MARC Ratings has affirmed its rating of AA-IS on Guan Chong Berhad’s (GCB) RM800.0 million Sukuk Wakalah Programme. The rating outlook remains negative.
The rating outlook reflects GCB’s continued high reliance on short-term borrowings to fund working capital requirements amid a high cocoa bean price that has led to an elevated leverage ratio. This notwithstanding, as trade-related borrowings fluctuate with cocoa bean price movements, short-term borrowings could recede accordingly, lowering the group’s leverage position. The rating agency will reassess GCB’s financial metrics within the next six months to consider the next rating action.
Cocoa bean price has remained significantly high, averaging USD8,216/MT between May 2024 and May 2025 (2023: average USD3,200/MT) largely on account of supply shortfalls. However, with improving weather conditions in key cocoa bean producing countries, namely Côte d’Ivoire and Ghana — together accounting for 60% of the world’s supply — cocoa bean production is projected to increase by 7.8% y-o-y to 4.84 million MT for the current 2024/2025 crop year (ending 30 September 2025). This would ease supply concerns; nonetheless, the current cocoa prices, which are higher than historical levels, are expected to form a new operating baseline over the medium term. Futures contracts continue to trade above USD7,000/MT for expiries through 2026.
The rating affirmation is underpinned by the group’s lengthy operating track record, and its strong market position in the global cocoa grinding industry. GCB has continued to perform strongly, recording a 94.6% utilisation rate of its grinding capacity of 335,000 MT p.a. as at end-2024. The group has also widened its bean procurement sources to other countries in West Africa, South America and Asia to mitigate supply risk. Overall, sales volume across all cocoa products increased to 338,277 MT in 2024 (2019-2023: 281,461 MT), indicating strong demand. Given the high selling prices and volumes, revenue and pre-tax profit were recorded at RM10.4 billion and RM513.8 million in 2024; for 1Q2025, these stood at RM4.3 billion and RM118.1 million (1Q2024: RM1.9 billion; RM110.3 million).
GCB’s borrowings stood at RM4.5 billion as at end-March 2025, of which 80% are short term and used to fund cocoa bean purchases at the prevailing bean prices. As a result, gross debt-to-equity ratio rose to 2.06x (end-2023: RM2.2 billion; 1.24x). Based on the current working capital margin, the rating agency estimates GCB’s leverage would retreat to about 1.5x if prices settle between USD6,000/MT and USD7,000/MT. In the meantime, strong operating income provides a healthy buffer to meet financial obligations.