Analysts positive on Guan Chong's growth prospects following Ivory Coast acquisition


KUALA LUMPUR: Guan Chong Bhd's shares rose in early trade Tuesday after the company announced plans to acquire a 25% stake in Transcao Côte d'Ivoire, a cocoa processing firm based in Ivory Coast.

The cocoa grinder gained eight sen, or 2.81%, to RM2.93 at 9:45 am, bringing its year-to-date gain to 68%.

Guan Chong’s subsidiary GCB Cocoa Singapore Pte Ltd has inked a memorandum of understanding (MoU) with Conseil Du Cafe-Cacao (CCC) and its subsidiary, Transcao Negoce, to acquire a 25% stake in Cocoa processer and distributor Transcao Côte d'Ivoire.

Inter-Pacific Research has maintained its CY25 earnings estimates for now, as no final decision has been made by the group regarding the MoU, and it will not have any financial impact.

“Therefore, we also keep our ‘buy’ call on Guan Chong with a same target price of RM4.87 by pegging an unchanged target PER of 15.0x to its CY25F EPS,” it said.

RHB Investment Bank Research is positive on the mutually beneficial venture, which allows Guan Chong to quickly access additional capacity with minimal capital expenditure.

It said this move helps Guan Chong secure bean supply to capitalise on the current strong market, while CCC can benefit from improved production efficiency and Guan Chong's established international sales channel.

RHB said the deal gives Guan Chong quick access to additional grinding capacity (currently 335k MT) at minimal capex to capture more sales and market share amidst the current favourable market conditions, with a synergistic partnership.

“An established partnership with the local authority would also help it secure the highly sought-after high-quality beans from Ivory Coast, especially EU Deforestation Regulation (EUDR)-compliant beans. The EUDR comes into effect on Dec 30, 2024 (with a potential 12-month phasing-in period),” it added.

RHB said this venture is expected to be earnings accretive in FY25 given the minimal additional resources required as Guan Chong’s operations in Ivory Coast are nearby. The investment quantum is likely to be below the 5% percentage ratio threshold.

The research house said the current robust cocoa market conditions are anticipated to continue, given the ongoing supply shortage and sustained strong demand, resulting in a prolonged elevated combined ratio.

“We believe these will catalyse Guang Chong’s earnings growth at least in the next year, given the forward selling mechanism. Furthermore, there could be a structural change that may extend the elevated combined ratio.

“This is due to the new normal in the operating environment of supply shortage, additional hedging and holding costs, as well as the heightened risk premium (volatility) that grinders have to undertake. Further upside could stem from production growth in its Ivory Coast (tax-free) and UK plants, as well as the new proposed JV with CCC,” it said.

RHB has maintained its forecast and target price of RM5.10, pegged to an unchanged 15x P/E (5-year mean) on par with the consumer product index, and inclusive of a 0% ESG premium/discount.

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Guan Chong , Ivory Coast , cocoa

   

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