KUALA LUMPUR (May 28): RHB Investment Bank Research has maintained its 'buy' rating of Guan Chong Bhd (KL:GCB) at RM3.65, with a higher target price of RM4.70 (from RM3.30), and said the company’s historic high earnings of RM92 million (up 2.9 times year-on-year, five times higher quarter-on-quarter) beat expectations for the first quarter ended March 31, 2024 (1QFY2024), on the back of higher-than-expected margins from average selling price upticks and a favourable hedging position.
In a note on Tuesday, the research house said this is the beginning of a supercycle, where earnings are set to quantum-leap (underestimated by the market), bolstered by the newfound pricing power and margins, based on the trend of an elevated combined ratio and sustained cocoa demand.
“Following the strong set of results, we raise our FY2024-FY2025 earnings forecasts by 42.5%-37.5% (FY2026's relatively unchanged) after imputing stronger margin assumptions from the elevated combined ratio.
“As a result, our target price is now revised up to RM4.70 (from RM3.30), which includes a 0% ESG (environmental, social and governance) premium/discount, pegged to an unchanged 15 times FY2024 price-earnings (five-year mean), and is on a par with the Consumer Product Index.
“Guan Chong’s gearing ratio rose to 1.6 times, (but this should have peaked in 1QFY2024), from 1.2 times, mainly on higher short-term loans to fund additional working capital due to surging bean prices,” the research house said.