Guan Chong finds its sweet spot in Ivory Coast

PETALING JAYA: The world’s fourth largest cocoa grinder Guan Chong Bhd is aiming to consolidate its position as a key player in the global chocolate supply chain given its bullish views on the long-term prospects of the industry.

Managing director and CEO Brandon Tay Hoe Lian told StarBiz that the Covid-19 pandemic has accentuated the need to be “closer to source” and “closer to market”, with rising freight costs impacting the overall chocolate industry.

“Hence, this fits nicely with our expansion plan in Ivory Coast, which is the source of high-quality cocoa beans, as well as for facility expansions in the UK and Germany, which are among the world’s top chocolate-consuming nations.

“Through our expansions, we aim to consolidate our position as a key player in the global chocolate supply chain, and to also move further downstream to be closer to the consuming market by penetrating into the industrial chocolate segment.”

Due to the pandemic, Guan Chong’s new cocoa grinding facility in Ivory Coast would likely be operational by the second quarter of next year.

The land preparations and piling works have already been completed and building works are currently underway.

Guan Chong CocoaGuan Chong Cocoa

The total cost of the facility including land, buildings and machinery is estimated at €50mil to €60mil (RM246mil to RM295mil).

Guan Chong currently supplies cocoa ingredients to more than 60 countries globally, and more than 90% of its cocoa ingredients are exported.

Its cocoa ingredients are marketed under the “Favorich” brand.

Europe currently contributed about 20% of the group’s revenue, while the balance from exports by its operations in Asia.

Tay said Guan Chong has no plans to expand its facilities in Malaysia and Indonesia.

“This is because the majority of cocoa beans are sourced from Africa.

“The current focus will be on capacity expansion in Ivory Coast as it would be closer to the world’s largest source of cocoa crop,” he explained.

However, Guan Chong will revisit the plan if “we see strong growth in the Asia market in time to come,” added Tay.

For the second quarter ended June 30, Guan Chong’s net profit was down by 36% to RM36.39mil compared with RM57mil in the previous corresponding period a year ago. Revenue for the period under review was lower at RM876mil against RM 911mil previously.

On the group’s financial performance for this year, Tay believed that the worst is over given the rise in global vaccination numbers. He also expected to see improvements in both the group’s top line and bottom line in the second half of the year.

Asked how the group would fund its expansion in view of the heavy capital expenditure, he said the first phase of its Ivory Coast expansion was funded by sukuk.

Managing director and CEO Brandon Tay Hoe Lian Managing director and CEO Brandon Tay Hoe Lian

“We are still at a comfortable net gearing level of 0.95 times, which allows us to explore more debt options to fund our subsequent expansions.

“For now, we do not see the need to undergo any rights issue or private placements,” he noted.

On market talk that Singapore-listed Olam International Ltd is planning to acquire a stake in Guan Chong, Tay said he is unaware of Olam’s interest in buying a stake in the company.

“Anyway, Olam and Guan Chong have always maintained a cordial relationship.

“As a public listed company, we welcome any investors, be it, institutional investors, retail investors, or corporate entities, to invest in our shares and participate in our future growth plans,” he noted.

On the outlook of the chocolate industry, he opined that the long-term prospects of the chocolate industry remain intact, and would recover once travel restrictions are eased.“The United States and Germany have started to allow some form of travel between countries with high vaccination numbers and controlled Covid-19 cases.

“Evidently, we are already seeing early indicators of improving demand from our forward sales for 2022 to date, which have met close to 40% of our annual total production capacity,” Tay said.

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