KUALA LUMPUR (Feb 22): Analysts on Tuesday reiterated their "buy" calls on Guan Chong Bhd as they see better growth for the company underpinned by its overseas expansion.
RHB Research analyst Lee Meng Horng said in a note that he expects a better performance for Guan Chong into the financial year ending Dec 31, 2022 (FY22) on pent-up global demand, growing contributions from overseas operations, and expansion drives.
“The current below-peer valuation provides a buying opportunity to a valued and stable consumer name like Guan Chong with an increasing global footprint,” he said.
He kept his target price (TP) for Guan Chong at RM4, which indicated a potential upside of 31% based on its closing price of RM3.05 on Monday.
“At an attractive 13 times of FY22 price-earnings ratio (PER), we believe investors should position into a stable consumer product name like Guan Chong, given its unique global presence and growth angle from international expansions, building on its current earnings base secured by its forward selling mechanism,” he said.
He also noted that Guan Chong’s fourth quarter ended Dec 31, 2021 (4QFY21) concluded on a high with FY21 earnings of RM156 million coming within his expectation.
“The strong quarter-on-quarter (+48.7%) and year-on-year (+9.5%) quarterly earnings were aided by both topline and margin improvements,” he said while maintaining its earnings forecast.
In a separate note, AmInvestment Bank analyst Muhammad Afif Zulkaplly also said he likes Guan Chong for its overseas expansion plan prospects, allowing it to tap into the European market.
“The stock is trading at an undemanding valuation of 13 times PER 2022 earnings per share compared to Bursa Malaysia Consumer Product Index’s historical average of 19 times PER,” he said.
He remained optimistic on Guan Chong’s medium-to-longer term outlook with its future growth underpinned by: i) earnings before interest, taxes, depreciation and amortisation (EBITDA) yield improvement as impact of living income differential (LID) subsides; ii) recovery of cocoa butter’s average selling price (ASP) to be bolstered by demand revival for upmarket chocolates; and iii) its overseas expansion plan.
He also said Guan Chong’s 4QFY21 core net profit of RM51.2 million is above his expectation, and the outperformance is mainly attributed to stronger sales volume during the quarter. He made no changes in its earnings post-results.
He maintained a fair value of RM3.40 on Guan Chong, based on unchanged PER of 15 times of 2022 EPS of 22.8 sen.
At 12.04pm, Guan Chong fell 17 sen or 5.57% to RM2.88, valuing the group at RM3.12 billion.