It is almost becoming a habit. Johor-based Guan Chong Bhd again takes home two awards at this year’s The Edge Billion Ringgit Club (BRC). The world’s fourth-largest cocoa grinder is recognised with double awards for highest returns to shareholders over three years and highest growth in profit after tax over three years in the consumer products and services sector, for two years in a row.
In fact, Guan Chong has, for three consecutive years — between 2019 and 2021 — won The Edge BRC award for highest returns to shareholders over three years, while this year is a second consecutive year the group has been honoured with the award of highest growth in profit after tax over three years.
During the period under review, Guan Chong delivered an impressive three-year compound annual growth rate (CAGR) shareholder return of 70.8%. Its adjusted share price had more than tripled from RM1.03 on March 30, 2018, to RM3.14 on March 31 this year.
According to absolutelystocks.com, Guan Chong’s market capitalisation has grown about five times in three years, from RM659.5 million on March 30, 2018, to RM3.249 billion on March 31 this year.
Besides the expanded share base — owing partly to its bonus issue exercise in 2019 — and rising investor interest in the counter, another contributing factor to Guan Chong’s stronger share price performance and bigger market capitalisation is its higher stock valuation.
On March 30, 2018, Guan Chong traded at a historical price-earnings ratio (PER) of 7.4 times and price-book value (P/BV) of 1.4 times. Three years later, it is being valued at a historical PER of 14.5 times and P/BV of 2.7 times.
It should be noted, however, that shares in Guan Chong had been on a downward trend between April and July — dropping to as low as RM2.66 on July 12 — before it staged a rebound to close at RM3.04 on Oct 21, giving it a market capitalisation of RM3.23 billion. At the time of writing, the counter was trading at 19 times historical earnings.
Main Market-listed Guan Chong’s net profit rose 2.2% to another record high of RM222.71 million in the financial year ended Dec 31, 2020, (FY2020) from RM217.95 million in FY2019, owing largely to the one-off gain on the disposal of associate Fuji Global Chocolate (M) Sdn Bhd to industrial chocolate producer Fuji Oil Asia Pte Ltd in February 2020, as the latter exercised a call option to acquire Guan Chong’s 27.75% stake in the associate.
As compared to its net profit of RM91 million in the FY2017, Guan Chong had achieved a three-year CAGR profit growth of 34.7% in the FY2020.
Shares in Guan Chong are tightly held by the founding Tay family via Guan Chong Resources Sdn Bhd, with a 49.53% stake.
The second-largest shareholder is Misi Galakan Sdn Bhd, with a holding of 5.31%. Misi Galakan is controlled by Datuk Dr Mohamad Musa Md Jamil, who stepped down as Guan Chong’s non-independent non-executive chairman in April this year.
Guan Chong has been on expansion mode in recent years. Its annual grinding capacity is set to increase to 317,000 tonnes — from 257,000 tonnes at present — upon the completion of its Ivory Coast plant by 2Q2022, which will allow the company to capture a larger share of the global cocoa ingredients market.
Its existing facilities are located in Pasir Gudang, Johor; Batam, Indonesia; and Mannheim, Germany. In October last year, it completed the purchase of a 17.8-acre parcel of land in Glemsford, near Sudbury in south Suffolk in the UK, to gain direct access to Europe, the world’s largest chocolate-consuming market.
In a research report dated Aug 25, AmInvestment Bank maintains its “buy” call on Guan Chong with an unchanged fair value of RM3.12, using an unchanged PER of 15 times on earnings per share in FY2022.
“In the long term, we are optimistic about the group’s Ivory Coast, UK and Germany expansion capability to enter more lucrative markets in the West,” the research house wrote.