GCB: Cocoa Processor Navigates Volatility, Poised for Sturdier Outlook

FY25 Performance Review

Despite achieving a record-high revenue of MYR14.9 billion for the financial year 2025, marking a 42.9% increase year-on-year, core earnings reached MYR227 million, representing a 50% year-on-year contraction. This performance significantly missed analyst estimates, falling short of both RHB Investment Bank’s and the Street’s consensus forecasts. EBITDA also experienced an 18% year-on-year decline, settling at MYR721 million.

The underperformance in FY25 was primarily driven by several challenging factors. These included lower EBITDA margins, exacerbated by volatile cocoa bean and foreign exchange markets, and substantial hedging losses. Total hedging losses amounted to MYR738 million for the full year, with MYR63.9 million recorded in the fourth quarter of 2025, partly due to marked-to-market adjustments and timing mismatches. Elevated interest expenses, which surged 19.1% year-on-year to MYR336.5 million, coupled with a steeper effective tax rate of 22.6% (up from 16.3%), further impacted profitability. In 4Q25, softer global demand contributed to reduced production volumes and sales tonnage.

Positive Cash Flow and Improved Gearing

Amidst these operational headwinds, the company demonstrated robust financial health through strong cash flow generation. It reported a healthy MYR1.17 billion in cash flow from operations. Net gearing also saw a notable improvement, reducing to 1.35 times from 1.71 times previously, primarily as working capital needs eased with the normalisation of cocoa bean prices. The impact of foreign exchange fluctuations was largely mitigated by effective natural hedging strategies across purchases and foreign-currency borrowings. Shareholders were proposed a final interim dividend of 1.5 sen per share, translating to a 2.1% yield.

FY26 Future Outlook and Strategic Focus

Looking ahead to financial year 2026, the operating environment is anticipated to become significantly more stable, providing a stronger earnings foundation after 2.5 years of market turbulence. This optimistic outlook is bolstered by expectations of a higher powder ratio, healthy combined ratio from forward sales, a contango bean market structure (which helps reduce hedging volatility), and easing interest expenses.

While grinding volumes may remain soft in the first half of 2026 due to persistent demand weakness, a recovery is expected in the mid-to-second half, incentivised by multi-year-low butter prices and anticipated restocking activities. The company projects a FY26 cover ratio of approximately 50-60%. Management remains committed to scaling its core cocoa processing operations while strategically expanding into the higher-margin industrial chocolate segment.

Analyst Rating and Target Price Adjustment

RHB Investment Bank, in light of the normalised operating backdrop, has adjusted its FY26F-27F earnings estimates downwards by 6% and 8% respectively. Consequently, the target price has been trimmed to MYR1.30 from the previous MYR1.50, based on a lower 12x FY26F P/E (reflecting a 5-year average). Despite this adjustment, the firm maintains its BUY recommendation. Key risks highlighted by the analyst include sharp fluctuations in raw material prices, weakening demand, and execution and country-specific risks.