Wednesday, May 11, 2011

GuanChg ... May11

Guan Chong (GC) manufactures and sells cocoa ingredients: cocoa butter (54% of FY10 revenue), cocoa powder/cake (43%) and cocoa liquor (3%). Exports were 92% of sales in 2010 it counts global chocolate manufacturers like Mars, Hershey’s and Lotte as customers.

From 6,000 per tonne per year in 1990, GC has gradually raised capacity 140 tonnes per year now to rank among the top 10 cocoa processors in the world. It is set to grow bigger when another 60,000 tonnes per year is added when its new plant in Indonesia — which has the advantage of buying zero-tariff local beans — is fully completed by 2Q12.

The group’s current 140,000-tonne capacity is fully taken up by customer orders, thus keeping it busy until end-2011. It normally signs forward contracts with buyers and secures cocoa bean supplies simultaneously.

Matching selling prices with bean costs via hedging insulates it against fluctuating cocoa prices, thus locking in margins and earnings up front.

Potential risks to earnings are a global economic collapse (leading to customers deferring deliveries as demand falls) and disruptions to cocoa bean supply.

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