FULLY VALUED RM1.51
KLCI : 1,797.97
Price Target : 12-Month RM 1.25 (Prev RM 1.30)
Larger losses on weak ASP
3Q13 core pretax profit of RM10m was below estimate
Bottomline hit by weak cocoa powder prices, inventories write-down and forex losses
Cut FY13-15F EPS by 3-12%
Maintain Fully Valued with lower TP of RM1.25
Results below expectation. GC reported weaker core pretax profit of RM10m (-72% y-o-y), taking 9M13 core pretax profit to RM67m (-44% y-o-y). This is only 69% of our initial full- year estimate.
Major losses. In 3Q13, the Group booked RM14.8m net forex losses (following the weaker RM effects on its USD borrowings) and RM7.6m in inventories write-down (due to falling cocoa powder prices). This resulted in GC reporting a net loss of RM11.8m in 3Q13 as 9M13 net profit shrank to RM12.1m (- 87% y-o-y). Meanwhile, 3Q13 revenue of RM328m (-5.8% y-oy, +9.7% q-o-q) was affected by depressed selling prices of cocoa powder and cocoa cake.
Cut FY13-15F EPS by 3-12%. Given the continued weak outlook for the cocoa ingredients industry we cut FY13-15F core net profit by 3-12% to RM67m-RM100m after lowering our margin assumptions. Our numbers have excluded lumpy accounting items for inventories write-down (RM32.8m YTD) and forex losses (RM14.6m YTD). GC will be hosting an analyst
briefing next week, which we hope will shed some light on the uncertainties in the cocoa industry.
Maintain Fully Valued. We lowered our TP to RM1.25 (from RM1.30), pegged to 7.5x FY14 FD EPS of 16.9 sen (previously 17.4 sen). We remain cautious of GC’s near-term outlook as earnings may still be pressured by weak cocoa powder selling prices and possible further inventories write-down.