MARC Ratings has revised the rating outlook on JB Cocoa Sdn Bhd’s RM500.0 million Islamic Medium-Term Notes (Sukuk Wakalah) Programme to positive from stable. The rating on the Sukuk Wakalah programme has been affirmed at A+_IS.

JB Cocoa is a key wholly-owned manufacturing subsidiary of Singapore-based JB Foods Limited. The parent company has provided a corporate guarantee on JB Cocoa’s Sukuk Wakalah programme. Accordingly, the rating assessment considers the consolidated credit profile of JB Foods in view of the operational and financial linkages between companies within the group.

The outlook revision reflects MARC Ratings’ expectation that JB Cocoa will sustain its earnings strength while continuing to manage the effects of cocoa price volatility on working capital and liquidity. The group has demonstrated resilience through the recent period of exceptionally high and volatile cocoa prices, maintaining disciplined risk management while delivering stronger profitability and materially improved earnings leverage. The rating affirmation reflects JB Foods’ established position as one of the larger cocoa processors by grinding capacity, underpinned by its long operating track record, experienced management team, and established relationships with major global confectionery and food manufacturers. Its production footprint in Malaysia and Indonesia provides access to diversified end-markets, while the upcoming Ivory Coast facility is expected to strengthen origin-country sourcing, improve geographic diversification and enhance the group’s ability to serve European and US customers more efficiently. The additional 60,000MT capacity will increase total grinding capacity to 270,000MT. The facility is also expected to reduce logistics lead times to key western markets and improve the marketability of West African cocoa products in Europe under favourable import tax arrangements.

Earnings strengthened materially in the financial year ended 31 March 2026 (FY2026) despite softer grinding volumes. Revenue continued to benefit from high cocoa prices, while the group’s cost-plus pricing arrangements, hedging practices, and disciplined risk management supported processing margins amid cocoa bean price volatility. Consequently, operating profit margin improved to 9.52% from 4.03% in 15MFY2025, while OPBITDA interest coverage strengthened significantly to 5.63x from 2.19x.

Leverage remained manageable notwithstanding higher borrowings to support cocoa bean inventory requirements. Nevertheless, the inventory funding margin declined to 44% in FY2026 from an average of about 80% in prior years, reflecting a lower reliance on debt funding relative to inventory levels. Stronger earnings supported the group’s leverage metrics. Debt-to-equity improved to 0.96x from 0.99x, while debt-to-OPBITDA declined to 1.93x from 2.56x. Cash flow from operations turned negative in FY2026 primarily due to working capital movements, including the settlement of cocoa bean payables, notwithstanding the group’s stronger underlying operating earnings. Liquidity remained adequate, supported by cash balances of RM195.7 million, access to substantial banking facilities and available limit under the rated sukuk programme.

Grinding volumes moderated to 154,090MT in FY2026 from 164,535MT in FY2025 and 166,494MT in 2023, broadly in line with the slowdown in global cocoa grinding activity as customers shifted towards smaller but more frequent orders amid high cocoa prices. Despite the moderation in volumes, the decline remained relatively modest, while the cash conversion cycle shortened significantly to 89 days from 167 days in 2023, reflecting shorter customer order patterns. The significantly shorter cycle demonstrates the group’s ability to adapt its working capital management to shorter customer order patterns amid the high cocoa price environment. Over the same period, grinding capacity increased to 210,000MT from 180,000MT, resulting in the utilisation rate declining to 73.4% from 92.5%. MARC Ratings does not view the lower utilisation rate as a significant concern at this juncture. The decline reflects a combination of a moderately lower grinding output amid the broader slowdown in global cocoa grinding activity, an enlarged capacity base, and the group’s product mix strategy, which includes increasing the production of higher-value and more specialised cocoa products. These products typically require longer processing times and may reduce throughput, while supporting stronger processing margins.