GCB: The recovery may begin

Results Update

For QE30/9/2015, GCB reported a net profit of RM22 million as compared to a net loss of RM13 million in the same quarter last year. Revenue soared 72% y-o-y. When compared to the immediate preceding quarter, its net profit increased 10-fold while revenue increased by 23%.

GCB returned to profitability due to the increased sales volume and selling price of cocoa cake and powder. The higher net gain on commodity future contract and lower inventory write-down also contributed to the increase in profit before tax for current quarter.


Table: GCB's last 8 quarterly results

As pointed out in the last post, GCB's profit & profit margin seems to have bottomed and are poised for recovery. This expectation panned out nicely and it could herald many quarters of better results ahead.


Chart 1: GCB's last 44 quarterly results

Financial Position

As at 30/9/2015, GCB's financial position is fairly tight with current ratio at 1.03 time and gearing ratio at 3.4 times. The high gearing is the result of high borrowings to finance its inventory & trade receivable. Inventory holding period had improved from 160 days in 31/3/2015 to 104 days while debtors' turnover period had deteriorated from 43 to 73 days over the same period. 

Valuation

GCB (closed at RM0.85 yesterday) is now trading at a trailing PER of 31 times (based on last 4 qaurters' EPS of 2.75 sen). If GCB can continue to chalk up results similar to QE30/9/2015, its PER would reduce to less than 5 times. This plus its PBR of 1.1 times its NTA (of 80 sen @30/9/2015) means that GCB is probably fairly valued today. 

Technical Outlook

GCB has finanlly broken above its downtrend in early September. However, the stock failed to rally given the uncertainty in the commodity sector in general.


Chart 2: GCB's weekly chart as at Nov 24, 2015 (Source: ShareInvestor)

From the next chart, we can see how far this stock has declined. Any recovery - however gradual - would be very rewarding.


Chart 3: GCB's monthly chart as at Nov 25, 2015 (Source: ShareInvestor)

Conclusion

Based on recovery in its financial performance and mildly positive technical outlook, GCB is now rated a BUY. However, it must noted that the commodity sector in general is still weak and the company's financial position is fairly tight. Thus, any exposure to the stock should be carried out cautiously.

Note:
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.