Tuesday, November 26, 2013

GCB- reported its maiden loss?!

Results Update

For QE30/9/2013, GCB -formerly, Guanchg- reported a net loss of RM11.8 million on a revenue of RM328 million. This is mainly due to "higher net loss on foreign exchange and higher net fair value loss on commodity future contracts for current quarter ended 30 September 2013". In additions, "inventories write down, attributable largely to lower in net realization value of cocoa powder and cocoa cake also contributed to loss before tax for the current quarter". My take on the loss incurred:

1) "higher net loss on foreign exchange"- This probably came about because GCB sold their USD sale proceed forward and lost out due to a strengthening USD
2) "higher net fair value loss on commodity future contracts"- This probably due to GCB had long-term contracts to purchase cocoa beans at higher price than the prevailing price. If you look at Chart 2, you will see that cocoa futures have been rising since March this year and GCB should be benefiting from this rise if they had locked the price in early 2013.
3) "inventories write down, attributable largely to lower in net realization value of cocoa powder and cocoa cake"- This is probably due to GCB producing more cocoa butter (to meet demand by chocolate makers heading into the year end) but the other products- cocoa powder and cocoa cake- were getting lower prices due to excess supply. In addition, GCB's existing inventory of cocoa powder and cocoa cake that was produced at higher cost earlier were marked down to reflect the prevailing lower net realization value.

This quarterly loss confirmed my earlier thought that GCB's past out-performance was due to fortuitous timing in the forex market and buying of cocoa beans (here). That's not to take away the great job done by GCB's management in the past few years which saw the company enjoying a period of rapid growth. We can only hope that GCB will bound back from this setback and enter another period of exciting growth accompanied by gang-busting results. 

Table: GCB's last 8 quarterly results

Chart 1: GCB's last 36 quarterly results

Chart 2: Cocoa futures as at Nov 25, 2013 (Source: futures.tradingcharts.com)

GCB (closed at RM1.51 yesterday) is now trading at a PE of 19.4 times (based on last 4 quarters' EPS of 7.75 sen). At this PE, GCB is overvalued.

Technical Outlook

GCB is now in a sideways move with support at the horizontal line RM1.50. Its next support is at the horizontal line RM1.20.

Chart 3: GCB's weekly chart as at Nov 25, 2013 (Source: quickcharts)


Based on poor financial performance & high valuation, GCB is rated a SELL.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, GCB.


newbie said...

Dear Alex,
You wrote about KESM a few months back.What's your take on the company now that it has reported it's quarterly results?Seems the cash in hand has grown even more to 83million,which is around RM1.93per share!Thank you in advance.

Alex Lu said...

Hi newbie

It is a good set of result. Its pretax profit rose 5% q-o-q or 34% y-o-y to RM5.2 mil while revenue was relatively unchanged.

Chartwise, it could have achieved a breakout of its long-term downtrend line at RM2.00.

I rate it a HOLD.

newbie said...

Thanks Alex for your prompt reply.