Cocoa windfall for Guan Chong
Tags: Cocoa prices | Guan Chong Bhd
Written by Daniel Khoo
Thursday, 27 January 2011 11:53
KUALA LUMPUR: The recent sharp rise in cocoa prices has brought a windfall for Guan Chong Bhd, which had earlier stocked up on the soft commodity at substantially lower prices.
The company’s profit margin has already widened substantially to 6.7% for the nine-month period ended September 30, 2010, from 1.8% in the previous corresponding period.
For nine-month period, Guan Chong’s revenue nearly doubled to RM836.3 million from RM424.8 million. Net profit soared more than seven-fold to RM56.17 million from RM7.66 million in the same period a year ago.
“We try to sustain profit margins of about 5% to 7% and sustain that no matter how high or low cocoa prices might go ” Guan Chong CEO Brandon Tay told The Edge Financial Daily yesterday.
Johor Baru-based Guan Chong is an upstream cocoa processor that converts raw cocoa beans into semi-complete ingredients like cocoa butter, cocoa cake and cocoa powder.
The company obtains its cocoa bean supply from Indonesia, Papua New Guinea, Ghana, Ivory Coast and Nigeria.
Tay said high cocoa prices are good for the company since it could always pass on the cost increase to its customers by quoting higher selling prices.
“Our prospects are good moving forward. Sales have indeed been great,” Tay added.
“You see, whether at high or low prices, the big boys have to buy cocoa from middleman like us. Once we use our supplies, we immediately hedge it on the futures market to replenish the stock for the coming already kept this [increasing raw material costs] in mind when making their orders,” he explains.
Cocoa prices shot up early this month due to political tension in Ivory Coast, where a disputed election has left the country with two rival presidents.
A one-month ban on cocoa exports from Ivory Coast, the world’s biggest cocoa producer, has added more upward pressure on prices. Cocoa prices rose to US$3,366 a tonne yesterday, from US$2,745 in late August last year.
Commodity analysts quoted by news agencies say that prices might even soar to the US$3700-level, the highest since 1979, should the supply of cocoa get even tighter.
On Bursa Malaysia, Guan Chong’s share price has climbed in tandem with the rise of cocoa prices. The stock surged to a record high of RM2.72 yesterday, up 51% from RM1.80 in mid-December. Analysts say the company’s improved financial performance could be attributed to the large stocks of raw cocoa beans it keeps in storage, which is now worth much more based on current prices.
Its balance sheet as at Sept 30, 2010, shows the company’s inventory has been reduced to RM165.29 million from RM229.98 million a year ago. According to Tay, 80% of the company’s inventory is in raw material.
In fact, escalating cocoa prices and its high inventory level have come in handy for the company in obtaining loans. Its gearing is currently at 1.21 times, based on long- and short-term borrowings at RM180.52 million and total equity of RM149.11 million.
“I know some analysts may not like it, but our company can afford to increase our gearing because our inventory mostly consists of cocoa beans,” Tay says.
Earlier, Tay had indiated that Guan Chong intended to sell some of its raw material stock to fund its second bean-grinding factory, on Batam Island, Indonesia.
“We have completed the first phase of the factory. If we run full capacity in the first phase, it will increase our capacity to 130,000 tonnes from 80,000 presently,” Tay says.
“We will complete the second phase of the factory by the end of this year. The second phase of the factory will add 60,000 tonnes to our capacity,” he adds.
Despite the threat of cocoa bean shortage due to the political unrest in Ivory Coast, Tay remains confident that it will not be a major problem for the company.
“Well, you know, every year they fight. They will eventually find a way to bring out the beans. They will somehow smuggle out from Ivory Coast into neighbouring countries such as Ghana, which will then delive to the rest of the world,” says Tay.
“So, we actually don’t really have to worry about the supply of cocoa beans,” he adds.
This article appeared in The Edge Financial Daily, January 27, 2011.
Tags: Cocoa prices | Guan Chong Bhd
Written by Daniel Khoo
Thursday, 27 January 2011 11:53
KUALA LUMPUR: The recent sharp rise in cocoa prices has brought a windfall for Guan Chong Bhd, which had earlier stocked up on the soft commodity at substantially lower prices.
The company’s profit margin has already widened substantially to 6.7% for the nine-month period ended September 30, 2010, from 1.8% in the previous corresponding period.
For nine-month period, Guan Chong’s revenue nearly doubled to RM836.3 million from RM424.8 million. Net profit soared more than seven-fold to RM56.17 million from RM7.66 million in the same period a year ago.
“We try to sustain profit margins of about 5% to 7% and sustain that no matter how high or low cocoa prices might go ” Guan Chong CEO Brandon Tay told The Edge Financial Daily yesterday.
Johor Baru-based Guan Chong is an upstream cocoa processor that converts raw cocoa beans into semi-complete ingredients like cocoa butter, cocoa cake and cocoa powder.
The company obtains its cocoa bean supply from Indonesia, Papua New Guinea, Ghana, Ivory Coast and Nigeria.
Tay said high cocoa prices are good for the company since it could always pass on the cost increase to its customers by quoting higher selling prices.
“Our prospects are good moving forward. Sales have indeed been great,” Tay added.
“You see, whether at high or low prices, the big boys have to buy cocoa from middleman like us. Once we use our supplies, we immediately hedge it on the futures market to replenish the stock for the coming already kept this [increasing raw material costs] in mind when making their orders,” he explains.
Cocoa prices shot up early this month due to political tension in Ivory Coast, where a disputed election has left the country with two rival presidents.
A one-month ban on cocoa exports from Ivory Coast, the world’s biggest cocoa producer, has added more upward pressure on prices. Cocoa prices rose to US$3,366 a tonne yesterday, from US$2,745 in late August last year.
Commodity analysts quoted by news agencies say that prices might even soar to the US$3700-level, the highest since 1979, should the supply of cocoa get even tighter.
On Bursa Malaysia, Guan Chong’s share price has climbed in tandem with the rise of cocoa prices. The stock surged to a record high of RM2.72 yesterday, up 51% from RM1.80 in mid-December. Analysts say the company’s improved financial performance could be attributed to the large stocks of raw cocoa beans it keeps in storage, which is now worth much more based on current prices.
Its balance sheet as at Sept 30, 2010, shows the company’s inventory has been reduced to RM165.29 million from RM229.98 million a year ago. According to Tay, 80% of the company’s inventory is in raw material.
In fact, escalating cocoa prices and its high inventory level have come in handy for the company in obtaining loans. Its gearing is currently at 1.21 times, based on long- and short-term borrowings at RM180.52 million and total equity of RM149.11 million.
“I know some analysts may not like it, but our company can afford to increase our gearing because our inventory mostly consists of cocoa beans,” Tay says.
Earlier, Tay had indiated that Guan Chong intended to sell some of its raw material stock to fund its second bean-grinding factory, on Batam Island, Indonesia.
“We have completed the first phase of the factory. If we run full capacity in the first phase, it will increase our capacity to 130,000 tonnes from 80,000 presently,” Tay says.
“We will complete the second phase of the factory by the end of this year. The second phase of the factory will add 60,000 tonnes to our capacity,” he adds.
Despite the threat of cocoa bean shortage due to the political unrest in Ivory Coast, Tay remains confident that it will not be a major problem for the company.
“Well, you know, every year they fight. They will eventually find a way to bring out the beans. They will somehow smuggle out from Ivory Coast into neighbouring countries such as Ghana, which will then delive to the rest of the world,” says Tay.
“So, we actually don’t really have to worry about the supply of cocoa beans,” he adds.
This article appeared in The Edge Financial Daily, January 27, 2011.
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