KUALA LUMPUR (Aug 10): MARC Ratings affirmed its rating of AA-IS on Guan Chong Bhd's (GCB) Sukuk Wakalah Programme of up to RM800 million with a stable outlook.

The outstanding amount under the programme currently stands at RM600 million.

In a press release on Thursday (Aug 10), MARC said that GCB’s market position in the midstream cocoa supply chain — the largest cocoa grinder in Asia and fourth in the world — and its strong operational track record remain key rating drivers.

Meanwhile, key factors moderating the rating are the volatility of cocoa prices which may diminish margins, along with the group’s moderate-to-high leverage position.

Moreover, MARC views GCB’s enlarged capacity from Côte d’Ivoire, the world’s largest cocoa bean-producing country, which accounts for 44% of annual global bean production, as reinforcing GCB’s competitive position by enhancing sourcing reliability and shortening the bean-to-ingredients cycle.

Currently, GCB’s grinding capacity has grown 22% to 337,000 metric tonnes (MT) annually. Côte d’Ivoire’s proximity to the European market would also reduce logistics costs and provide benefits from the import duty exemption granted to the country by the EU.

For the first quarter of the year, the Côte d’Ivoire facility achieved an 80% utilisation rate, reflecting minimal operational hitches since commencing operations, with an overall group utilisation rate of 85.4%, said MARC.

Meanwhile, grinding volume grew 12.3% year-on-year (y-o-y), underlining steady demand for GCB’s products, namely cocoa butter, cocoa cake/powder, cocoa liquor (mass) and industrial chocolate.

MARC said it understood that about 40% of the output from the Côte d’Ivoire facility will be routed to GCB’s Germany-based wholly-owned subsidiary — Schokinag-Schokolade-Industrie GmbH — which specialises in industrial chocolate production. 

GCB’s industrial chocolate production processing capacity has been further enhanced with the recent commencement of its new facility in the UK as of end-May 2023.

It added that demand for the higher premium industrial chocolate has also remained strong, with volume growing by 9.4% y-o-y in 2022.

In terms of finances, for the first quarter of 2023 (1QFY2023), revenue rose 11.3% y-o-y to RM1.1 billion owing to easing logistical issues and higher prices of cocoa powder at US$3,014/MT (2022: US$2,200/MT) and cocoa cake at US$1,593/MT (2022: US$2,372/MT). 

However, profit before tax (PBT) slipped y-o-y to RM30 million from RM64.6 million in 1QFY2022 due to an unrealised loss on commodity futures contracts of RM44.4 million.

MARC notes that borrowings rose to RM1.6 billion as of end-March 2023 from RM1.2 billion as of end-2022, mainly for working capital purposes, whilst gross debt-to-equity ratio stood at 0.94 times and is expected to remain around this level in the near term.