MARC Ratings has revised its outlook on cocoa grinder Guan Chong Berhad’s (GCB) sukuk programme rating to stable from negative. The rating remains at AA-_IS.

The outlook revision is premised on the prospect of a more accommodative cocoa bean price environment that would ease GCB’s working capital requirements, hence, leverage over the near-to-medium term. Cocoa bean prices, which peaked at US$11,675/MT in December 2024, have since moderated significantly, averaging at US$6,326/MT in October 2025. The decline in prices has been driven by the expectation of better cocoa production in key cocoa bean producing countries. The moderation in bean prices is expected to ease GCB’s financing needs for bean purchases, which historically accounted for over 70.0% of its working capital requirements.

For the 2024/2025 season, the International Cocoa Organization (ICCO) forecasts a 7.8% y-o-y increase in production to 4.8 million MT, driven by better weather in key producing countries, namely Côte d’Ivoire and Ghana, and the high farm-gate price that incentivises farmers to boost production. Coupled with a lower grinding forecast, the 2024/2025 season could record a cocoa surplus of around 142,000 MT, with end-season stocks rising to 1.5 million MT.

GCB’s borrowings surged to RM4.2 billion in 2024 from RM2.2 billion in 2023, primarily to fund the purchase of higher-priced beans, resulting in an elevated debt-to-equity (DE) ratio of 1.99x as at end-2024. While remaining high at RM4.3 billion as at end-1H2025, the expected lower bean procurement costs should accordingly reduce GCB’s reliance on borrowings as it procures beans at lower prices going forward. With stable supply conditions and prices projected to remain in the low-US$6,000s per MT through 2026, borrowings could decline to between RM2.6 billion and RM3.0 billion, translating into a DE ratio of about 1.17x–1.34x over the next 12–18 months.

The group’s bonus issue in June 2025 and a subsequent warrant issuance that could raise up to RM470.0 million in equity funding over the next three years would enhance capital structure and long-term financial flexibility.

Notwithstanding these positive developments, a continued heavy reliance on borrowings to fund bean purchases, despite the lower bean price environment, could result in leverage remaining elevated, putting pressure on the rating and/or outlook.