5102 GCB, or Guan Chong Berhad, the world 4th largest cocoa grinder had release its Q1 2021 quarterly report on 27-May-2021. For record, I've been holding GCB since late 2013, and I've been through a lot of ups and downs with GCB all these year. As to date, GCB is my best performing stock, gaining more than 330% (including dividend, bonus issue, and free warrants) over the course of 8 years, averaging more than 40% a year. Ok let's look into their QR.
5102 GCB Q1 2021 report
Full announcement here:
https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=214316&name=EA_FR_ATTACHMENTS
Snapshot:
GCB Q1 2021 report was below my expectation, with the lowest net profit recorded since Q4 2017 (RM30.8 mil). Net profit margin dropped below 4% at 3.53%, which is the lowest net profit margin recorded since Q1 2017. One thing to note is that there was a one-off gain of RM 27.8 mil from the disposal of Fuji Global Chocolate (M) Sdn. Bhd in Q1 2020. Adjusted this one-off gain, the YoY decrease in net profit will be -23.6%.
As of Q1 2021, GCB has RM 108 mil cash in hand, +38.1% compared to previous year. Inventories reduced from RM 1.3 bil to RM 1.05 bil (-19.1%). Total borrowings remains almost the same as previous years, stood at RM 1.06 bil, with a current ratio of 1.77 (1,760,602/991,667).
As of Q1 2021, GCB recorded a positive RM 33.2 mil cash flow, with a huge improvement in net cash from operating activities.
Company's review on Q1 performance and update on the current prospect:
My personal takeaways on GCB's Q1 2021 report:
1. Net profit margin has been reducing since Q2 2020, coincide with the implementation of Living Income Differential (LID) by Ghana and Ivory Coast, the world's top 2 cocoa producers. The LID was set at USD400 per ton of cocoa, which has a direct impact on the raw material cost for cocoa grinders like GCB. On top of that, shipping delays, rising freight cost and a languishing premium chocolate market were the other reasons contributing to the slide of the net profit margin.
LID link:
2. The COVID situation in Malaysia is not helping, as the recent MCO 3.0 which started in 1-June-2021 which had a 60% work force restriction will definitely impacted GCB's operation. This will reduce the near term utilization rate and thus further reduce the net profit margin.
3. Positive updates on the current expansion plan. The Ivory Coast factory is set to be ready in early 2022, after a 1 year delay due to COVID-19. This will add 60,000MT grinding capacity per year to GCB, which brings the total grinding capacity to 317,000MT per year. Another positive is that this factory is expected to produce chocolates with a +30% EBITDA yield premium over GCB's factories in Asia (Source: Aminvest). The strategic location of this factory is essential for GCB to tap into the premium European market. The UK factory is set to be commission in 1H22 which will further boost GCB's global presence.
4. Further expansion in Germany to take advantage of the biomass incentives, with estimated Euro 58 mil (RM 292 mil) capex allocated for a 25,000 MT of cocoa butter and 30,000 MT bean grinder facility. Estimated commission date to be end 2022 to mid 2023. Since the acquisition of century old German chocolate manufacturer SCHOKINAG-Schokolade-Industrie GmbH (https://www.schokinag.com/about/) in 2020, it has contributed positively GCB's topline and bottom line. As of Q1 2021, Schokinag contributed 23% of quarterly revenue and 13% of EBITDA with 12% YoY increase in revenue. It's a good move to further strengthen GCB's presence in Europe, the region that consume most of the world's chocolates.
5. RM 0.01 dividend was announced for the quarter, same as Q1 2020. No surprise.
News report:
The Edge
Analyst report:
Aminvest; BUY - TP RM 3.48; 15x FY2022F EPS:
Disclaimer: This is a personal opinion recorded for my personal record. Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. The author shall not be held accountable for any investment decision made by the reader. Invest at your own risk.