RM1.64 KLCI : 1,720.37
Price Target : 12-Month RM 1.30 (Prev RM 1.35)
Dragged by weak ASP
2Q13 net profit tumbled to RM7.4m, dragged down by lower ASP for cocoa powder and inventory writedown
Earnings risks persist due to volatile cocoa price outlook
Maintain Fully Valued with lower RM1.30 TP
Disappointing 2Q13 results. Net profit tumbled 79% y-o-y and 55% q-o-q to RM7.4m, on the back of mildly weaker revenue of RM299.1m (-4.4% y-o-y, -18% q-o-q). This takes 1H13 net profit to RM24.0m (-64% y-o-y), which is only 25% of our initial full year estimate.
Like its peers JB Foods and Petra Foods, the quarter ended June for GC was dragged down by weaker ASP for cocoa powder. The weak operating profit was also partly attributed to RM14.7m inventory write-down. These reduced EBIT margin significantly to 4.1% (vs. 2Q12: 13.8%, 1Q13: 7.0%). Thus far in 1H13, GC has marked down its inventories by RM25.2m.
Gloomy FY13 outlook. Given the volatile cocoa prices, 2H13 earnings could drop further (y-o-y). However, GC should be able to maintain profitability due to better cocoa butter sales with a recovery in butter ratio. Premised on slower earnings for the rest of 2013, after factoring in weaker margins, we cut FY13F EPS by 21% and FY14-15F earnings by about 3%. We are still forecasting > RM90m net profit for FY14-15F as earnings would improve if cocoa powder ASP recovers, which should be reflected in the next 6-12 months’ earnings.
Maintain Fully Valued, nudged down TP to RM1.30. Our TP is pegged to 7.5x FY14F FD EPS of 17.4 sen (prev 18 sen). GC could face earnings downside risk in the rest of FY13 if cocoa bean prices remain volatile.
Publish date: 23/08/13