2019 was a year of records for Guan Chong Bhd. The cocoa grinder not only achieved another record financial performance but it also took significant steps to set the group up to achieve significant global growth in the future.
The group achieved a second consecutive year of record grindings last year, supported by a 20.1% increase in sales tonnage of cocoa ingredients on the back of increasing global demand and customer base. The improvement propelled group revenue by 29.4% to RM2.9 billion in the financial year ended Dec 31, 2019 (FY2019) compared with RM2.3 billion in FY2018.
Guan Chong also posted a record profit after tax (PAT) of RM217.9 million last year, up 14.6% from RM190.1 million in FY2018, on higher sales volume of cocoa ingredients and improved yield.
The group has achieved consistent growth in PAT since FY2015, posting RM91 million in FY2017 and RM42.6 million in FY2016. Given its consecutive record-breaking performance, Guan Chong posted a compound average growth rate of 15% in PAT from 2016 to 2019.
Its stellar financial performance has also led to the company’s share price more than doubling from June 30, 2016 to June 30, 2019 to RM2.66 (adjusted price after bonus issue during 2019), reflecting a 73% return over three years.
The group also continued to reward its shareholders in FY2019 by declaring four interim dividends. The total dividend payout was RM34.5 million, which represented 15.8% of FY2019 PAT. On top of that, it undertook 1-for-1 bonus shares and 1-for-3 bonus warrants exercises in FY2019 to enhance shareholder participation and increase trading liquidity.
Share price appreciation, solid earnings growth and consistent dividends have won Guan Chong this year’s The Edge Billion Ringgit Club award for highest growth in PAT over three years and highest returns to shareholders over three years in the consumer products and services sector.
And Guan Chong is not resting on its laurels as it takes its business to the next level. The group has set aside €25 million (RM120 million) in capital expenditure (capex) for FY2020 for the ongoing construction of its new cocoa processing facility in Cote D’Ivoire. The new facility would increase the group’s annual grinding capacity to 310,000 tonnes when completed in the second half of 2021, from 250,000 tonnes currently.
On Oct 5, the group announced that it had established a RM800 million Islamic Medium Term Notes programme to finance its working capital, capex, refinancing of financing/borrowings and other general corporate purposes. As at June 30, 2020, its gross gearing stood at 0.6 times, consisting of mainly short-term borrowings.
In its 2019 annual report, Guan Chong managing director and CEO Brandon Tay Hoe Lian said the company’s recent acquisition of German industrial chocolate producer Schokinag Holdings GmbH and its entry into Cote D’Ivoire — the world’s largest cocoa producing country — would allow it to increase its global presence in key markets for chocolate consumption. “With these strategies in place, we have placed ourselves in a favourable position to enter the next stage of growth despite the challenges faced,” Tay said.
In September, Guan Chong also announced the proposed acquisition of a property in the UK, which will be converted into a melting facility, for £8.25 million (RM44.3 million). This is in line with the group’s global expansion strategy.
While Tay concedes that market conditions are posing near-term uncertainty, he believes the global consumption of chocolate is expected to continue its resilient demand.
“We are also seeing demand for cocoa ingredients make a gradual uptrend as economies reopen and consumer sentiment returns, which may be further supported by seasonally higher orders in the fourth quarter of 2020,” he said in a statement on Aug 24.
In a Sept 29 report, AmInvestment Bank says it likes Guan Chong for its growth potential from expansion plans; its position as the world’s fourth-largest cocoa bean grinder; and its stable earnings trajectory supported by an experienced management. The research house is maintaining a “buy” call on Guan Chong, with a fair value of RM4.36, offering a 34% upside to its share price of RM3.25 at the time of writing.