GCB: Earnings Dip Amid Utilisation Headwinds, Long-Term View Positive

Despite a significant surge in revenue, core earnings for the period ending September 2025 (9M25) fell short of market expectations, largely due to operational challenges and elevated costs. The company recorded MYR184m in core earnings, a 24.1% year-on-year decline.

Performance Review

Revenue for 9M25 reached a record MYR11.9bn, marking a robust 68.6% year-on-year increase and surpassing expectations. This growth was primarily driven by higher average selling prices (ASPs). EBITDA also saw a healthy 10.1% year-on-year rise, reaching MYR570.2m, indicating underlying operational efficiencies. However, these gains were insufficient to offset the impact of higher interest expenses, which climbed 34.2% year-on-year to MYR261.4m, a steeper effective tax rate of 23.9% (compared to 17.4% previously), and substantial realised hedging losses totalling MYR912m for 9M25, treated as operating costs.

Operational Headwinds

The 3Q25 period witnessed a notable downturn in production volume, which fell 22% year-on-year and 21.4% quarter-on-quarter. This was attributed to softer demand, leading to a significant drop in utilisation rate to 70% from 90% in 3Q24. Sales tonnage also contracted by 7.1% year-on-year. These factors, combined with elevated interest costs and derivative losses, contributed to a 50.5% year-on-year decline in 3Q25 core profit to MYR41.2m.

Despite these challenges, the company demonstrated resilience by generating positive operating cash flow of +MYR333m for 9M25, the first positive cash flow in 1.5 years. This, coupled with normalising bean prices and hedging costs, led to an improvement in net gearing to 1.71x from 1.86x. EBITDA yield remained robust at MYR2,303/tonne in 3Q25, supported by firm product ASPs.

Future Outlook

A stronger performance is anticipated in the fourth quarter, fueled by an expected recovery in sales volume and easing working capital drag as bean prices normalise. Near-term demand recovery is further supported by recently announced tariff exemptions and the normalisation of New York terminal prices. While grinding volumes are expected to remain somewhat pressured in the second half of 2025 due to delayed purchases from chocolate makers and high bean prices, the market situation is projected to improve entering 2026, with greater stability. Overall margins are expected to remain sturdy, bolstered by forward sales, discounted bean differentials, and easing interest costs.

However, analysts have adjusted their FY25-27F earnings forecasts downwards by 19-20% to account for anticipated lower utilisation rates, a weaker combined ratio, and higher finance and tax costs. The investment bank maintains a “BUY” recommendation, setting a target price of RM0.25, reflecting a potential 25.0% upside from the last traded price of RM0.20. Key downside risks include sharp raw material price fluctuations, weakening demand, and unfavourable FX rates.