MARC Ratings has affirmed its rating of AA-_IS on Guan Chong Berhad’s (GCB) Sukuk Wakalah Programme of up to RM800.0 million with a stable outlook. The outstanding under the programme currently stands at RM600.0 million. 

GCB's established market position in the midstream cocoa supply chain — as the largest cocoa grinder in Asia and fourth in the world — and its strong operational track record remain key rating drivers. The key factors moderating the rating are the volatility of cocoa prices which could diminish margins, and the group's moderate-to-high leverage position.

Its overall grinding capacity has grown by 22% to 337,000MT p.a. following the commencement of its new 60,000MT p.a. grinding facility in Côte d’Ivoire in late 2022. MARC Ratings views the enlarged capacity from Côte d’Ivoire, the world’s largest cocoa bean producing country accounting for 44% of annual global bean production, as reinforcing GCB’s competitive position by enhancing sourcing reliability and shortening the bean-to-ingredients cycle. Côte d’Ivoire’s proximity to the European market, the largest chocolate-consuming region, would also reduce logistics costs and provide benefit from import duty exemption granted to the country by the European Union.

For 1Q2023, the Côte d’Ivoire facility achieved an 80% utilisation rate, reflecting minimal operational hitches since commencing operations; overall, the group utilisation rate was 85.4%. Grinding volume grew 12.3% y-o-y, underlining steady demand for GCB’s products, namely cocoa butter (largest revenue contributor), cocoa cake/powder, cocoa liquor (mass) and industrial chocolate. The rating agency understands 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. Demand for the higher premium industrial chocolate has also remained strong, with volume growing by 9.4% y-o-y in 2022. GCB’s industrial chocolate processing capacity has been further enhanced with the recent commencement of a new industrial chocolate facility in the UK at end-May 2023. 

For 1Q2023, revenue rose by 11.3% y-o-y to RM1.1 billion, supported by easing of logistical issues and higher prices of cocoa powder and cocoa cake of USD3,014/MT and USD2,593/MT (2022: USD2,200/MT and USD2,372/MT). Pre-tax profit, however, decreased y-o-y to RM30.0 million (1Q2022: RM64.6 million) due to an unrealised loss on commodity futures contracts of RM44.4 million that should largely ease upon delivery of the sales contracts. The rating agency notes that borrowings rose to RM1.6 billion as at end-March 2023 from RM1.2 billion as at end-2022, mainly for working capital purposes. Gross debt-to-equity ratio stood at 0.94x and is expected to remain around this level in the near term. 

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my 

Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my 

Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my