in cocoa supply will help to maintain the supply-demand equilibrium without major pressure on the combined ratio," it said.

Guan Chong expects global chocolate demand to contract 2% to 3% due to weaker demand in the premium segment, which relies heavily on tourism spending. However, mass market chocolates, which account for 70% to 80% of market demand, remains robust during the lockdown.

For FY20, Guang Chong's Ebitda margins are expected to be slightly narrower due to lower production tonnage in 1H20, given the MCO and pressure from the sharp increase in bean prices since end-2019, said RHB.

It said Guan Chong has locked in 85% to 90% of its 23020 sales and 20% of 2021 sales.

Meanwhile, the commissioning of the group's Ivory Coast plant is likely to be delayed due to the government there limiting the number of workers on-site to 50 people as a result of the pandemic.

RHB cut its FY20-22 earnings forecast on Guan Chong by 14% to reflect the lower margins and production as well as a delay in the commissioning of its Ivory Coast Plant. The target price was subsequently lowered to RM3.35 from RM3.45 previously.
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