JB COCOA SDN BHD - 2023 |
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| Report ID | 60538900469527 | Popularity | 289 views 65 downloads | |||||
| Report Date | Sep 2023 | Product | ||||||
| Company / Issuer | JB Cocoa Sdn Bhd | Sector | Manufacturing - Food Products | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its A+IS rating on JB Cocoa Sdn Bhd’s Islamic Medium-Term Notes (Sukuk Wakalah) programme of up to RM500.0 million with a stable outlook. JB Cocoa is a wholly-owned key manufacturing subsidiary of Singapore-based JB Foods Limited, which has provided a corporate guarantee on the programme. Accordingly, the rating assessment considers the consolidated credit profile of JB Foods in view of operational and financial linkages within the group. Rationale The rating affirmation primarily reflects JB Cocoa’s defensible market position as one of the world’s key cocoa processors and longstanding experience in the cocoa industry that has enabled the group to manage the volatility of cocoa price movements. These strengths are moderated by a highly leveraged balance sheet although borrowings mainly stem from working capital lines, by low operating margins as well as execution risk posed by expansion of its cocoa grinding facility to Côte d’Ivoire. JB Cocoa has two cocoa processing facilities. With a total combined grinding capacity of 180,000MT p.a (Malaysia: 67%; Indonesia: 33%), it recorded a utilisation rate of 91.0% for 1Q2023 (2022: 84.0%). Its global grinding market share has remained steady over the past four years at 3%. Its processing facility expansion in Côte d’Ivoire, one of the world’s largest cocoa bean producers, is targeted to be completed by end-2024, and will add grinding capacity of 50,000MT p.a. The expansion will afford JB Cocoa with lower logistical costs and provide group tax savings in exporting to the European Union (EU). Operating margin remains in the low single digit, although it improved in 2022 and 1Q2023 on easing of freight costs. The group continues to contend with the impact of cocoa bean price volatility on its margin as cocoa bean purchases continue to account for about 90% of its cost of sales. Price volatility risk is mitigated by undertaking forward sales contracts. Cocoa price rose by 22.6% y-o-y to USD3,009/MT as at end-May 2023 on potential crop deficit due to adverse weather patterns. The International Cocoa Organisation (ICCO) has forecast lower global cocoa production of 5.02 million tonnes for 2022/2023. Supply risk is mitigated by purchases from a diversified pool of cocoa bean suppliers; its largest, and top 10 cocoa bean suppliers accounted for 9% and 40% of cocoa bean purchases in 2022. JB Cocoa’s key cocoa grinding output of cocoa butter and cocoa powder are exported to customers mainly based in the US, China, and Russia, largely comprising major players in the fast-moving consumer goods industry. Marketing, which is undertaken by a sister trading company in Singapore under JB Foods Limited, has been refocused to the Southeast Asian region in view of the ongoing geopolitical tensions in Eastern Europe. This is reflected in the improving sales to this region. Revenue and operating profit grew 15.7% and 24.9% y-o-y to RM2.2 billion and RM114.2 million in 2022, supported by higher sales volume and normalisation of processing margin on easing of logistical bottlenecks. Group borrowings declined to RM780.5 million as at end-2022, 78.2% of which were related to trade financing; these were mainly secured against cocoa bean inventory. Excluding trade facilities, the group has, including issuances under the programme, term borrowings of RM170.1 million, translating to an adjusted debt-to-equity (DE) ratio of 0.21x. Total borrowings are projected to be about RM1.1 billion over the next two years (including trade financing) to fund its ongoing capacity expansion totalling about RM570 million. The group has incurred about RM56 million for structural works at the Côte d’Ivoire facility and is expected to incur additional costs for the purchase of cocoa bean grinding machines. The group had indicated another drawdown of RM225 million on the rated programme in November 2023, partly to refinance the RM75 million sukuk maturing in November 2023, with the rest going towards near-term capex. Rating outlook The stable outlook reflects our expectation that JB Cocoa’s healthy operational performance and steady market position will continue to support group performance, and the group would broadly maintain its credit profile. Rating trajectory Upside scenario Any upgrade would depend on sustained improvement in performance metrics that would address the expected increase in leverage position and operating profit margins. Downside scenario The rating could come under pressure on weaker sales performance and/or if the debt-funded expansionary plans are not visibly earnings accretive in the immediate term. Key strengths
Key risks
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